THE BLOG
Real Estate's Four Great Challenges - Part 2
The Harvesters by Pieter Bruegel the Elder - 1565 - Metropolitan Museum of Art, New York
This is part 2 in a series of 5 posts looking at the four great challenges facing the real estate industry on the road to 2030.
I am available to present the entire series in person: So far I'll be doing so in London, Copenhagen, New York, Washington DC, Miami and Vienna. Contact me if you'd like to book an event.
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Challenge No 2 is:
The rise of hybrid, remote and distributed working.
In order to understand where we are today we need to remind ourselves of the actualité of where we were pre pandemic.
In 2019 it was easy to say what an office was, and what it was for.
The general consensus about 'the office' was that it was a physical space where employees would go to work during set hours.
It was seen as the primary location for work and the place where employees would interact and collaborate with colleagues.
The office was a critical component of the corporate culture.
From the perspective of investors and landlords the office was a valuable asset that could generate stable rental income and potentially appreciate in value over time.
And for most corporate occupiers the office was the central hub of their business operations.
In short ‘Work’ revolved around the office.
And for many people the office had real benefits:
Such as:
Face-to-face interactions with colleagues and the ability to collaborate in person.
Opportunities for networking and building relationships with colleagues.
Access to office resources and amenities, such as equipment and specialised spaces.
A sense of structure and routine in their workday, and the ability to separate work and home life.
And opportunities for socialising and team-building with colleagues.
Though the downsides were pretty much as you would expect.
Commuting to and from the office, which could be time-consuming and stressful. And expensive.
Distractions and interruptions from colleagues or noise in open-plan office environments.
Lack of privacy and personal space in open-plan office environments.
Feeling constrained or limited in their work environment, particularly in smaller offices.
And the difficulty balancing work and personal life, and feeling like work was taking over their personal time.
Nevertheless, despite the downsides, going to the office was seen as the default or standard mode of work, and many companies had policies in place that required employees to be physically present in the office during set hours.
Co-working and other flexible office options were available in 2019, but they were not yet as widespread or popular as they are today.
Co-working spaces, in particular, were still a relatively new concept, and were primarily used by freelancers, entrepreneurs, and startups.
These options began to gain popularity amongst larger companies and corporate occupiers, but across major cities we were only ever looking at low single digits percentages of workspace being ‘flex’.
And then, in early 2020 Covid struck, which forced office based companies to move to remote work in a matter of weeks.
This raised many concerns at the time. Employers were worried about:
Decreased productivity and effectiveness in a remote work environment, due to distractions and interruptions, difficulty maintaining focus, and other factors.
Challenges with managing and monitoring employee performance and engagement, due to the lack of face-to-face interactions and the potential for decreased communication and collaboration.
The potential for decreased collaboration and communication between team members, which could impact the quality of work and the ability to achieve goals.
Technical issues related to remote access to company resources, such as limited or unreliable access to high-speed internet and VPNs, and a shortage of necessary hardware and software.
The impact of remote work on employee well-being, particularly as many employees were suddenly facing new challenges related to work-life balance, isolation, and mental health.
All these concerns were what put a break on working away from the office pre pandemic as well. Simply put it all looked a bit too difficult. A day at home here and there was fine but essentially most companies were very much designed around the office.
And to a large extent employees tended to be concerned about the same things.
So, after we all had no choice but to relocate to our homes and away from our offices - how did this all pan out?
Were these early fears validated?
How did companies deal with those five key areas of concern?
Well, as it turned out, at least for the better managed companies, there were and are ways to redesign how we work:
To counter the potential for decreased productivity and effectiveness, employers utilised new tools and technologies for communication and collaboration, such as video conferencing software and project management tools. You no doubt remember the mass rapid adoption of Zoom. They also established clear expectations and goals for employees, and provided additional support and resources to help employees adapt to the new work environment.
Challenges with managing and monitoring employee performance and engagement were dealt with by adopting new performance management strategies and tools to help managers monitor employee performance and engagement in a remote or hybrid work environment. They also provided additional training and resources to help managers effectively manage remote teams.
To keep teams working well together good employers encouraged ongoing communication and collaboration, gave people the tools necessary and developed new processes and workflows. They also offered more flexibility in terms of work schedules and locations, allowing employees to work from home or other remote locations as needed.
Technical issues related to remote access to company resources were solved by investing in new IT infrastructure and security protocols, and providing additional support and resources to help employees access company resources from home.
