THE BLOG
You cannot brand real estate
David - Michelangelo - 1501-1504 - Accademia Gallery - Florence
“There is only one thing in the world worse than being talked about, and that is not being talked about.”
Early in my career I remember being told, in very strong terms, that in the office market you cannot Brand real estate. That, alongside ‘never mix asset classes’, were two ‘rules’ that cannot be disobeyed. An office building needed to be built to a set of generic standards, and never sullied by having any retail or residential, let alone leisure, incorporated.
Disobey these rules and you won’t have an ‘institution grade’ asset.
A bit like ‘East is East, West is West, and never the twain shall meet’, asset classes had borders. That DO NOT overlap.
Over the years these rules have softened somewhat, but not all that much. We still think of Cities in terms of having CBDs, and different areas where we generally live, work, or play. The very reason there is much discussion around ’15 Minute Cities’ is because few locations have a full mix of all the real estate use classes that are needed to satisfy our daily needs.
And can you name me a commercial real estate company that has a Brand recognisable by the general public? WeWork perhaps? For all their historical faults they did create something that very very few real estate companies have managed; a recognisable and distinct public identity. Take the largest real estate companies in your country and ask yourself ‘does anyone outside the industry know their name?’. Almost definitely the answer will be no.
And for most, that is exactly as they would wish it. They did not need to be known outside the investment community that funded and bought their developments.
Those days are over, and that mindset must be cast aside. Not only are the borders of asset classes melting and morphing, but ‘Brand’ is going to be the next big thing in real estate.
Jeff Bezos says that your Brand is ‘what other people say about you when you’re not in the room’. Your Brand represents your own companies values, how your employee’s actually behave against those values, and your customers impressions of what it is like to do business with you. For people to be saying good things about you you need all three sides of this triangle to be in harmony. Just think of those Brands you love and those Brands you hate - it’s not hard to say where they succeed or fail is it?
In commercial real estate the opinion of end users was largely irrelevant. Buildings were developed for investors, and so long as investors were getting what they wanted (essentially long term stable revenue), the actual users of these buildings needed only the gentlest of TLC. The relationship was implicit in the phrase ‘Landlord and Tenant’.
Today we are moving from being an industry selling a product, to one delivering a service. Critically we now have to persuade our customers that they ‘want’ what we have to sell, rather than just provide them with what they ‘need’.
In a service business you need a Brand. You absolutely have to have a Brand. And real estate is now in the service business. So, from being an industry happy to fly under the radar of public consciousness, we are going to living by Oscar Wilde’s mantra:
“There is only one thing in the world worse than being talked about, and that is not being talked about.”
The next big thing in real estate is going to be Brand building. Specifically it is going to be about creating and curating buildings that are tailored to delivering a specific, defined, and differentiated, UX, or user experience. These are going to be built on top of a profound understanding of the wants, needs and desires of existing customers or the customers being targeted.
Importantly this means moving beyond thinking ‘all customers are equal’ - the aim is to design a Brand experience appropriate to a particular market segment. To an extent the better owners/developers have always done this, but the intensity needs to be raised. Our customers now have the ultimate optionality - as during the last two years they could just give having an office a miss, full stop. Will most companies drop their offices? Highly unlikely, but they will refactor their needs and reappraise their requirements. We need to understand these needs and requirements like never before. We are now in the ‘creating desire’ business.
Which is why this is nirvana for the creative, the innovators and the visionaries within the industry. Or those being attracted into the industry because these new opportunities are now presenting themselves. The chance to forego the generic, to throw out ‘industry standard’ thinking and to fundamentally re-imagine the role and purpose of real estate in our customers lives is tantalising. At least to a certain type. The type that will thrive in this market.
The winners will not look, at all, the same, but you can guarantee that each and every one of them will be building a Brand that does have traction outside the industry. Perhaps at a very local level, or a City level, perhaps Country wide, maybe even internationally and on to globally. The point being that a Brand needs to resonate with its target market, and that comes in many shapes, and sizes. Turnover is vanity, profit is sanity; being a big fish in a small market might be fine. If that is the intention. As would be being a big fish in a big market. There will be many Brand winners; let the creators create.
In this world you need to think heterogeneous, not homogeneous. What is your ‘Brand Promise’? It helps to think about the luxury car market. Take Audi, Mercedes, BMW. Dispassionately you’d have to say they all produce high end vehicles that are able to transport people in great comfort and style from A to B. With very similar performance. But their Brands are very different; they attract different customers to their own, very particular ‘Brand Promise’. Each has a mythology, a heritage, and an attitude.
