The massive opportunity going unmet in real estate
Albert Bierstadt, The Rocky Mountains, Lander's Peak, 1863 - The Metropolitan Museum, New York
#SpaceasaService is the ‘Trillion Dollar Hashtag’ for a reason.
Primarily driven by technological change (currently fast and most likely getting faster), the work we do, and how and where we do it, is upending every facet of the products and services delivered by the real estate industry. Simply put, the form factor and operation of real estate, across all asset classes, is in need of reinvention. What customers of real estate want is not what the industry has historically provided. Whilst famously not a fast industry to change, the extraordinary forcing factor that has been the global pandemic is necessitating a revolution in thinking, mindset, skills and business models.
Applied across the entire built environment, because change in one area is and will engender change in others, this represents perhaps the greatest threat and opportunity the industry has ever seen. It is quite clear that fortunes are going to be lost, and fortunes are going to be made, as the real estate industry grapples with this punctuated equilibrium. As Darwin said, “It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.”
Essentially, the real estate industry is moving from being one based around selling a product, to one centered on delivering a service. And that is where #SpaceasaService comes in.
It has two meanings. First, it refers to space that is procured on-demand, whether by the hour, day, week, month or year. But secondly, and much more importantly, it refers to real estate (however procured)
'that provides the spaces and services appropriate to the ‘job to be done’ of every individual, as and when they need it.'
Once you start thinking in these terms it becomes obvious that the products and services needed to fulfil this function are, mostly, alien to the real estate industry. When the customer is not an institution, or a company, but every individual who works, lives or ‘plays’ inside our real estate, and your job is to maximise their productivity or pleasure, what is required from the spaces they are in becomes very different. What do they require from places and spaces, that you can control with a real estate hat on, that will enhance their experience of that space? What can you provide that makes it better to be in your space than a competitors. Or indeed anywhere else for the task at hand. What can be done better in your building than anywhere else?
If the answer is nothing, then you have a very big problem coming down the tracks. Especially within the office or retail sector. Nobody actually NEEDS an office or a shop anymore. In the large majority of situations people can work elsewhere, and shop online. Broadly speaking the populace has optionality today that it did not have 10 years ago. And once people have options the game gets tougher. It’s a very different business whose customers have to buy their product or service (for example Utilities) than a business that has to make their customers want their product.
Real estate is no longer about about satisfying needs, it’s about creating desire.
#SpaceasaService is predicated on this idea.
There is a caveat though: today this does not apply to the entire real estate market, but it does apply to the better end of it. It has ‘crossed the chasm’ but is still a source of distinct competitive advantage.
However the market, in time, will be most of .... the market.
We can see how pervasive this market is becoming through watching the activity within office buildings within major CBDs. Just looking at London and Manhattan, offices are barely 25% occupied. Quite clearly the bulk of employees are not seeing their office as somewhere they can do something better than anywhere else.
Strikingly though, many co-working and flex spaces are doing much better and that subset of the market is optimistic about the new realities of work. This is not surprising as #SpaceasaService has been the North Star for this market for some time. They’ve been focussing on understanding customer wants, needs and desires, and then delivering against those findings, for some time.
Where the pandemic has been, as I said, a forcing factor, is that whilst ‘flex’ used to be considered a niche that might (according to JLL) grow to 30% of the office market by 2030, the reality on the ground seems to be suggesting we might be looking at 80%+ of the entire market operating in this manner. Smaller companies most likely outsourcing their real estate needs to flex operators and larger companies retaining their longer lease, single occupier model, but operating that space as if it was flex space. The middle ground might retain their own offices, but increasingly they will be looking to satisfy their additional requirements, ’as a service’.
This is just the office market, but as people now work and ‘play’ in different places, their requirements will also change and develop. So how residential units are designed, especially within the burgeoning build to rent sector, is obviously set to be iterated as the market changes. Do we adapt smaller apartments to have dedicated work spaces, or do we leave ‘home’ as ‘home’ and provide bespoke work spaces ‘near home’? Where do people live when they commute two days a week, or a fortnight, instead of every day? Remote or distributed working could allow people to move 1-3 hours aware from ‘HQ’ or move to another city all together but live right in the centre. There are different dynamics at play but in every case people are looking for ‘real estate that provides the spaces and services appropriate to the ‘job to be done’ ’. Understanding individual needs is going to become a super skill.
Which brings us to the massive opportunity currently going begging in Real Estate. Because of the historical silos within the industry this #SpaceasaService layer of demand is not being supplied. Yes, the better flex operators definitely are focussing on user experience, but overall who is working with corporate occupiers to help them create and curate spaces that their people or customers really WANT to come to? Who is building on the fact that people spend 90% of their time indoors and looking at what products or services could be offered to them? In the residential sector there are myriad opportunities to build Brands that attract and retain customers, at a premium. There are so many ways the residential letting process and then occupation could be improved. In the office sector the elephant in the room is much bigger. 25% occupancy might end up looking like a peak, as muscle memory sets in and everyone decides to carry on doing what they’ve been doing for the last 2 years. Who is actively getting close enough to those real customers we mentioned before, actual individual occupiers, and understanding what it is that their office could provide them that IS better than anywhere else?