Good employers prioritised employee well-being, mental health, and work-life balance through empathetic management. They worked hard at understanding who might be affected in what ways and then offered the support and resources necessary to deal with situations as they arose.
In a nutshell companies that were successful in making remote work effective invested in new tools and technologies, established clear communication and collaboration processes, and provided additional training and resources to help employees and managers adapt to the new work environment.
Some companies of course did not fare so well. And this was primarily because they did not do what well managed companies did.
Inadequate management practices and lack of proper support and resources are at the root of almost all failures to make working away from the office work.
But the overall reality is that the fears employers, and to an extent employees had about not working together in an office largely turned out to be imaginary. For most people, and for most tasks, remote working….. worked.
The cold turkey necessity brought on by Covid taught the world that companies did not NEED an office to get work done.
Those things most of us disliked about being in an office: commuting, distractions and interruptions, the lack of privacy and personal space, the constraints of a work environment and the difficulty juggling work and personal life did not HAVE to be endured. Work could get done, without these downsides.
The two things employees learnt, and cannot unlearn, is that commuting does not need to be a daily fixture throughout their entire working life, and that choice and flexibility is life altering.
Commuting, flexibility and choice: Less of the former and more of the latter. Please.
This is Challenge Number 2 because this is what everyone wants.
And they know it is possible and they are not going to give it up.
Now of course just working from home is, for the large majority of people, not enough. There are things people enjoyed about offices and there are things they want to do in them.
Most of us like face to face time with our colleagues, we want to build networks and relationships, we want to learn, we want to feel connected to others, and we want to socialise with them.
What we’ve really done is found out what we would like to do where. What tasks we can best do here, and what tasks we can best do there.
Now we are in the post Covid era and not restricted to only working from home, just about everyone is moving to a hybrid way of working. With X days in the office, and Y days ‘somewhere else’.
This is clearly harder to manage than either when we were all in the office, or all at home, but like adapting to working from home, all the issues are ‘known knowns’ and educated, well resourced and trained managers should have no trouble dealing with them.
In 2019 everyone new what the office was for. In 2023 that purpose is very different. We’ve learnt a lot. We can take all the upsides from pre covid, and manage away all the downsides. That’ll leave us with a very different marketplace, and a very different way of working.
The challenge is in managing it all. Optimising our companies, enabling our employees to be happy, healthy and productive, and restructuring our real estate to act as a catalyst for great work. Not just as somewhere to go.
The essential point is that you cannot successfully run a hybrid company if your operating model is based on being office centric.
The post Covid world necessitates not just re-imagined offices but re-imagined companies. The good and best companies know this and are reaping the benefits. The badly managed companies are mostly reaching for office mandates based on zero interaction with employee needs.
There is only one place this will lead to. We are going to see the split between well and badly managed companies getting wider and wider.
This is data from research by ‘The Future Forum’, which is well respected, organised by Slack, and in this case draws from a survey of 10,243 workers across the U.S., Australia, France, Germany, Japan, and the U.K., conducted from November 16 to December 22, 2022.
Using the UK as an example you can see that we are very much in a hybrid world, and the desire for location and schedule flexibility is very high.
What is also worryingly high though is the percentage of people likely or very likely to be looking for a new job. 27%. Against a global average of 24%. That’s a lot of churn.
Which may partly be a function of burnout.
Which appears to be on the rise. Across the world, burnout is increasing - 42% of the workforce is reporting burnout.
So something is clearly amiss. Not all of which of course will be workplace related but the important statistic to end with is this one:
’53% of those who are dissatisfied with their level of flexibility say they are burnt out compared to 37% of employees who are satisfied with their level of flexibility.’
That is enough of a gap to just reiterate the point that choice and flexibility, along with the desire for less commuting, really is at the heart of how we should be thinking about workplaces.
And why challenge number 2 is not going away anytime soon.
I’d like to leave you with this chart from Gallup looking at engagement at work within the US. Only some 32% of people are fully engaged at work, whilst 18% are actively disengaged.
The role of real estate in engagement is a developing area I think. As we move to being a service rather than a product industry we will inevitably see ‘operators’ adding layers of additional services that aren’t specifically real estate related but that enhance the experience of specific real estate.
We shape our buildings, and then they shape us.
As someone once wisely said:)
Real Estate's Four Great Challenges - Part 1
John Martin The Great Day of His Wrath 1851–3 - Tate Britain, London
This is part 1 in a series of 5 posts looking at the four great challenges facing the real estate industry on the road to 2030.
