Real Estate and Crypto / Web3

Dante Alighieri, "The Divine Comedy,"​ is depicted amid views of Florence, heaven, purgatory and hell, Domenico di Michelino, 1465, Duomo.

A thread from Twitter .....

Personally I find Crypto/Web3 exasperating. So much feels fundamentally wrong about it, but what if there is a there there? So one’s mind is filled with trying to understand something that one’s mind is looking at askance and thinking ‘No, or please God no’.

With the nagging thought that far better things to concentrate on are being ignored or downgraded whilst we try and rationalise spending money on ponzi schemes or receipts to things we don’t own.

The problem being that ones own thoughts are irrelevant. If the world moves one way you have no choice but to follow. Which is BTW the argument for Ponzi schemes. We pretend Web3 is about having agency but really none exists. The core driving force IS memes. The power of crowds.

Memes are the aim, and the incentive. Buying a token gives you the incentive to shill that token. That’s the business model. Enlist, or bribe, people to pump and pump. Then dump, presumably.

Alignment of incentives is a good and important thing. But doing so ‘should’ (piety warning) have some better good as the objective. Aligning incentives to sell s**** does not stop s**** being s****.

The counter problem though is one can clearly see how crypto/Web3 DOES enable aligning interests, and coordinating large cohorts, exponentially easier than before. So IF the objective had virtue (piety warning 2) this would be a great toolset.

It’s a real heaven or hell technology. It might be the catalyst for genuine societal uplift at a global level. But it equally could be just about the worst thing mankind has ever pursued.

Meanwhile … back with the day job. What does this mean for real estate? Overall, if crypto/Web3 does develop strongly the impact will be more intense.

Hybrid work is going to prove a disaster for many companies. Largely because their management will not make the necessary, organisational changes to allow it to succeed. But crypto/Web3 will be much more about fully remote working, massively distributed.

In a Web3 world you really can send work anywhere. Location becomes a mere matter of personal taste. I live here because I like it here, not because ‘that’s where the work is’. And that is the default position, not the outlier. One’s work is ALL digital, and therefore ALL ONLINE.

Therefore offices, or indeed any place where work is done, are purely optional and opt-in. You will go there if it pleases you. And has a purpose that online cannot replicate.

TBC this is true regardless going forward. Even if crypto/Web3 turn out to be much ado about nothing, this will still apply. Offices HAVE to make people WANT to go to them. But the degree that this is true will intensify if it isn’t a damp squib.

So we end up really in the same position, vis a vis commercial real estate. The ONLY way forward is to assume your real estate is not needed, and to set about creating the story,the narrative, the desire that makes people WANT it.

From the micro to the macro Cities, towns, venues, places and spaces need to work exceptionally hard to position themselves as desirable. The more Web3 one is the wider geographies, and biz models, one might look at but this is rule number one for ANYWHERE.

Offices 2032: will tech have made them redundant?

When you are attempting to forecast the future it is normal to think about the next 1-2 years, where you probably have enough data and evidence to be quite certain about outcomes, and then to work out from there, from 2 to 5 years, 5 to 10, and then 10 years and beyond. And as you go outwards your focus increasingly diminishes, as uncertainty grows. Things starts to blur. But not all things. Some things we do know, well in advance.

For example, we do know that two ‘laws’ are very likely to remain true. First Amara’s Law, named after Ray, the American researcher, scientist, futurist and past president of the Institute for the Future. His ‘Law’ states that "We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run,”. And secondly, Moore’s Law, named after Gordon, one of the co-founders of Intel. The implication of his more famous ‘Law’, which has held for 50+ years, is that computers will double in power every 18 to 24 months.

So we can be sure that, however impressed we are today with the power of our smartphones and laptops, they will look like toys in 10 years time, compared to the 100 times more powerful devices we have at our disposal. And we can be sure that more will have changed about the world around us than we can imagine today. We are so far into the age of exponential change that every doubling in capability is a big deal.

In most industries a ten year view is not the default. 2-5 is more likely. But in real estate 10 years is a development cycle, or the lifespan of many funds. So in our industry a ten year view matters. Especially in commercial real estate, and even more so in terms of office assets.

In the context of the workplace it feels like an eternity.

In the twenty plus months we have been impacted by the pandemic we have broken through many ‘mindset walls’. We have realised that working remotely from our offices broadly works, we have realised we can be productive, and that there are technological tools already available that allow us to do things that many, perhaps even most of us, did not know were possible. We have realised that a better work/life balance is possible and that not commuting is, surprise surprise, a great pleasure. In short we have learnt that having flexibility and more agency over our lives is a good thing. And we do not want to give this up.