The answer is that this is mostly falling through the cracks in the structure of the real estate industry. There are facilities managers, property managers and asset managers but are any of these focussing on delivering #SpaceasaService? I’m sure lots of conversations go on between landlords and the real estate departments of larger customers (or even smaller ones) but who is offering to guarantee the monitoring and optimising of space based on qualitative and quantitative data derived from close relationships with users? Who is selling happiness, health and wellbeing and productivity? No company wants an office, they want a productive workforce - who is selling this? As opposed to X sq ft or sqm, where the toilets work, the air conditioning is ok and and the office is cleaned nightly?
Who is selling a great user experience?
The bottom line is that the user experience of real estate is becoming super important. Without a great user experience frankly, thinking as a customer, why would you go there? To repeat. Our customers used to have to ‘go there’ - today and in the future they do not.
Because of this, WHO creates and curates the user experience really matters. Whoever does so will need new skills, new people and a new mindset. This is the opportunity.
Let’s think about who is required in order to create a great workplace user experience.
First you obviously need a real estate expert. Whilst ‘it’s not about the real estate’ anymore, one has to presuppose that the physical real estate that new services are built upon is functioning at the level required, reliably, efficiently, and sustainably, for those services to be possible. Starting with maintaining great environmental conditions such that everyone is able to work at their maximum cognitive ability. Everything you know as a real estate person today has value tomorrow. In many ways #SpaceasaService requires better physical real estate than #NoService operations.
Secondly you need IoT skills. High performing space can only exist on a high level of data, of feedback, from the building. So designing, commissioning and maintaining a first rate IoT network is vital.
Thirdly, you then need data science skills, because you need to know both what questions to ask of the data you have and then how to analyse the answers. Think of the data, and the analysis, about a Formula One car during a race. Everything about how that ‘machine’ is working is understood, and continually optimised. That’s how your building should be working. Doing this economically, in realtime, is a challenge, but the best buildings will have a competitive advantage from meeting it.
Fourthly, you need skilled and experienced workplace capabilities. No longer is design planned for X number of years. Instead, interiors will become full of emergent elements, constantly in flux as needs change. The opportunities for new form factors, workflows and operating procedures are immense, though great skill will be needed to execute on each plan.
Fifthly, a great UX is going to, most likely, contain an element of hospitality. There is going to be a lot of office use based around entertaining and education. Attracting people into your space by giving them access to exciting, stimulating, or just plain useful, speakers is a growing (fast) trend. And then using these events to foster networking, culture and collaboration. Mixed use larger building are likely to have something on most days of the week. Some closed, but many open. Building a community amongst different occupiers.
And finally, you need good HR skills. #SpaceasaService is not a ‘fluffy’ concept - it is designed to provide results that can be measured. Many of the these are HR related. How many people apply for jobs, even specifically in this building, How many sick days do people have? How many days are they in the office? How many Helpdesk incidents occur? What’s the Net Promoter Score of your company? Of your office? What percentage of people say the office enables them to work productively? And so on.
So that is six essential inputs into creating and curating a workplace that offers a great UX.
Today, this represents six separate industries, each with their own incentives, who communicate ‘as required’, probably do not share data, and are involved to varying degrees with ongoing occupation.
Tomorrow, in a #SpaceasaService world, these six silos need to operate as one. Either by one entity delivering them all, or more probably, a network and ecosystem of closely knit partners or long term collaborators doing so. Either way, to the customer it is one ‘machine’, where everyone knows everyone else, and all data is shared continuously.
You cannot create great user experiences by managing silos. Or, more to the point, you cannot be as competitive or distinctive as any competitor that operates as one.
The advantages of operating like this are powerful.
As the people creating and curating the great UX, that adds massive value to the asset, you go way up the value chain. If, for instance, a property management company was to successfully morph into this type of #SpaceasaService provider they go from being a large turnover, small margin, commodities supplier to something else altogether:
They would have the opportunity to differentiate themselves with strong Branding and new products and services.
They would increase their pricing power. The more critical to a high NPS workplace the greater your value.
They would have the opportunity to increase the lifetime value (LTV) of customers. Once you can tailor how a workplace operates to suit the precise needs of customers they are much less likely to leave.
And they have an opportunity to create a data moat: If you move you’ll have to start again developing this user experience from scratch.
I am saying this is what a Property Manager adopting a full stack #SpaceasaService offering could achieve. But it need not be a PM. At the moment this is raw potential, that is very rarely delivered. As we said, despite the demand being there.
As of today it is unclear who will seize this opportunity. Landlords, PMs, FMs, Workplace or Hospitality specialists. Each of them ‘could’. Maybe from within the existing industry or perhaps, and I think this quite likely, from a new entrant liberally funded by the PE industry. Or, of course, the flex industry could expand into fulfilling it all.
Either way I hope it is clear that this is both something needed by the market, in order to attract customers, and a digital/human layer that could corner massive value. And commoditise much of the industry.
As I said, there is a reason #SpaceasaService is the ‘Trillion Dollar Hashtag’……
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PS This is just one of the eight ‘Factors of Success’ in the #SpaceasaService world. To read about the others, start here