The Redundancy of Real Estate - and how to avoid it.

On November the 10th, Apple unveiled its new M1 System on a Chip. A processor so fast, and so abstemious in its power consumption, that it has in effect blown up the laptop PC industry. The new $999 MacBook Air is as fast as a $6000 MacBook Pro of 3 years ago. And this is the entry level processor. Over the next two years larger, more powerful versions will be developed to power the entire Apple range of computers.

And with this the Intel based era of computing will come to an end. For sure, Intel will still be a huge company for years to come, but its dominance has been eradicated, just like that. As John Gruber the technology commentator has written ‘The M1 Macs are such better machines than their Intel-based predecessors it’s hard to believe.’

During the same month we have seen the announcement of not one, but three, new vaccines to counter Covid-19. Each developed in less than a year, a feat of extraordinary brilliance, as the norm for developing vaccines is measured in decades not years.

And these ground breaking technological developments have taken place during a global pandemic where almost every knowledge worker is working from home. And where the process of development has spanned many countries, and continents. Extraordinary feats of intellect, #NoOfficeRequired.

Which tells us what?

Well, according to many in real estate, not a lot. Repeatedly I come across comments online about how ‘offices are needed for creative work’ or ‘relationships need physical proximity to build’ or ‘you cannot innovate sitting on the sofa’ or ‘we’re all surviving on relationships we had pre Covid’.

Some go even further. Stephen Bird, CEO of Aberdeen Standard Life was recently quoted as saying “You cannot change the world from home, It’s an absolute falsehood. It’s lazy thinking, it lacks courage and it’s delinquent on the next generation.”. Not someone from real estate admittedly but I get the feeling many in our industry would agree with him.

It’s hard to know where to start in explaining just how dangerous and deluded such thinking is, but I think it all stems from a lack of awareness of technological progress combined with poor personal digital skills. People are talking about things they know little about. Taking advice on driving from someone who doesn’t drive makes no sense. And we shouldn’t do it.

Working in a distributed company is not the same as working in an office centric one. It’s never the case, long term, that you can move to being a distributed company by simply moving people out of the office, but maintain the same policies and practises as you had before. 

Starting in March this is what most of us did, and by and large, it has been a remarkable success. Every credible survey of remote working (under pandemic conditions) has shown that for the majority of people, perhaps 70-75%, it has worked, and worked well. For the balance it very much has not. And it has become clear what it is we miss, and don’t miss, from our old, more office based lives. For more on this please visit leesmanindex.com, where they have a wealth of detailed analysis.

We are now though at a crunch point. We’ve been working, by decree, remotely for eight months or so. Long enough to realise that the old ways of working, based on 4/5 days a week of physical proximity to our co-workers, are perhaps not the best way to operate, when apart from each other. Hence complaints about too many Zoom meetings, long hours, burn out and lack of connection. Adrenaline got us through the first few months, but now we need something different.

It’s not working remotely that is the problem, it’s not knowing how to work remotely. And the biggest problem of all is when management doesn’t know either. That’s when we start getting comments about ‘you cannot do XYZ at home’. Better stated they would be saying “I cannot do XYZ at home”, because that is the real issue. When managers do not know how to manage remote teams, problems start to arise.

We need some training.

Take a look at the tech companies. Twitter have told their employees there is no need to come back to the office, Google & Facebook have said don’t bother till mid 2021. Gitlab & Automattic both employ over 1200 people, across 60+ countries, but neither have any offices. Box say work anywhere till 2021, and then we’re going hybrid. Dropbox is going ‘Virtual First’, as is Shopify. And on it goes.

Each of these companies are amongst the fastest growing, most valuable companies in the world. With many of the highest paid employees. And they’ve moved to being distributed with hardly any issues. Why? Because these are digital first companies, where technology is used throughout every process, workflow and project. Where data is in the Cloud and everyone is equipped with quality hardware, software and services that enable pervasive communication and collaboration. Where work has mostly gone asynchronous, and interaction is mainly through a wide range of online SaaS (Software as a Service) tools such as Slack, Trello, Asana, Jira, Workday, Notion, Miro and Mural. In short, where all the things many real estate people say are only possible in the office, happen outside an office.