We have also learnt, or rather become more conscious of, what we lose when human connection is restricted. Yes we have, with exceptions, missed time with our families, but we’ve also missed time with our work friends and our colleagues. Do we want, or feel the need, to spend 40, 50 hours a week with them, like we used to? Mostly we do not, but we do now have a much clearer idea of when we’d like to spend time together, in person, and why? Rather than being together because that is just the ways things work, we are thinking more deliberatively. Is this a good use of my time. What can I learn or do or feel as part of a group of people together, that I could not learn or do or feel apart? 

In general, remote work is fine across quantitative factors, but across qualitative ones less so. Technology, today, can get us so far but no further. And this is why I feel differently about offices, as an asset class, short term than I do long term.

It is abundantly clear that most organisations, given the right data points, and the budget and motivation, should be able to produce a physical workplace that provides for the wants, needs and desires of employees. If you know, at an individual level, what those wants, needs and desires are, you can construct a plan to satisfy them. Perhaps not in their entirety for every individual but broadly so. Furthermore, if you then collect and analyse data around how your office is performing environmentally (by which I mean temperature, noise, air quality and lighting), and how it is actually being used (in the sense of occupancy, footfall etc) you can optimise and iterate your space to keep it suitable for the jobs to be done of your people.

It is faintly depressing to not see the above becoming the norm. There are some, many even, exemplars who are diving deep into understanding all of these factors and the better outcomes they engender, but one hears far too much talk of companies who are thinking little further than whether they should get people back in the office 2, 3 or 4 days a week. Everyone (or nearly everyone) appears to be bought into ‘hybrid’ working but few seem to have thought very hard about its implications for how they need to run their companies. Or modify their space. Or ensure it is a safe place to be. And as for landlords not universally demonstrating to their customers that their buildings have ventilation, fresh air and air filtration adequate for a post pandemic world. Well that simply baffles me. Though my suspicion is that most buildings do not have adequate air quality so maybe best not to say too much.

Inadequacy of thinking or systems aside, it is clear that offices do have a purpose based on the above. To provide a venue for people to make human connection. In various ways, for varying amounts of time, and in a different and particular manner for each and every company. This is what the technology of today cannot completely satisfy. As we said it can satisfy our quantitative needs but not all of our qualitative needs.

As such it is not surprising that the occupancy level of flex spaces is, in many geographies, far above that of traditional offices. They tend to provide better spaces for human connection. 

For the next 2-5 years those offices that can provide an environment that catalyses human skills, and connections, will win. This is their edge over remote working. A great space, with the right amenities, managed by a great operator, will have a distinct competitive advantage against plain vanilla spaces. Even high quality, but plain vanilla spaces are going to suffer. It’s simply a function of being able to provide what remote cannot. If there isn’t anything, then people will not go there. Why would they? What would be the point?

What though about 5 years hence? Or 10 years? What will the office provide then that we cannot get elsewhere?

This is where it gets worrying. Satya Nadella, CEO of Microsoft, gave a talk in November 21 where he was introducing a product called Mesh for Teams, that will begin rolling out in 2022. He described exactly what we’ve discussed above, that video calls are ok, but ‘remote meetings can feel impersonal and lack the small moments that build relationships and careers’. So Mesh combines mixed-reality, which allows people in different physical locations to join collaborative and shared holographic experiences, with the productivity tools of Microsoft Teams, where people can join virtual meetings, send chats, collaborate on shared documents and more. Jason Warnke, senior managing director and global digital experiences lead for Accenture, who have been working with Microsoft on this for years described his favourite feature as the ability to bump into colleagues from around the world and have deep and meaningful conversations.

In other words, this product provides, allegedly, just those personal, engaging, human experiences that today we need to get together physically, to experience. The current ‘job to be done’ of the office, post pandemic, that of being a venue for just these sort of human connections, becomes rather less valuable if this is the case. Or does it?

I’ve not tried Mesh, but I have heard it is surprisingly engaging. Citing Amara’s Law I suspect we will be overestimating the potential of this, and other such services, in the near term. Not least of all a lot of high end hardware is required to get the whole experience today.

But citing Moore’s Law, with maybe a hundred times as much computing power being available to us in 10 years time, one really has to be nervous about the future of the office. If technology can deal with our qualitative needs, through deep and personal immersion in high definition, smooth and perfect virtual environments, then what need do we have for an office at all. Its lunch has been eaten. Sure, we will still want to get together in person, and converse as real human to human, but why would we do that in an office. Or, more to the point, what would an office need to look like for that to be the natural venue for such a get together? And who would use it, and for how long?