I am available to present the entire series in person: So far I'll be doing so in London, Copenhagen, New York, Washington DC, Miami and Vienna. Contact me if you'd like to book an event.
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Many people talk about challenging times, speed of change, and ‘how not to get left behind’.
Mostly though the substance of their arguments are relatively trivial and could have been written at any time over the last 40 years. Much change is actually rather slow, disruption is limited and the same old same old companies carry on as they always have.
But occasionally certain industries are hit with tumultuous change. Tech being the obvious example. In a few generations we’ve gone from mainframes, to PCs, to smartphones. And from client-server, to local networked applications to everything being in the Cloud.
And the undisputed, impregnable industry leaders, those whose power was ‘too great’, suddenly found themselves as also rans. IBM got trashed by Microsoft, who got trashed by Apple. And everyone perhaps is now going to get trashed by Generative AI, and new superstar companies like OpenAI.
When platforms change, leaders change. Every dog has its day.
But ….. it takes something big, really big, to fundamentally redesign winners and losers in an industry. Incumbents can handle most threats, but tsunamis are tsunamis. Sometimes resistance is futile. You can’t buck the market.
In evolutionary biology they call these moments punctuated equilibriums, where a species splits into two distinct species, rather than one species gradually transforming into another.
I’m wondering if the real estate industry is at just such a moment, especially the commercial sector.
Four massive challenges need to be faced, between now and 2030, now less than seven years away.
Do you remember 2016?
North Korea was conducting ballistic missile tests, Donald Trump was elected US President, David Bowie, Prince, and George Michael died, the Olympics took place in Rio, Game of Thrones was released, …… and of course a quite mad Britain voted for Brexit.
And none of this feels very long ago does it?
But this is just the time we have left before 2030.
There are projects being discussed today that might not open until 2030.
It’s not even the average duration of the UK peak-to-peak and trough-to-trough real estate cycle, which is around eight years.
So, 2030 looms large.
And so it should.
Because you need to think of it not so much as just another year but as a brick wall, an immovable object, that you are hurtling towards. If you hit it, you are in big trouble.
You really mustn’t hit it.
To avoid the carnage you need to address the four challenges.
Which are:
Decarbonising the built environment
Adapting to the impact of the move to hybrid, distributed and remote working
Repositioning and repurposing a flood of obsolete buildings
Saving our cities from the revenue crash and other consequences of the above.
2030 is the deadline because legislators have already decreed it is, and because it’s a pivotal point on the journey to a carbon neutral planet by 2050. We have to get to point X to get to point Y. And 2030 is point X.
Challenge Number 1
So let’s look at decarbonising the built environment. Or to put it more personally 'our assets'!
First off, what’s the urgency?
In March 2023, the IPCC published the ‘AR6 Synthesis Report: Climate Change 2023’ and it can be summed up as follows:
‘The viability of humanity living within planetary boundaries rests on the actions we take in the next seven years. There’s no time to lose to keep to the target of limiting the global average temperature to below 1.5°C.’
They state “There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all.”
And here are some of the main findings:
Human-caused climate change is already affecting many weather and climate extremes in every region across the globe – with widespread loss and damage to both nature and people.
GHG emissions will lead to increasing global warming in the near term, and it’s likely this will reach 1.5°C between 2030 and 2035.
We are currently at around 1.1°C of warming and current climate policies are projected to increase global warming by 3.2°C by 2100.
To keep within the 1.5°C limit, emissions need to be reduced by at least 43% by 2030 compared to 2019 levels, and at least 60% by 2035. This is the decisive decade to make that happen.
The IPCC has “very high confidence” that the risks and adverse impacts from climate change will escalate with increasing global warming.
Implications of global warming:
There are many well known implications of this:
Extreme weather events such as Hurricane Harvey in the US in 2017. This Category 4 hurricane made landfall in Texas and caused unprecedented flooding in the Houston metropolitan area. 50 inches of rain in some areas led to widespread flooding that affected millions of people.
68 direct deaths resulted, and between $85 billion and $125 billion in economic damage. There were also numerous oil spills, chemical plant explosions, and the release of toxic pollutants into the air and water.
Climate scientists believe climate change made floods from Hurricane Harvey up to 50 per cent worse.
Rising sea levels would seem to be an inevitability and many cities are particularly vulnerable, such as Venice, Rotterdam, Copenhagen, London, Hamburg, Miami, New Orleans, New York.