We need to learn from this. We need to adopt some of these tools, become familiar with how truly digital companies work, and how they think, and how they communicate, and mentor, and learn, and innovate. Because these types of companies (and they will increasingly not be confined to tech companies) can be super efficient and blindingly effective. If your company comes up against such an organisation you better be prepared for some serious competition, because as digital native companies they will be, ceteris paribus, hard to beat.

None of which is an argument for ‘the office is dead’. Tech companies are different to non tech companies but even they will still be taking a lot of space. Less than they probably would have pre-Covid but still plenty of it. And offices are still the best places for certain activities. And most companies will take office space, subject to it being designed and managed in a manner that actually delivers value. 

But as an industry we must stop kidding ourselves that our customers need an office, that without an office they will not be able to innovate, or collaborate, or share knowledge, or grow. All of these things are possible with #NoOffice. Our job is to demonstrate why they should WANT an office. Why having an office enables them to do some things better than they could without an office. And more particularly why this office is better than that office. Without real differentiation we are just commoditised box builders. When your customers no longer need your product your Brand, what you stand for, becomes the most important asset you have. As I have said before, real estate is no longer about satisfying needs, it is about creating desire. 

So lets get moving on up-skilling our industry. Let’s stop talking like analogue dinosaurs. No more ‘you can’t do XYZ online’. You can do everything online. Let’s learn the tools our digital customers use. Let’s grasp that real estate comes in many forms, and that ‘the office’ is going to mean something different in the future. Wherever our customers want to work, we need to be there. We need to give them what they want, not what we have to sell. We need to think like they do, act like they do, and innovate like they do. 

If we want to attract the best customers, there really is no alternative.

Old work is leaving the building–The Future of the Office

I did a webinar for global members of SIOR in May 2020.

Quite provocative…..

Talent and the Real Estate Company of the Future

Winter Landscape with Ice Skaters, Hendrick Avercamp, c. 1608, Rijksmuseum, Amsterdam

Every company needs talented, skilled people. Over the years companies try to employ more and more talented, skilled people, that fit their requirements, business model and working practices. They continually optimise for the market they are in, particularly the larger ones. They become more and more efficient, more and more ‘Six Sigma’ - lean, mean business machines. And it works. Or at least it does right up until the moment it does not.

The most talented, skilled, efficient horse saddle maker in history probably existed on the day the first Model T automobile rolled off the Ford production line in 1908. From 1900-1910 the US horse population increased by 70%. Life was looking great for saddle makers, just as their industry was about to collapse. Technology changed their world, and there was nothing they could do about it.

Technology is doing the same today to the real estate industry. The ten years 2010 - 2020 were golden. Equities had a great decade but globally listed real estate did even better. Is it any wonder there has been so little innovation within the real estate industry over the last ten years? Of course not, the sector was humming and everyone just double downed and continued to optimise for a business model that was positively purring with success. And that is no criticism, innovation seldom occurs without some form of ‘burning platform’.

The ‘burning platform’ though did exist. It’s just that hardly anyone noticed. Demand was changing but hidden in plain site. What was missing was the spark to ignite the platform. No spark, no worries.

And then the spark arrived, wrapped in a global pandemic. Another Model T moment. Within weeks, commercial real estate closed down. Shops shut, restaurants, hotels and bars closed and offices emptied.

This is where technology kicked in. Because it turns out that, without us really noticing, the world had changed dramatically over the last ten years. Although locked away in our homes, much of the economy actually continued, barely missing a beat. We reel at news of 10-20% drops in GDP but in reality it is extraordinary that the economy has not collapsed much further and faster. 20 years ago, with the internet as it was then, the economies of the world would have simply shut down.

We cannot do much about the world of personal services and hospitality until restrictions on social distancing are lifted, but globally the business community has learnt a huge lesson. Technology has enabled us to understand that ‘work is something you do, not somewhere you go’ is actually true. Hundreds of millions of people working from home, works.

Many knew this was true but it really was the burning platform ‘hidden in plain site’. One of the most striking things of the last few months has been the number of CEO’s expressing astonishment that their businesses are functioning, and in many cases functioning very well indeed. The top 5 winners from the pandemic alone have put on over a $1Trillion in market capitalisation.