We will always have workplaces, or at least places where we work. They will definitely employ a wide range of digital products and services that help enable us to be happy, healthy and productive. But with a ten year view in mind it’s already quite hard to see these being places we spend a lot of time travelling to and from each day. Do we need, and want, human connection? Yes. The trillion dollar question is ‘do we need offices for this’?

Twenty Trends for Post Covid Real Estate

Pieter Bruegel the Elder’s “The Triumph of Death” (1562-63).Credit...© Museo Nacional del Prado

What are the key trends impacting on real estate as we, hopefully, emerge into a post covid world?

Since May last year I have been co-teaching an online course dedicated to ‘Future Proof Real Estate’. To date we have had just over 500 students, from 46 countries across every continent, except Antarctica. The most striking thing we have learnt over the last 15 months or so is that across the planet, individuals want the same things. Of course there are variations in local conditions but essentially, because of this commonality of end user demand, there are certain trends that apply everywhere.

Many of these were underway BC, before Covid, but many are a result of the new zeitgeist that is developing as a consequence of the virus.

In evolutionary biology there is a theory called ‘punctuated equilibrium’. This holds that instead of slowly evolving over time, when evolutionary changes occur, they happen rapidly and suddenly. Species split into two distinct species, rather than one species gradually transforming into another.

In an equally transformational way, this is where we are in the world of real estate. The way things were in February 2019 must now be considered history. Everything has changed. However long it takes to get through the current pandemic, we are not going to return to the world as it was.

Three zeitgeist changing things have occurred. First, we have been forced to realise that being inside, in confined, badly ventilated spaces, with many other people, potentially exposes each and every one of us to illness, or worse. Our buildings can harm us. 

We have to take environmental conditions more seriously.

Secondly, across the globe, we have been part of the largest behavioural experiment in history. In a matter of days the knowledge economy went from being 95% office based, to being 95% home based. 

And the results of this experiment? With caveats, working from home, works. 

And thirdly, e-commerce works better than most people thought. Online grocery in the UK, for example, doubled within weeks of our first lockdown. For non grocery retail, 40% of revenue is now generated online.

Put these three together and you have a forcing function of unparalleled power.

You must think of what is about to occur as being a revolution, not an acceleration. The equilibrium has been punctured. Our direction of travel has been changed.

The following 20 trends mix up those that were underway before coronavirus with those that have been catalysed by coronavirus. 

Critically each trend, which may be specific to one asset class, has a knock on effect to other asset classes. Much commentary is on the office market today, but be in no doubt that the pandemic is upending all of real estate. Residential, retail and industrial markets are all in flux. 

There is no safe harbour. Across real estate, the risk profile is rising. 

1. We start with the relentless speeding up of technology. Just think of your phone - todays versions are mighty impressive, but in 10 years they will be 100 times more powerful. What will we be doing with all that power?

2. We are moving to an AI everywhere world, supported by huge increases in computing power, data and the sophistication of advanced algorithms, particularly in the sphere of deep learning. Increasingly we will be utilising AI to help us design, build and operate our real estate.

Understanding how AI can both augment our own capabilities and provide smarter, better real estate for our customers is going to become a prized skill within the industry.

Being human really matters in a deeply technological world. But being human alone will not win the race. 

You must learn to embrace the machines. Human + Machine wins.

3. The ‘office as spreadsheet’, where we lined up desks like cells, and everyone did something structured, repeatable or predictable in them, is dead. The mainstream market does not realise yet just how dead the old form factors of offices are. But they will soon. 

4. Google put out a report in 2015 entitled ‘Workplace 2020’. In it they wrote: 

‘Flexible working is the defining characteristic of the future workplace’.

Kudos to them as they nailed it - the only thing they could have done better would have been to replace workplace with real estate.

How flexible is your real estate? Do not buy real estate that is not flexible.

5. Improving the pleasure or productivity of people is the core value proposition. In offices and industrial spaces we need to enable people to be as productive as they can be. In retail and residential we need to create pleasure zones.

Being in our real estate needs to be better than being anywhere else.

6. This change in value proposition of course changes our business model. We can no longer lease someone space and sit back and wait for the rent to roll in. We used to be in the Bond business, but now we are in the business business. Our customers have a multitude of needs, and we need to be able to satisfy as many of them as possible.