We’ll see a loss of bio diversity and ecosystems, and already are. The dramatic decline in bee populations is an example of the impact of biodiversity loss on human life. The loss of these essential pollinators could lead to reduced crop yields and higher food prices, affecting global food security.
Climate change reduces food and water security. The ongoing Syrian civil war, which began in 2011, has been partially attributed to food and water insecurity caused by a severe drought between 2006 and 2011. The drought led to crop failures and the death of livestock, forcing many rural families to migrate to urban areas in search of work and resources. This influx of people, combined with existing social and political tensions, contributed to the outbreak of civil unrest that ultimately escalated into a full-scale conflict.
These consequences are well now and much discussed, but there are second and third order consequences that we tend to miss, or don’t consider.
For example, climate change impacts can lead to disruptions in global supply chains, reduced agricultural productivity, and increased costs associated with natural disasters. These disruptions can exacerbate existing economic inequalities and have significant implications for global trade, investment, and economic growth.
Resource scarcity and the impacts of climate change on food, water, and energy security can lead to increased competition for resources and potential conflicts between nations.
The psychological toll of climate change can lead to increased rates of anxiety, depression, and post-traumatic stress disorder, particularly amongst those most affected by climate change.
Cultural and historical sites can be lost due to sea-level rise, extreme weather events, and other environmental changes. These impact on peoples cultural identity and communal heritage.
We could reach a time of feedback loops and tipping points that amplify warming and cause potentially irreversible damage. For example, melting permafrost can release large amounts of methane, which is a potent greenhouse gas. One action acts as a flywheel for the other.
And then there is societal unrest and inequality: The uneven distribution of climate change impacts can exacerbate existing social inequalities, leading to increased poverty, social unrest, and political instability. Disadvantaged communities and countries are often more vulnerable to climate change and have fewer resources to adapt, deepening the divide between the "haves" and “have-nots”.
All of this can come back to bite us.
But there is more. At the City level the real estate industry itself could be impacted by another set of potential consequences. Such as an increase in flooding and storm surges causing significant property damage, increased insurance premiums, and decreased property values in flood-prone areas.
Urban heat islands can develop that tend to have higher temperatures than surrounding rural areas due to the concentration of built surfaces and human activity. These can lead to higher energy demand for cooling, increased air pollution, and potential health risks for residents.
Recent examples include the Western North America heat dome of 2021, Tokyo in 2020, Melbourne in 2019, and Karachi in 2018. All experienced extreme and persistent temperatures and hundreds of fatalities.
We’ve already mentioned water scarcity but droughts and reduced freshwater availability due to climate change can strain water resources in cities, leading to increased water costs and potential restrictions on usage.
This can impact the development and management of real estate properties, particularly in water-intensive sectors like landscaping, agriculture, and industry.
Intense heat can also highlight infrastructure vulnerabilities such as ageing transportation networks, water and sewage systems, and energy grids.
That simply cannot cope.
Increasingly real estate developers and investors may need to factor in the costs of upgrading or adapting infrastructure to cope with this.
Another second order impact can be changing demographics as people migrate to less vulnerable areas or seek to escape the negative effects of climate change.
Think about at risk coastal areas, or agricultural land in ‘overheating’ regions.
Or areas lacking in resilient and adaptive infrastructure.
Over time, people, in potentially huge numbers, could be on the move from all such places.
Anyone with long time horizons needs to think hard about what real estate you buy or sell. There’s very much winners and losers here. There are areas that’ll benefit greatly from climate change. Or at least relatively so.
Cities are bound to react with regulatory changes and incentives. They may implement more stringent building codes, zoning regulations, and incentive programs to encourage energy efficiency, resilience, and sustainability in the built environment.
Real estate developers and property owners will have to adapt accordingly, but there are certainly going to be many opportunities for sustainable development and retrofitting.
Maybe harder to deal with will be issues around reputation and social responsibility: As public awareness of climate change and its impacts grows, companies and investors may face increasing pressure to demonstrate their commitment to sustainability and climate resilience. This of course can be a bug or a feature - all depends on your assets doesn’t it?
Which segways neatly on to the role of the built environment in global greenhouse gas emissions.
And here is where our problems start:
According to the United Nations Environment Programme (UNEP), the built environment, including building construction and operations, accounts for approximately 38% of total global energy-related CO2 emissions.
Buildings consume around 36% of global energy, primarily for heating, cooling, lighting, and powering appliances and equipment.