The lifetime value of their customers is huge, because once you have bought into a ‘Brand Promise’, so long as that promise is delivered, you tend to stay with that Brand. I had Audis for 20 odd years, my brother BMWs for 25, and my father Mercedes’ for 40+. The only thing that broke my Audi addiction was …. Tesla. A Brand so audaciously different it broke the spell.
What if these were real estate Brands? Could we create user experiences that were so specific, defined and differentiated that we could create customers who stuck with our Brand for 20,30,40 years? Could we create real estate Brands that could provide a service to a small startup that over the years grew into a Unicorn for whom we built their own HQ? Could we hold on to customers this long? What would the LTV (lifetime value) be if we could?
Who knows. There are different variables at work within a companies real estate needs that maybe make very long term thinking over optimistic. However what is certain is that someone can create space that is better for company X than their competitors can. Because that type of company is their focus. And they are thinking beyond real estate.
Real estate, alone, is not enough. Necessary, but no longer sufficient.
Our real estate needs to tell a story. Our Brand is about storytelling.
Let’s think about the story being told:
What is the experience of our building? How does it ‘work’. From the moment you walk, or cycle, into it, how frictionless is it to do what you need to do? Check in, park your bike, have a shower, summon a lift, find the right space for your ‘job to be done’, with the right noise, temperature, lighting? And so on. How well does this machine work? How well oiled is it, how smooth, how powerful?
How does it feel to be in our building? Every building, every space, every place, has a particular ‘feel’. From cozy to grand, from warm to cold, from pleasant to unpleasant, from welcoming to aloof. How does our building feel? Does it feel like our customers would want it to feel?
What human skills do our spaces catalyse? There’s not much point coming to an office that does not catalyse human skills. Most technological needs can be satisfied anywhere, so what human skills does our building aim to catalyse? Does our building energise, or enervate people?
Who are we designing for? The aesthetic of our building is going to attract a certain type of company, with particular types of employees. How well do we understand who we are designing for? This is closely aligned with the types of human skills we are trying to catalyse. What are our customers trying to do, and how well are we designing for them.
What can they help enable you to do? People are going to come to an office to do certain things. Some will come for peace and quiet, and for a conducive environment for focussed solo work. Some will come for team meetings, or events or lectures. Or to use a podcast or video studio. Or whatever. The essential requirement is that our building provides the ‘Space and Services’ that enable anyone to do whatever it is they need to do.
What can you do in our building better than anywhere else? This is the TL:DR question. Really the only one that will tell you if you have a Brand and an asset that will accumulate or destroy value. If your building is not the best place to do X, and it does not matter what X is, then you will have a problem. Our customers have to want to come to our buildings. Mostly, and increasingly, they don’t need to. However for many, and in many circumstances, coming in to a workplace that is designed, monitored and optimised for their ‘jobs to be done’ and that helps them be as happy, healthy AND productive as they can be, is very much a feature not a bug.
The broad ‘Brand Promise’ that real estate operators need to give is to create places and spaces that ARE sustainable and a pleasure to be in, that DO treat their customers health and wellbeing with care and respect, and that ENABLE people to be as productive as they are capable of being.
Each Brand will do so in its own way, with its own customers in mind, but the core requirement is the same.
Without a Brand, life is going to get tough. Start building!
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
Skills in Real Estate: Please Sir, may I have some more?
Ottoman dynasty İznik basin made of painted and glazed stonepaste. İznik, Turkey, 1545–1550. British Museum.
“The more I know, the more I realise I don’t know”
Aristotle, who lived, 384-322 BC, is said to be the last person who knew everything there was that was known. And even he knew nothing, of course, about the areas of the world that he did not know even existed. Prior to the printing press (starting in 1436) enabling widespread dissemination of the written word, it was possible to get close to reading everything that had been written, that existed within the geography you inhabited. Leonardo (1452-1519) famously travelled around with his own library and was of course a noted polymath. When there wasn’t that much to know about any subject, knowing a fair amount about everything was feasible.
Of course those days are long gone. From perhaps 1700 onwards it would no longer be possible, even with access to the material, to have read everything published. Today, you probably could not read in an entire lifetime everything that was published every single day.
Some industries though have not moved as fast as others. Construction hasn’t changed much in centuries, so there have been near contemporaries who knew just about everything there was to know about the industry. Within the wider real estate world it could be argued that until recently all you needed to know was broadly the same as those from 100 years ago. The mechanics, dynamics and economics of real estate never really changed. The fundamentals, the principals by which you measured the feasibility of a project, were almost a ‘rule of nature’. The universe of required knowledge was not large.