Our job is to service as many of those needs as we can and to think of total income rather than rent as the metric that matters. If you only focus on rent, you’ll be seeing less and less of it.

7. Which means we have new KPIs, key performance indicators. Our customers, our investors, and we care about sustainability, so we’ll be needing better, clearer, more real time, and honest, numbers to keep us as exemplars in the marketplace. These will help us provide our customers with spaces that promote their ‘health and wellbeing’. And of course we will need to fixate on flexibility. 

Throughout our business we will be intensely human, but always supported by data.

8. The user experience we can deliver our customers is what will set us apart. That user experience will become entwined with our Brand. Our customers will stay loyal to our Brand because our Brand gives them what they want.

For landlords with office space to let, who want to offer flex space, the operator they choose to work with matters. Seriously matters. As the market deepens and matures this point will only get stronger. Real estate is about to become much more differentiated. Our customers will be singling out Brands they want to do business with.

Choose you Operator wisely.

9. Assets matter more going forward as well. Creating desirable space does require the right type of asset. There will still be low risk assets for investors to buy but the returns will be increasingly low as prices are driven up through low supply. Decent returns will only be achievable through active management. Lease and leave is going to be a harder game to play.

You need the right asset with the right operator. Across all asset classes. Beware the ordinary.

10. Because fundamentally the real estate industry is no longer about real estate. Deep real estate knowledge is still a necessity, but it is no longer sufficient.

The real estate company of the future is a different beast to the real estate company of today.

Most notably it is now human centric. We no longer start with the real estate, we start with the customer, and work back to the real estate.

Those ten trends were all in place pre pandemic - these next ten are the result of the forcing function of Covid. That is compressing the next decade into the next year.

11. Starting with the obvious point that the only thing, related to the office market, that we do not know about the rise of distributed working, is to what degree it will take hold.

The pandemic has irreversibly broken the chain that bound work to the central HQ. We have 18 months evidence that all of us turning up at HQ five days a week is not a prerequisite of a successful business.

The Genie IS out of the bottle, and you know what they say about putting it back in again.

12. At a macro level demand for office space will decline. Historically we never used office space very efficiently, or effectively. Every CFO is now keenly aware that they were probably paying for too much of it. Overall, per person, core office space is 100% certain to be in less demand. You cannot move from a five day week, to a two or three day one and not expect change.

13. BUT, and it is the critical but …. At a micro level, demand for space will grow. The point is that the right type of office space, operated in the right type of way, will be in high demand. Very high demand. Because there will not be all that much of it.

Space that catalyses human skills, and is managed and operated with a keen understanding of the wants, needs, and desires of customers will thrive. Really thrive. Because it will enable people to be unusually happy, healthy AND productive.

Creating and curating this type of space is not easy. Not easy at all. But that is a feature not a bug. The fact that many, if not most, landlords will not be able to offer such space, means that those who can will be prized.

This is no longer a market where everyone rises and falls in lockstep.

14. Demand for industrial space cannot fail but to grow, in line with the increase in e-commerce. But a word of warning: first, the real holy grail in e-commerce is being able to get goods to people quickly, so networks of smaller, utility spaces, are where the real action will be. Watch out for the changing nature of delivery patterns. And secondly, old fashioned sheds are nowadays some of the most high tech real estate out there. So who actually benefits most from increased demand is a moot point. Just dumb walls and a roof isn’t going to get you very far anymore.

15. In a world where you can work remotely (as we have largely done successfully for the last 18 months) or only need to be in HQ a couple of days a week, is bound to lead to different residential demand patterns. The ‘commuter’ belt might be many hours further out from CBDs. Superstar cities are great, but super expensive. People will rethink their relationship with them. 

They’ll also be much more conscious of the need for space to work. Either in dedicated areas at home, or in ‘work near home’ spaces. 

Conversely, if we see much more residential developed to replace offices in central business districts we might well see many more people living centrally in 10 years time than we do now.

Expect to see many new business models develop in the residential sector.

16. One of those business models, across all asset types, will be in providing spaces that are both better designed, with a greater focus on individual human needs, and massively more data driven.

A great space needs quantitative AND qualitative data. Very often we have one or the other. Or the data resides in disparate, unconnected systems.

It is imperative to not only build more robust, real time data systems, but to merge these with your human systems. For example, we need to be tracking environmental conditions throughout our spaces, at a very granular level and in an ongoing, real time manner, but we then need to be analysing and acting on this data, in a very human centric way.

What does our customer want. Are we providing it. If not, what do we need to improve?

And repeat. And repeat.