So, where does this leave the real estate industry, and what does it tell us about the talent that will be required to survive and thrive over the next ten years? Let’s focus on the office sector. Retail, industrial and residential are also changing but in different ways.

The simplest answer is that it means the real estate industry needs to transform from being one that sells a product to one that delivers a service. It means that our customers no longer need what we have to sell. They don’t need an office to work. Going forward they need to be made to want one. And that is a very different dynamic.

The pandemic has simply acted as a forcing function to trends that were underway anyway, but what a forcing function. In the UK since lockdown e-commerce is up by a third, online groceries up by 84% and as noted above, 90%+ of the office workforce is working from home. Mostly video conferencing on Zoom, which has gone from 10 - 300 million daily users in a few months. Perhaps more importantly, this new behaviour has been adopted now for many months. Habits are being formed, workflows adjusted and we’re getting a solid handle on what works and what doesn’t, and what we like and what we don’t like, about living like this.

And frankly, none of the conclusions are all that surprising. We all appreciate flexibility, agency over our own lives, the freedom to be able to focus when we want to and without endless interruptions, the humanity of having more work/life balance, and the ease with which we can order just about anything and have it delivered to us in no time at all. What we miss is seeing and working with our colleagues, team mates and friends in person, the time away from our homes (we all need a certain amount of ‘space’) and the social and experiential enjoyment of being amongst our fellow humans. Being human, with other humans, is stimulating, enjoyable and entertaining. Of course we miss that.

However the things we miss are the things that we were going to be doing more of anyway, because of technology. As long ago as 2017 McKinsey were writing that ’47% of the tasks people were paid to do globally, could be automated by using currently demonstrated technology’. Much of what we have traditionally done ‘at work’ was leaving the building anyway. Very rapidly, any task that was ‘structured, repeatable, predictable’ was being co-opted by ‘the machines’. The workplace was changing fast because the work we do is changing fast. New work, future work, is increasingly based on those skills, that talent, that we humans have that the machines do not. So, design, imagination, inspiration, creation, empathy, intuition, innovation, abstract & critical thinking, collaboration, social intelligence and judgement. 

And this means that, just like us, our customers are going to need spaces and places that catalyse these human skills. And mostly, those are not the spaces and places we have been developing, and bringing to market, to date.

All of this is happening on a continuum; whilst overall the great home working experiment has proven a success, it is definitely working better for some people than others. For multiple reasons. Some people do not have the space to work at home, or are sharing with friends or family in a way that makes it hard to carve out any work time. Some are working with poor equipment, be it old or underpowered computers or laptops, slow or intermittent broadband, inadequate chairs or desks or lighting. 

And some are working for companies structured and operated for a fixed not flexible world. Working in a distributed manner, mostly away from a central HQ, does require a different organisational structure and a different management style. This though is a known known, and various large, fully distributed companies, such as GitLab and Automattic (each with 1200+ employees across 60+ countries with no ‘offices’) provide a great deal of information and best practice for how to operate as they do. Over time we’ll see many more companies adapting to this new way of working and becoming more effective even than they have rather remarkably been,  despite everything, during the pandemic.

All the above gets us to a position where, as Dror Poleg has written:

‘Covid-19 forced everyone to stop and think. Previously, companies had 100% of their employees at the office and contemplated how many of them can be allowed to work remotely. Now, companies are starting with 100% of employees working remotely and are contemplating how many of them should be at the office at all, how often, and for what purpose.’

This cuts to the chase: what is the value proposition that will make companies regard an office as an asset, not a liability? And that question in turn leads to the next, ‘what talent or skills are required to develop and maintain this value proposition?’.

The clearest conclusion is that we need to be creating spaces and places that offer our customers what they cannot get at home. So to do that we need to understand what it is that fits that bill. So real estate is going to have to start doing what consumer goods companies have been doing for decades. Speaking to customers, understanding their wants, needs and desires and developing products and services based on the quantitative and qualitative data they gather during this process. Most likely they will adopt tools like the Value Proposition Canvas to help them define and refine their offering. 