According to the IEA (the International Energy Agency):
‘To align with the Net Zero Scenario, carbon emissions from buildings operations need to more than halve by 2030’.
It’s that year again. 2030.
And so far we are doing really badly:
‘Following the easing of Covid-19 restrictions, in 2021 energy demand in buildings increased by nearly 4% compared with 2020 (or 3% compared with 2019), the largest annual increase in the last decade.’
But the sticks have been primed. If we don’t do it naturally then we’ll need to be forced to.
And all across the world there are increasingly big sticks being designed to force significant change.
For example, in New York City there is Local Law 97 which requires large buildings (over 25,000 square feet) to meet certain carbon emissions limits starting from 2024. Buildings that fail to comply will face financial penalties. The law aims to reduce the city's building-related emissions by 40% by 2030 and 80% by 2050.
In the EU, amongst other regulations there are those encompassed in the ‘European Green Deal’ such as increasing the greenhouse gas emissions reduction target to at least 55% by 2030, compared to 1990 levels, and the "Renovation Wave" strategy, which aims to at least double the annual energy renovation rate of residential and non-residential buildings by 2030.
In the UK there is the Climate Change Act 2008 which sets a legally binding target to achieve net-zero greenhouse gas emissions by 2050, with an interim target of reducing emissions by 68% by 2030 compared to 1990 levels.
Also, there is the Minimum Energy Efficiency Standard (or MEES) which sets a certain energy performance standard that increases over time. In April 2023 one level was introduced but this will increase in 2027, and then again in 2030.
Currently around 85% of buildings do not meet the 2030 standard.
Getting there will necessitate upgrading 15 million square feet (1.4 million square metres) of space per annum. Yes per annum. Every single year. And that’s just London offices.
And penalties for failure are going to be high. In the EU they are set by each member country, but in New York they involve meaningful financial penalties, and in the UK you’ll simply not be able to legally rent out your property.
So 2030 really is looking like a brick wall that will be very painful to hit.
If we hit it it’ll bad for the planet, for our society, for our cities, for our businesses, and for our finances.
However, even if these arguments aren’t a good enough reason, there are others, because there is an increasingly powerful causal relationship between building energy efficiency, operating costs, and asset value.
Energy-efficient buildings obviously use less energy which equates to reduced operating costs for heating, cooling, lighting, and other building systems. Which equates to higher net operating income, which equates to higher value.
Avoiding regulatory penalties and obsolescence isn’t a bad move.
Being more in demand likewise. The market already wants, and will pay for, buildings that meet the highest sustainability standards. Aligning with their environmental values and goals is already a priority for the best companies. By 2030 not doing so will make you a pariah.
And of course financing is the strongest argument of all. Investors will not fund, and will not buy, unsustainable buildings. Public institutions are already pretty much unable to do so, but by 2030 will there be any financing available for unsustainable assets, that is not accompanied by massive write downs in value?
Today there are clear green premiums for the most sustainable buildings, but by 2030 these may ease. To be replaced by ever growing brown discounts.
All of which is a massive boon for the PropTech industry. A massive market, a huge problem, and a brick wall of a deadline.
Which goes to explain why, in the US, there will be 20 X the public investment in the green economy this decade than there was in 1990-1999.
Yes, 20X!
And investment across Europe, and the rest of the world is, or will be, growing equally dramatically.
For the simple reason that we cannot fix this problem without technology. Yes we probably need to change our behaviours somewhat but frankly that is unlikely to happen at a really fundamental level. Human nature would get in the way. But we most certainly will adopt new technologies in place of old ones.
Carrots and sticks, and new technology, will save us. Or nothing will.
So we will be seeing huge potential for a wide range of new technologies. Such as:
Passive design strategies. So building orientation, shading devices, natural ventilation, and natural lighting.
Building envelopes: high-performance insulation, windows, and air sealing can minimise heat loss and gain, reducing the need for mechanical heating and cooling.
Adaptive reuse and retrofitting: ‘the most sustainable building is the one already built’. 80% of 2050’s building stock already exists. And it all need decarbonising.
Sustainable materials: timber, recycled steel, and low-carbon concrete
High thermal mass materials: Such as stone or concrete, can help store and release heat, stabilising indoor temperatures and reducing energy consumption
Advanced insulation materials, such as aerogel, vacuum insulated panels, and phase change materials, can provide better thermal performance and reduce heat loss or gain.