Even in real estate though this perpetuation of a status quo is being rent asunder. The real estate professional of today, let alone 5, 10, 20 years off, has to know so much more, about so much more, than the real estate professional of 5, 10, 20 years ago.
Mostly this is due to technology. Back in 2017, Mckinsey wrote ‘Overall, we estimate that 49 percent of the activities that people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology.’ Simply put it’s not the way we work that matters it is the work we do. ‘The Machines’ (to cover computers, robots, automation et al) are ‘slowly, then suddenly’ taking over all job tasks (please note tasks, not jobs) that are structured, repeatable or predictable. The much lauded computer scientist Andrew Ng talks about humans no longer needing to worry about anything that takes them less than a second to consider. All these cognitive tasks will be done by machines. It’s almost like Daniel Kahneman’s ‘Thinking Fast, and Slow’ will no longer apply, as we’ll only be doing the slow thinking.
We live in a paradoxical age. Moore’s Law, which essentially describes how computing power doubles every 18-24 months has held true for nearly six decades. Every decade computers get 100X faster, every 20 years 8000 times, and a million times over 30 years. And as processors increase in speed, coupled with ever expanding datasets, and more and more sophisticated algorithms, the capabilities of machines grows exponentially. The world is becoming ever more technological. Yet, at the same time, the skills of humans are not becoming redundant but in fact ever more important. Because humans and machines are complimentary, and one can be used as a lever for the other.
Machines are good, as we said, at the structured, repeatable, predictable. What they are not good at (at least for now and probably for quite some time) are the things humans, at least potentially, are excellent at. We are good at Design, Imagination, Inspiration, Creation, Empathy, Intuition, Innovation, Abstract & Critical Thinking, Collaboration, Social intelligence, Judgement. And in many cases these are skills best worked at together, in groups and teams.
This paradox, that in practice a more technological world will mean we need to be more concerned about our human skills, than our technological ones, will have wide and pervasive ramifications. Within real estate it will mean that the spaces and places we design, build and operate will utilise the most advanced technologies but, in terms of use, will need to catalyse human skills. The form factor of our real estate will need to adapt and change so as to enable humans to be the best humans they can be. Most of the work they will undertake will involve the human skills mentioned above, and how these skills can inform the design of the software and hardware we want our machines to create. Humans won’t win on their own. Winners will be those who have the understanding and knowledge required to enlist the machines in the service of man. Picasso said ‘Computers are useless, they can only give you answers’, and he was right. Knowing the right questions to ask is the super skill, and that’s a human skill.
All of which leads us to education as being the killer app for those looking for a successful real estate career. Not only is the technology utilised within the industry now developing fast (Covid has acted like a massive forcing function for the PropTech world), but understanding this space is now just necessary, rather than being sufficient. The universe of required knowledge within real estate has exploded.
The industry is now moving from being less about selling a product, than it is about delivering a service. Ownership is no longer the thing, access is. People want more than four walls and a roof. They want a wide range of digital layers being built on top of physical real estate. So the industry is now a service industry. And that is very different from being a product one. And requires a slew of new skills.
In April 2022, Anthropology News, the trade magazine of that industry, published ‘The Work Issue’. Yes the entire issue of Anthropology News was given over to the role of Anthropology in the world of work. And this makes sense, even if it feels other worldly to those of us who have been in real estate a long time. We can easily answer the real estate questions, but can we answer the ones about Branding, or storytelling, or about human behaviour? Quantitative questions, facts and figures, are easy for real estate people, but qualitative ones, about the wants, needs and desires of people, our customers, are way harder. Ask anyone in real estate for a detailed analysis of their customers, and you’ll likely receive a paragraph or two. Ask a company like Lego and you’d receive oceans of data.
Teams within real estate companies are going to become much more multi functional. No longer will the silos of marketing, sales, operations, finance, accounting etc be fit for purpose. In each case getting their ‘job to be done’ done will require both a mix of functional skills, and and a mix of thinkers, feelers, doers. Each of us has their preference: some are good at analytics and understanding the essence of a problem, some have much stronger empathetic abilities than others and can understand the social, psychological and emotional reasons behind XYZ. And some of us are best just getting the job done. Putting into action a plan. Successful teams will leverage all of these complimentary skills.
A rule of thumb of the industry will be starting with the individual and working back to the real estate. Thinking of real estate as the output, not the input. Only by deeply understanding what it is your customer wants will we create great real estate.