From here it should be possible to design a UX (User Experience) for your target customer that satisfies their wants, needs and desires. Part of that process will involve people with three different skill sets: Thinkers, Feelers, Doers. So thinkers analyse the data and customer requirements, feelers use empathetic skills to understand the psychology, sociology, anthropology and emotions behind those requirements, and then the doers work out how to build what is required. Some needs will involve more of one skill than the other, but each need can be broken down into an appropriate mix of inputs necessary to achieve a desired output.

All of this is about understanding the brand you wish to create, and that brand will be, as Jeff Bezos said, ‘what people say about you when you are not in the room’. Traditionally the notion of brand has been something the real estate industry did not think has anything to do with them. Which is why you’ll barely find any real estate companies with brands that individual customers recognise. Though they will all know WeWork. And the future is in that comment. For a #FutureProofOffice will be branded. And in terms of talent, this is where we have to start. Your talent has to be able to build your brand.

As you can see, this is moving way beyond traditional real estate. And that is because real estate on its own cannot deliver a strong enough value proposition anymore. It only could when an office was needed in order to work. Now that we have to make our customers want an office, we need to add layers of software and services to our hardware. We are designing an experience that makes someone want something they do not need.

The reality is that the real estate business is no longer about real estate. That is just the starting point. Yes we need strong real estate skills, yes we need all the skills, talent and knowledge we have today, but that is now necessary, but not sufficient.

The skill set required to create great user experiences for customers (and UX = Brand) incorporates six areas of the ‘office’ industry that exist today but rarely talk to each other. Certainly not in any sort of ongoing, joined up manner. They are: real estate, networking (IoT), data capture and analytics, workplace, HR and hospitality. All of these need to be thought of as integral components in a single product/service. All of these are part of what it takes to build a brand. To create, and then curate a great workplace requires all the knowledge, skills and domain expertise of all these specialities to be brought together and managed as a single system. Without doing so we will perpetuate the inefficient usage of so many offices today, as well as the generally low satisfaction in their office of the average occupier.

We need to think of the office as software, and treat it like tech companies treat their own software. Build, measure, learn is the golden rule of software development. You build something, get it in the hands of users, measure how it gets used, and then build a new version, incorporating what you have learnt. And repeat. And repeat. This is why no software is ever finished, it is always version X.Y.Z. Our offices, the product/service we are going to make customers want, needs to be like this. We need to design it thoughtfully in the first place, then we need to constantly monitor usage, and through an ongoing capturing of quantitative and qualitative feedback, regularly release a new version. In respect of every customer, we need to understand what it is they are trying to achieve and see how well the spaces we are providing them with, suit that purpose.

Our job is to enable people to be as happy, healthy and productive as they possibly can be. And that is the industries competitive edge. Or will be. Having the skills, the talent who can actually create a great user experience for customers and then continually refine this in line with changing realities on the ground.

This doesn’t look much like a traditional real estate company does it? And maybe it won’t be, or maybe only rarely. Perhaps only a few real estate companies will be able, or desirous, or willing, to become the sort of multi functional, multi disciplinary, service oriented, customer obsessed companies that this demands. But that is sort of besides the point; if we want our customers to continue wanting what we have to sell we will need to produce these great UX, great experiential spaces for them. Either on our own, or by partnering with 3rd parties who can supply the talent we don’t have. Otherwise, as they have recently found out they can, they might just not bother being our customers anymore. Or move on to somewhere else where they can get the added value that makes an office worthwhile.

The real estate industry needs to up its talent game. It needs to understand it is in the service business now, and broaden and deepen the talent pool. It needs to start with the customer, and work back from there. What does our target, or actual, customer really want, what represents added value to them, and how can we give them want they want. What mix of skills, talent and technology do we need, to create, and curate, this? 

Real estate is no longer about satisfying needs, it is about creating desire. And that is an entirely different type of business, that requires entirely different talent. The future winners will be those that realise this. And act on it.

This was first published on blog.mipimworld.com

Sustainability, Coronavirus, and Real Estate

The Triumph of Death (crop) - Peter Breugel the Elder, 1562 - 1563, Musee del Prado, Madrid, Spain

Coronavirus has hijacked the stage. This years play in real estate was going to be ‘Climate Change and Sustainability’ but now it’s ‘Covid-19, all the way down’.