Energy-efficient HVAC, lighting, and appliances
Building automation and controls: energy management systems, and smart controls can optimise building performance, monitor energy consumption, and identify opportunities for further efficiencies.
On-site renewable energy generation: Integrating renewable energy sources, such as solar photovoltaics, wind turbines, or geothermal systems, can help reduce a building's reliance on grid electricity and lower its carbon footprint.
Energy storage: Incorporating energy storage solutions, such as batteries or thermal storage, can help manage energy demand, store excess renewable energy generation, and provide backup power during grid outages.
Electrification: Fully electrified buildings lead to reduced GHG emissions, energy efficiency and improved air quality.
The year 2030 is a real crunch point regarding sustainability and real estate. It is, in reality, a wicked problem. It is also probably the single largest opportunity space in technology. Decarbonising the largest asset class in the world, against a timetable that will bite us back hard unless we meet it, is our challenge number 1.
Future-Proofing: 5 Questions to Ask in Times of Uncertainty
Joseph Wright of Derby, A Philosopher Giving A Lecture at the Orrery, c. 1765
As the old saying goes, change is the only constant in life. And even in the sometimes rather slow moving real estate industry this is still true.
Even if not that much changes day to day most real estate projects take many years from start to finish, even a decade or more. And over a long timescale small changes compound.
Today though we are in an odd space. Change IS happening fast. The way we’re all thinking about work, life and what matters has fundamentally changed from pre-Covid days. Just by looking at the discombobulation ‘hybrid’ working is causing tells us that everything is still up in the air and no-one is quite sure how things will pan out.
So, unlike normal times in real estate, we need to be constantly looking out for signals about where things are heading, and be on high alert for red flags that tell us that what once was certain, is suddenly, not.
It is a truism that change represents opportunity, but it can also kill you.
We are deep in a “Gradually, then suddenly” world.
Instinctively it’s hard to see our industry being the same in 2 or 5 years, let alone 10. The nature of demand is changing too fast for that.
How does one plan for such uncertainty and how should a forward-thinking, innovative real estate developer or operator feel their way to understand what to supply in X years time that customers will love?
I think, on a quarterly cadence, you need to answer, with your teams, the following five questions, and in each case record ‘Key Metrics or Factors to Track’, and ‘Action Items or Strategies to follow':
What emerging trends and technologies could impact our business in the next 12-18 months? Because staying informed about the latest advancements and disruptions in your (and other) industries can help you anticipate changes and seize opportunities before your competitors.
How are our customers' needs and preferences evolving, and how can we adapt to meet those changing needs? Because understanding your customers' expectations and anticipating their future demands is key to providing exceptional service and maintaining their loyalty. What ‘signals’ are out there?
What new competitors are entering the market, and how can we differentiate ourselves from them? Because keeping a close eye on new players and analysing their strengths and weaknesses can help you position your business in a unique and compelling way. And new players WILL emerge within real estate, most likely from outside the industry.
How are regulations and policies evolving, and what impact could they have on our business? Because staying compliant with changing laws and regulations is essential, but it's also important to anticipate potential regulatory changes that could impact your business operations. Look out for 2nd order impacts.
What are the potential risks and challenges we may face in the next 6-12 months, and how can we mitigate those risks? Because, from economic downturns to natural disasters, there are many external factors that could disrupt your business. Being prepared and having contingency plans in place can help you weather the storm and emerge stronger. Look out for outliers, like pandemics, or new technologies like Generative AI.
By consistently asking these questions and proactively seeking out new information and insights, you HAVE A CHANCE TO stay one step ahead of the game and ensure your business thrives in an ever-evolving market. No promises but your odds will be better than your peers who don't ....
.... Stay curious and keep pushing the boundaries of what's possible!
AI in the Office - How ChatGPT is Reshaping the Work We Do
The Houses of Parliament. London - in the style of Gustav Klimt. Antony Slumbers & Midjourney
AI in the Office - How ChatGPT is Reshaping the Work We Do
A revolution was already underway but now the turbo chargers have kicked in. We need the right real estate for this 'new work'.
For at least five years I’ve been writing that we are asking the wrong fundamental question about the future of work. Mostly the focus has been on where we work, and how we work, whereas what is most important is the work we do.
It is the changing nature of the tasks involved in our jobs that will be the causal factor in how the office, or workplace, of the future is designed, equipped and operated. Where we work, and how we work, will change because the work we’ll be doing is changing.
