It’s not about the building

Johan Zoffany - Tribuna of the Uffizi - 1772 - Royal Collection Trust

There is a fundamental structural shift going on around the demand for offices. It’s something I’ve written about many times. In quite strident terms. But as of today, it is clear that I’ve not been strident enough, because the supply side, on the whole and with notable exceptions, does not seem to be getting the message. Which is that ‘the real estate industry is no longer about real estate’ and it’s not about the building.

As time passes it is becoming clear that, despite (in many countries) Covid-19 being far less of a mortal danger, and all pandemic restrictions being lifted, getting employees to return to their offices, en masse, is not looking likely. Just today, in the UK, Cabinet Minister Jacob Rees-Mogg has been issuing missives to his fellow Ministers to demand they force their civil servants to return to the office. Currently average daily attendance is just 44%. Not surprisingly this has been met, from the demand side, with howls of derision. For a large percentage of individuals, the break from a five day a week office bound life has been the only silver lining to the misery of the last two years. They will not give this up easily. Without good reason to go to the office, they won’t.

And in this is the kernel for amazing new business opportunities in real estate. Once you can reset your mindset to realise that real estate should not be the thing being sold in the real estate industry you’ll start to see the scope to develop new business models, with new products and services, that will benefit from larger margins and greater competitive differentiation. The supply side in real estate needs to grasp that the demand side no longer wants what it has to sell. And worse than that, the Covid experience has proven to them that they do not need what they are currently selling either.

That though is the macro view; overall it is 100% certain that, on average, every company is going to need less full time, long term leased real estate. The evidence for this is all around us. One can quibble whether the reduction in demand is going to be 5,10, 20 or some other percentage, but there will be reductions. Per capita.

At the micro level though the opposite will occur. Successful buildings will be those that combine the ability to enable happy, healthy and productive people but also occupier companies that are interested in doing the same. Anyone who understands the workplace market will tell you that the reason many people really do not like their office is nothing to do with it being a badly designed office. The culprit is the toxic culture of their employee. Sadly, there are a lot of second rate companies with second, or worse, rate management teams.  Rob Harris provides the long view on this but the TL:DR is that the workplace often gets the blame when it lies much close to home.

So what is this telling us?

First, that a hybrid way of working is definitely the future. With lots of caveats and a warning in advance that this will cause much noise over the next year or so, if you on the supply side of the industry you need to internalise this and reset ALL your assumptions around it.

Secondly, in real estate we can make good companies better, but we cannot make bad companies good. So the supply side needs to dig much deeper into the merits, or not, of current customers, and be very precise and deliberate in who they target as future customers. Bad companies will be bad occupiers and much more likely to have real employee/management issues, that could well spill over into being real estate issues. 

And thirdly, the massive opportunity for the supply side is that the workplace issue for companies is now way harder than it ever has been before. Yet there is no standalone segment of the supply side that works at creating and then curating great user experiences for them.

To create a great workplace you need multifunctional teams whose skills cover real estate, IoT, data, workplace, hospitality and HR. Input from all of these is needed to be able to orchestrate the hardware, software and services required. And all working to a predefined and designed UX, that is created before anything technical has even be thought about. ‘Start with the customer and work back to the real estate’, as I have written many times before.

With this knowledge about the skills needed to create your happy, healthy and productive environment, go and try and find a supplier. Someone why will start at the end, and craft everything to achieve it.

I suspect you now have a problem. Such companies do not exist. Most pressingly the overall designer of the UX is usually, if they are commissioned at all, only able to work within the narrow confines of a particular clients domain. Whereas what is needed is a true conductor of the entire orchestra, we mostly have people organising just the percusion section.

Surely this is what ‘Smart Building’ suppliers are all about? Again, mostly not. The ‘Smart Building’ industry is particularly good at thinking ‘it’s about the building’.

What about the property management company, or the workplace consultants, or the tenant engagement people, or, long long shot, the HR department? No. It’s almost a certainty that each of these is working within their silos, and incentivised accordingly. They’ll all talk a good collaboration story, and many will try hard, but the problem is more fundamental. The supply side needs a new type of company. One that is responsible for the UX, on an ongoing basis, of the entire experience within a building, and whose job it is to summon into existence places and spaces that people want to come to. And do come to. 

Buildings that meet the wants, needs and desires of every individual they host will be massively valuable. Because they will have high occupancy and high satisfaction and will be able to charge a significant premium for delivering this. Their customers are likely to be taking less space than pre pandemic, paying more for it per unit of space, yet most likely also saving money on their total occupancy costs. But the cost, whilst always important, will fall down the rankings of most important features, because a workplace that does enable people to be as happy, healthy and productive as they are able to be, IS massively valuable. Conversely a workplace that does not enable this is going to drop in value precipitously, because it has no purpose. It won’t be a bit less valuable, it’ll be on the way or already obsolete.

Sadly much of the above is fantasy at the moment, because the real estate industry is not developing the types of company, or networks of companies, that could make it happen. That are building new Brands, operating on new business models, and offering new products and services. As stated above, with exceptions. Currently we have an industry mostly accepting that things are changing, but without realising that in reality they are on a burning platform.

The route off that platform starts with understanding ‘It’s not about the building’.

UX = Brand & Brand = Value.