Or so it seems, as the world comes to a halt, the streets empty and we all remain locked indoors. 

In reality, our response to Coronavirus will, indeed has to, place sustainability at the core of a flywheel of change that represents the greatest opportunity the real estate industry has seen in decades. To deal with one we have no choice but to deal with the other.

Without hyperbole we have a moral obligation to not ‘waste a serious crisis’. We now have the chance to do things that were not possible before. We have to seize it.

The global pandemic is acting like a forcing function in real estate, as across wider society. The future is being compressed, time is being fast forwarded, and 5-10 years change will take place in the next 12-18 months. Has a moment ever felt so Darwinian?

“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

The world has messed up, big time. And this time it’s serious.

What Would have Been

Larry Fink, the CEO of Blackrock, (with over $6 trillion AUM), set the tone for the year in January. His annual letter to shareholders was entitled ’A fundamental reshaping of finance’ and has the sub-heading ‘Climate change is driving a profound reassessment of risk and we anticipate a significant reallocation of capital’

He goes on to write about how climate change will impact bonds, whether 30 year mortgages are possible in many areas most at threat from rising sea levels, how insurance may become unobtainable for many, and the impact on inflation and interest rates if the cost of food climbs from drought and flooding. And then he nails his financial thinking to the mast:

‘Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk.

Last year he wrote:

 ‘a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders…. Ultimately, purpose is the engine of long-term profitability.’

This received a great deal of attention and much tub thumping, but frankly ‘climate risk is investment risk’ is 100X more powerful. When the man at the helm of a powerhouse like Blackrock says, ’Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors.’, the writing is on the wall.

Demographics is also about to impact on this subject (Demography IS Destiny) - Millennials aren’t so young anymore (up to nearly 40) and they are moving into corporate positions of power. Whilst most ‘Millenials are …’ comments are trite nonsense it is true (according to a large Deloitte study) that as a group the under 40’s do put more weight on ‘improving society’ than ‘generating profit’. Most likely because they’ll have to live with the consequences. Either way, again as pointed out by Larry Fink, the world is currently undergoing:

‘the largest transfer of wealth in history: $24 trillion from baby boomers to millennials. As wealth shifts and investing preferences change, environmental, social, and governance issues will be increasingly material to corporate valuations.’ 

All of which indisputably means that an industry responsible for one-third of global greenhouse gas emissions, and that consumes 40% of all the world’s energy, has not only no choice but to take this very seriously but is going to be under the most intense scrutiny over the next ten years. There will be some carrots used, but if the industry does not comprehensively up its game, then very many, very large sticks will also be used. Indeed, these are already being used, with New York City mandating that large buildings (above 25,000 sq ft so not even that large) should reduce emissions by 40% by 2030. Not that surprising perhaps as what do we expect when the real estate industry is responsible for 66% of greenhouse gases in the city.

So the scene was very much set for Sustainability to be a key talking point (at least) within real estate. When ‘the money’ is worried about preserving wealth you can be certain the rest of the industry has no choice but to take note. But taking note does not necessarily mean action. The real estate industry, especially during the good times, is highly skilled at taking note rather than action.

What Will Be 

The scourge of the global pandemic will, must, destroy the inertia that consistently constrains change within real estate. And it will do this by fundamentally changing the demands of customers. What customers want in the future will not be what they wanted in the past. And we are not actually talking about wants - this is about demands.

Two zeitgeist changing beliefs are becoming the norm. First, that the world away from our immediate homes can be scary, Can be dangerous, Can be unsafe. And secondly, events can be so big that they impact the entire world. We live in such a globalised, interconnected world that we really are ‘in this together’. We’ve seen what an invisible virus has done, to all of us, but also to our planet. A rare upside of the current situation is we are seeing how much pollution is caused by our economies. Many people, perhaps billions, are experiencing air quality that they have never experienced before.

So the peoples of the world are now aware of how much we impact our environment, but at the same time as they are nervous about being out and about in that environment.

Hence the flywheel: our built environment needs to be safe and healthy for people to work, rest and play in, but to make it such we need to embrace a broad, deep and pervasive notion of sustainability.