And the flywheel behind that change has just been hyper scaled. The arrival of ChatGPT, and other derivatives and flavours of GPTs (Generative Pre-trained Transformers) is an extraordinary technological leap. Bill Gates, on the 21st March, wrote that he believed it was the one of only ‘two demonstrations of technology that struck me as revolutionary’, the first being the graphical user interface, ‘the forerunner of every modern operating system, including Windows’.
So this is a moment in time to note. A pivotal moment.
Why? Because GPTs enable advanced AI-driven natural language understanding and generation, which significantly enhances human-computer interactions. This innovation empowers businesses to automate tasks, optimise decision-making, and streamline customer experiences in ways that were previously impossible. This will drive efficiency and innovation across most if not all industries. At great scale and with great speed.
I used to talk about how any task that was ‘structured, repeatable, predictable’ would be taken over by ‘machines’. And this has increasingly been the case. Just look at the rise of ‘Robotic Process Automation’ over the last few years. Anything entered into a computer via a set order of keystrokes can easily be automated. And much has been.
But what GPTs are set to enable is many orders of magnitude greater than any RPO software can achieve. This technology can easily handle whatever is ‘structured, repeatable, predictable’ but can go way beyond this.
For example, in customer service it can automate responses to routine inquiries, enhance the efficiency of helpdesks, and reduce resolution times. It can assist marketers in content generation, social media management, and targeted messaging. Within human resources it can aid with streamlining recruitment processes, employee onboarding and training, by automating repetitive tasks and providing personalised learning materials. R&D can be accelerated by improved ideation, trend analysis and knowledge synthesis. Sales in turn can be supported by automating lead generation, nurturing, and follow-ups.
Frankly this is the tip of the iceberg. GPT researchers are finding that this technology has capabilities beyond what they imagined, or envisaged. There seems to be something about the processing of language at massive scale, alongside vast quantities of training data, that is pushing the boundaries of what was thought possible in computing. A report from Microsoft Research says this in its abstract: ‘We demonstrate that, beyond its mastery of language, GPT-4 can solve novel and difficult tasks that span mathematics, coding, vision, medicine, law, psychology and more, without needing any special prompting. Moreover, in all of these tasks, GPT-4’s performance is strikingly close to human-level performance’.
So, a lot of what we did at work we’ll not be doing in the future. We must reclassify many tasks as ‘Old Work’. Work that we will off-load to machines.
Way back in 2017 McKinsey wrote that they believed 49% of the work people were paid to do in the global economy could be automated by adopting currently demonstrated technology. That was then, this is now. With technology far superior to what we had available in 2017.
Which leaves us humans with our own major pivot to make. We urgently need to concentrate far more than we have done on those skills that humans possess, and machines, even GPTs, do not.
I wrote about this as ‘New Work’ - work that required the distinct capabilities of humans. Which broadly speaking are design, imagination, inspiration, creation, empathy, intuition, innovation, abstract & critical thinking, collaboration, social intelligence and judgment.
Let’s think of these in the context of five ‘workflows’ that are likely to represent much of the ‘work we do’ in the future:
Critical thinking and problem-solving: Evaluating AI-generated suggestions, making well-informed decisions, and identifying complex issues that require human intervention.
Creativity and innovation: Leveraging AI as a tool to develop new ideas, products, and strategies while thinking, as humans, about value propositions and competitive advantage,
Emotional intelligence: Understanding and managing emotions, empathising with customers and colleagues, and navigating interpersonal relationships effectively. Something which AI cannot fully replicate.
Adaptability and learning agility: Embracing change and quickly acquiring new skills in response to evolving business and technological landscapes.
Domain expertise: Possessing deep knowledge of specific industries, regulations, and best practices to contextualise AI-generated content and ensure compliance and accuracy.
These are deep rabbit holes, where AI needs to be co-opted to augment our unique capabilities as humans.
Picasso nailed it decades ago when he said ‘Computers are useless - they can only give you answers’.
Humans are here to ask the right questions. That in itself might be the super skill of the future; the ability to ask the right questions.
So we have ‘Old Work’ and ‘New Work’.
The real estate issue is that much, perhaps even most, of our offices, our places of work, are designed for ‘Old Work’. Which is in the process of leaving the building.
All of this space is, or shortly will be, obsolete.
The future proof office has to be designed around ‘New Work’. It has to be somewhere where human skills are catalysed. Somewhere conducive to critical thinking and problem-solving, creativity and innovation. Where emotional intelligence is prized and adaptability and learning agility is the default setting.