So many new skills, and so much new knowledge is required. Everyone needs to be continually educating and re-educating themselves. As Bob Dylan wrote in 1965, ‘he not busy being born is busy dying’.
So, please Sir, may I have some more ....
Innovation: If not now, then when?
The Cathedral of Santa Maria del Fiore, Florence. Dome by Brunelleschi. Started 1418
To brutalise Leo Tolstoy, every non innovative company is the same, but every innovative company is innovative in their own way.
When you look at innovative companies they are all doing so in their own particular way. It can be difficult to understand what one can learn from individual companies, especially from sectors not our own.
There are though a set of principles about innovation that are generic and timeless. There is a ‘way to think’ about how to be an innovative company, that will stand you in good stead, in whatever industry, as an individual, a team member, an employee or an employer. Learning how to ingest the innovative spirit is a crucial human and business skill.
Today we are in an environment where being innovative is not just a nice to have but an absolute necessity. The highest inflation for 40 years, war in Europe, a recovering but badly damaged global supply chain, the fallout from a worldwide pandemic, and the ever looming impact of climate change. These are not normal times. We are in a bad and dangerous place, that could be manageable but might also spiral out of control.
And the real estate industry is at the heart of all of this. We spend 90% of our time indoors, in real estate, so everything that affects the wider world manifests itself, in one way or another, in real estate.
So. Innovation: if not now, when?
To be fair, innovation has been a warm, if not hot, topic within real estate for some time. However, if we are honest about it, we have often been better at innovation theatre than innovation itself. About appearing to be embracing innovation, rather than actually doing so. True, many large companies now have ‘Innovation’ departments but in practice these tend to be small, if not tiny, with no guiding ‘North Star’, little genuine ‘air cover’ from CEO’s, and with meagre resources. Enough to facilitate a press release but not enough to get much done.
I say this whilst knowing there are some solid exceptions. We are talking as a rule of thumb here. Also, it is not meant as a criticism, or at least not a harsh one. Because as an industry historically we have not needed to be very innovative. Not a lot changed year by year and, mostly, our customers needed what we had to sell. We’ve been not quite a ‘take it or leave it’ industry but certainly much more so than other sectors.
All this though is or has changed. Whereas we used to be about selling products (four walls and a roof) we’re now moving fast and far into being a service industry, where delivering a service is what we do. We are now being asked, forced, to come up with spaces and places that are inherently flexible, across many dimensions, and that continually respond and react to changing wants and needs. And when your business is about developing and testing hypotheses, and iterating and rolling out the ones that work, you need a level of inherent innovativeness that is orders of magnitude greater than has been needed in more static environments.
And that’s where we are in real estate today. We need to become innovation machines.
Here are a number of ways to make that happen.
Everything starts with understanding your customer. How well do you know them? How well do you understand their wants and needs? What matters to them? It’s an odd thing that in the real estate industry we have our customers in our buildings much of the day but we hardly know very much about them at all. Admittedly we’ve not needed to historically but now that people no longer need a shop to go shopping, or an office to work in, we need to get to what is it about our buildings that makes them places people will want to come to, and spend time in? Customers need to be understood in granular detail. They need to be segmented, probably grouped into ‘personas’, and then analysed in depth. For every persona, for every ‘job to be done’ it’s worth using the ‘Value Proposition Canvas’ to help you discern where you need to focus your attention. I’ll cover this more in a future post.
Your team working on innovation needs to be autonomous and multifunctional. You need it to consist of people from different departments, with different skills and with more and less authority. You want representation from across the board; juniors, middle level executives and senior leaders. Innovation teams must not be a club of the like minded. The more diversity of thought, experience and skills you can inject into innovation the better.
You must have a clearly articulated company vision. What is the purpose of our company, what does it stand for, what values does it aspire to? Why are we innovating? What for? What do we hope to achieve? What matters? It is possible the purpose of the innovation group is to help define all of this, but either way you need a ‘North Star’.
The innovation team must be away from the C suite, but close enough for it to always be top of their minds. You need to give the innovators space to breath, but knowledge that what they are doing matters, and is a key interest of the powers that be.
Most specifically you need to have solid ‘Air Cover’ from the CEO that part of your mission is to focus on how competitors would compete with the company, in order that, if necessary, you can compete with yourself first. It needs to be explicit that how things are done today is not accepted as being the way they should be done. The innovation team is not there to deify the status quo.