The imperative, and the opportunity, for #PropTech in this situation is therefore immense. Very short term it no doubt feels to many more like a heart attack but once the immediate dust settles you will see the technology in real estate landscape has been utterly transformed.

We are all aware that throughout the built environment, from design, to finance, construction, operation, on to sale or lease, the use of technology, to remove friction and to enable discovery, is mostly ‘sub optimal’. We do not do much in real estate very efficiently or very effectively. We waste energy, we generate horrendous amounts of carbon, we don’t collect much data, and that we do collect is often not put to much use.

The critical point though is that WE KNOW how to do almost everything better. We could dramatically improve the performance of this industry. We have the tools, the capabilities, and the technologies we need to do so. Not at scale but around the globe there are solutions to most of the ‘known knowns’ of inefficiency and waste.

To date, the issue has been incentives. As a whole the industry has not had the incentives to bother to put to use all the tools in our toolbox. Ten years in to a real estate bull market is no time for innovation. It’s just not needed. It’s not even a criticism; business people have been optimising their businesses, very successfully, for the world as it has been.

Today, all of this is out of the window. Our commercial assets are largely empty. In many instances this might be the case for a while. But worse than that, our customers are not going to return until we can prove to them that they are safe & healthy places to be. They are now acutely aware of the dangers of the environmental conditions around them. Of the importance of good hygiene, and cleanliness. Of the very air they breathe.

Landlords, in historic market downturns, always pull out the same playbook: reduce overheads, cut Capex, minimise expenditure. Hunker down…. survive. 

THIS TIME IS DIFFERENT

The lack of demand is not a cyclical market issue, it is an existential health & safety one. You will not be able to cut your costs to get through this. This time, the only way through the crisis will be by spending money. On upgrades to ventilation systems, on new materials, on new hardware, on new fittings and furnishings, on new cleaning regimes, on new cleaning processes, on communication, on data, on analytics, on interactions with customers, on increased staffing, on new business models and new ideas about what constitutes ‘the office’ and even ‘work’ itself. In a sentence, everything that we know we should have done over the last ten years but have not had to, we need to do now.

That better built environment we so often talked about - well now is the time to build it.

But beyond this, we really need to ensure it happens. To not  waste this serious crisis. In the same way as there are calls to not bail out or prop up incumbent companies in industries fundamentally incompatible with a low-carbon future, we could take this enforced opportunity to mandate the same within real estate. No more investment in anything that does not fit with a low-carbon built environment. Design digitally end to end, construct using MMC, operate buildings with a zero tolerance to waste, plough investment in to replacements for high carbon steel and concrete, connect our assets to the cloud and one another and use the resultant data to create and curate better spaces and places. Demonstrate to our customers that our buildings will ‘look after you’. 

Frankly we have no choice in this now. Assets are going to collapse in value, towards complete obsolescence, unless the users of those assets fears are assuaged. The surest route to value destruction will be to assume this is a passing event, and normality will return. That fits in the same bucket as thinking these months will not increase the number of people who will become comfortable with remote working. To compound the problems around our customers being fearful of entering our assets, the pandemic is demonstrating that work and the office are not joined at the hip. We were already heading to a world where we had to persuade people that they needed our product anyway; tomorrow that argument needs to be stronger and richer.

For the #PropTech industry this really is the silver lining to a very dark cloud. Tech companies need to focus on their value propositions, which ideally will be around increasing or enabling greater sustainability, health and wellbeing (directly or indirectly). They need to demonstrate deep understanding of how their hardware, software or services can fit into the operational flow of their customers businesses, and they need to work as partners, not just vendors, whenever possible. Co-creation will be at the heart of the modern real estate company.

What is happening globally today has never been experienced before. We will get through it, probably in a relatively short time. But pandemics will return, and climate change offers up the probability that other ‘stop the world’ events are more likely. Unless we orient ourselves towards a deep focus on creating a sustainable, safe and healthy planet, we will be in real danger. Real Estate has to sit at the heart of this so let’s not fail to grab an extraordinary opportunity.

This was first published at blog.mipimworld.com

What's the value of an office?

I got to talk with the terrific Bruce Daisley on his amazing podcast.

It was fun. And very popular I gather.

Listen to it here