Space that is at the service of these human skills.
#SpaceasaService - where humans thrive in a world of GPTs.
The inevitability of #SpaceasaService
Joseph Mallord William Turner Norham Castle, Sunrise c.1845 - Tate Britain, London
If you are in a hole, stop digging.
And get yourself a plan.
The real estate market, offices in particular, are most certainly in a hole.
Across the world, especially in major Western cities, but truth be told pretty much everywhere globally, we are seeing low office occupancy and utilisation. Post Covid, many employees have become used to, and effective at, working from home.
And are generally happy to save on commuting costs.
They do need, and want, an office to socialise with colleagues, collaborate, meet customers, mentor and be mentored, receive training, and as a place conducive to individual focussed work. But, they don’t want or need to do this, mostly, more than 1-3 days a week. Plus they do not perceive the format and services of their current offices as providing what they need to do this effectively.
From corporate occupiers point of view, according to a new report from the ULI & Instant Offices, ‘only 14 percent of occupiers believe their existing workspace portfolios align completely with their business objectives and strategies’.
So we have demand but different and less than pre Covid times.
On the supply side landlords and investors are facing problems: share prices are down, construction cost inflation is high, interest rates are much higher than the average of the last ten years, liquidity is weak and investors are pushing for bargains.
In addition they have limited understanding of what customers really want going forward and a shortage of talent with strong service and empathetic skills.
Finally banks, investors and purchasers are not yet taking employee well-being, satisfaction, or workplace productivity into account.
So we have a mismatch between what customers want out of an office, the skills and costs needed to supply it, and a financial market that is both tight and lacking in understanding of the new realities of demand.
With all this in mind I’ve been thinking about what strategies should be adopted by real estate companies.
Here are some suggestions as to what should be prioritised given that money is tight, and expensive.
Adopt a customer-centric mindset: Understanding customer needs and preferences should be the top priority. Regular engagement, surveys, and feedback collection can be done with minimal costs and help shape future strategies.
Enhance customer experience: Focus on low-cost enhancements that can have a significant impact on customer satisfaction. For example, improving building maintenance, offering responsive customer service, and organising community events.
Establish partnerships with coworking providers, HR firms, training organisations, or local businesses that can help offer additional services to customers without incurring significant costs. Not least of all, help customers make hybrid working work.
Prioritise low-cost retrofits that can have a significant impact on customer satisfaction. This may include repurposing under-utilised spaces into shared amenities or improving lighting and ventilation systems for better energy efficiency and comfort.
Focus on cost-effective technology solutions that can improve building operations and customer experience. This may include adopting more affordable IoT sensors, energy management systems, or software tools to enhance communication with customers.
Implement sustainable practices that don't require significant capital investment. Examples include adopting green cleaning practices, encouraging waste reduction, and promoting energy-saving behaviours among customers.
Diversify portfolios: While this strategy may require more capital, selectively diversifying the portfolio with lower-cost assets, such as smaller office spaces or properties in emerging locations, could help mitigate risks and provide more stable cash flow. As we know, you make your money in real estate when you buy, not when you sell. Bad times are good times to buy.
Attract and retain talent: although it might not seem like a cost-effective strategy, investing in the right talent can yield long-term benefits. Focus on offering competitive salaries, fostering a positive work culture, and providing professional development opportunities to attract and retain the right people. Smart people want to work with companies embracing the future, not protecting the past. Be the future.
Finally, play a long game of educating stakeholders on the changing dynamics of the office market and the importance of employee well-being and productivity. The wider market is still thinking and investing based on principles that were solid pre-Covid but no longer are. There is a storytelling game to be played: innovative, forward thinking and customer centric real estate companies have to persuade the market that they are where future returns will be found. Attitudes need to be reset.
Essentially everything above points towards the inevitability of a #SpaceasaServicefuture. Where customer experience is what matters, and if you don’t understand that you have a problem. Because, as I’ve repeated incessantly, the real estate industry isn’t about real estate anymore. It’s about enabling people to be as happy, healthy and productive as they can be. Everyone needs a workplace, in the sense of somewhere to work. But that can now take many forms, and be in many locations. No-one needs an office anymore. They need to be made to want an office. And this applies regardless of how the space is being procured: 1 day or ten years makes no difference. Unless the space provides the services the customer needs it has no point, no future, and no value.
#SpaceasaService will no longer be a niche, it’ll be the the norm.