17. As mentioned before, there will be no success in real estate without great attention being paid to flexibility. The more, the better.

This might mean flexible terms, but it is also going to be about creating flexible spaces, where the form factor can be continually iterated based on need. We have a stage, and we have sets. How easily can we redesign, or rearrange the sets. How many different plays can we accommodate?

But flexibility costs. All sides know this. But the lack of flexibility also costs, often much more. We need to strike a balance, and it will not be cost free. Remember though that we are aiming to create more efficient and more effective space. The gains from that can be fed back into the costs of flexibility.

18. Historically in real estate we have aimed to lease the most amount of space possible, for the longest amount of time. 

But in the new, high service delivery, real estate world we should be thinking about how we can optimise space, and the length of time it is available for, in order to achieve the highest revenue.

Giving our customers exactly what they want, for the amount of time they want it, is the future.

We want to sell concentrate - at higher value.

19. But we also want to sell the best space. 

What does that mean today, and in the future.

This is my take on that for the office market, but the principles apply across asset classes.

For offices, I think the best means space that is sustainable, provides exceptional indoor air quality, and a human skills catalysing environment.

Does everyone care about these things? No absolutely not. Many individuals and companies have no interest in such things. But my contention is that the best companies, with the highest skilled employees, most certainly do. The employees do, their investors do, and so do their customers.

And by best, I do not mean only the ‘financially’ best companies. The best companies, across all categories, care about such things.

And with companies like these, doubling down on providing the best space is a serious competitive advantage.

Be the best to attract the best.

20. And finally, as an industry, we need to better align interests amongst stakeholders. The only way to create and curate truly great spaces and places is by being able to control hardware, software, and services. To maximise each of our returns we need to maximise all of our returns. We need to stop playing a zero sum game where for one of us to win the other has to lose. We need to be playing the bigger pie game.

To sum up all of these twenty trends I think we need to understand that real estate is no longer about satisfying needs, it is about creating desire.

Certainly within the office and retail sectors our customers no longer NEED our real estate. All of us can go shopping without shops and can work without offices.

So we need to make people want our real estate.

We now have the tools and capabilities to design, build and operate better real estate than ever before.

Do that and you win the game.

The paradox of an exponential tech world ...

Wrapped Reichstag, 1985. Christo and Jeanne-Claude

A thread from Twitter:

The paradox of an exponential tech world: It’s human skills, and needs, that will really matter.

The ‘machines’ will be doing every task that is ‘structured, repeatable, predictable’. So what will us humans do? Some (but small numbers) will be writing code. But the 90% not doing that? Human work….

Having great human skills will be the essential capability of most successful humans. Design, Imagination, Inspiration, Creation, Empathy, Intuition, Innovation, Abstract & Critical Thinking, Collaboration, Social intelligence, Judgement.

These will be leveraged to machine skills, but mostly WE won’t be doing ‘tech’ work. We’ll be doing human work. Because the machines, largely, don’t need our tech skills.

So where will we be doing this human work? In the Metaverse? Via avatars? Or with other real life, corporeal humans? Our AI assistants might play in the Metaverse on our behalf but will we? I suspect we are making a mistake…

We’re assuming our lives will become ever more tech enabled, because the tech is available to make it so. But we add little value in anything other than where we can use our human skills. To create the value to play it’s these skills that will fill our days.

The irony of hyper tech is that it commoditises us humans. Some (a v small %) will amass fortunes. But ordinary levels of wealth will accrue to the most human amongst us. Purpose is our Achilles heal. We humans need it. And mostly, purpose comes from humanity.

So, giving humans what the machines cannot, will be the killer skill in a hyper technical world. We’ll all have great tech; what else we have will be what matters.

Just look at the mess that so many super rich people are. They have everything, but find it means little. They lose what it means to be a human. And that ends badly. We’ll all be like that one-day. Our tech will be wondrous, but it won’t be enough.

So my guess is that using tech to enable people to live richer human lives will reap great rewards. They isn’t a richer life to be had in the Metaverse. Fun, entertaining, addictive yes. But richer? No.

And TBC, this is a profoundly pro tech thread. Tech must be embraced, the future must be grasped. But that is table stakes. How one builds the human layer on top of the tech will be the superpower. Human on tech, not tech on human. The two are very different.

PS. All of which means quite a lot for real estate….

Build, Measure, Learn in Real Estate

I was delighted to have joined Vlad Buzoianu and Smaranda Ignat, both alumni of the Real Innovation Academy , on their On Campus podcast from Romania. The two of them are key innovators in their country and doing great and inspiring work.