There is a somewhat clunky term called ‘Psychological Safety’ that has become well known in certain business circles. Google in particular is keen on talking about psychological safety. Despite it being leaden, its meaning, which is that people must feel enabled to think how they wish, talk as they wish, and fail without fear of retribution, is important. Especially in innovation teams every voice must be heard, every opinion noted and considered, and every hypotheses tested. From a standing start one does not know what ideas turn out to be good, or from where they might come. You need to foster an open, idea dense ethos amongst the innovation team. Get it all out there, leave no stone unturned.
Establishing a foresight function has merit. What’s coming down the tracks? What scenarios might play out, over the next 2 years, within 2-5 years, or 10, or long term? What technologies are likely to impact the company short, mid and long term? Where do our products and services sit on the ’S’ curve. What is a great business today that might not be if X or Y happens. What are the chances of X or Y happening, and when? And so forth. Maybe built around concentrated workshops every quarter, a foresight function helps to alert the mothership of storms, or sunny uplands, ahead. And hopefully gives it time to reset, recalibrate and restructure as necessary.
You need to get into the habit, wherever possible, of building with your customers, not just for them. Co-creating products and services. This keeps you deeply embedded in the thought processes of your customers and helps you optimise against real, rather than hypothetical, needs. There are caveats to this, and Apple is the poster child for this approach, where you very much don’t involve your customers. But this only works if you have unique insights into the future utility of your products and services that would be hard to explain until they actually existed. Try explaining the iPhone before it existed. On balance, building with not for is the better approach.
Steve Jobs was famous for saying ‘Real Artists Ship’, and you should. Get something done, in the hands of users. The vision might be huge but no vision comes to life fully formed. ‘How do you eat an Elephant? - one spoonful at a time!’ This should be your mantra. There is a lot of tech ready for use in real estate today. Perhaps not perfect but well worth testing out. Get it in one building, learn from that and then iterate. In the same way working with customers is important, so is working with suppliers. Help them help you.
Probe what people would pay for. By working with, and talking to, a very diverse and inclusive group of people you should be able to gauge what different segments of the market value, and how much they’d be willing to spend on something. Test as many options as you can. We are all different.
Try to develop partnerships with complimentary groups, and don’t be afraid to steal great ideas. Picasso said ‘good artists copy, great artists steal’. By which he meant some ideas are great because they are built on certain fundamental truths that have depth and nuance. That are worth adopting at a deep and pervasive level. Often these ideas are exogenous, whereby they originate from outside one’s organisation or usual peer group. Cast your net wide.
Seek out your own blind spots. What weaknesses do you actually have? That maybe you don’t normally think about, or even acknowledge. Where are you vulnerable? Keep a top 5, and test them regularly. How vulnerable is vulnerable? And over what time scale, or under what circumstances. Can you envisage a ‘Black Swan’ event hitting your company? Where would it come from?
Remove friction and enable discovery. Learn to love the UX, the user experience, of working for, or with your company. Break every interaction, every workflow down, and look at how much friction doing A or B or C involves. How hard is it to do business with your company? Be a secret shopper - test out working with yourself. And then ask yourself, does everyone who needs something have easy access to whatever it is, wherever and whenever they need it. This is the discovery question? Can I access anything I need, anywhere? If not, why not?
Innovation teams need to be responsible as a group. Everyone involved with an innovation needs to be co-responsible for its success or failure. Never make an individual the sole person responsible. Everyone needs to feel invested in an innovation. Everyone needs to care. And never pass on costs relating to trialling an innovation to a business unit so that if it fails their P&L is impacted. If someone is at risk from challenging the status quo they won’t help you do so. Not all innovations work, or are ultimately worthwhile adopting. You need to make it OK to try, and fail if so be it.
You need to work at speed, as momentum matters, and you need to communicate amongst yourselves constantly and in depth. Everyone needs to know everything that impacts on what they are trying to achieve. Always.
And finally you need to foster a spirit of cultural alignment where the default presumption is that change is good. The whole company needs to be conditioned for change. Innovation is not a sideshow, or something ‘they’ do. It is something we do. We are an innovative company, by instinct and preference.
All of the above can apply to any company in real estate. As you’ve seen it is largely about mindset and how one operates as a company. You can take many specific approaches, and head in a multitude of directions but so long as you keep to these guide rails you will be well placed to succeed.
The real estate industry, over the next decade, is going to see the rise of many new ‘Brands’, each offering a range of new products and services, with new business models aplenty. The best participants are going to differentiate themselves like never before, and most likely be more successful than ever before. And they will innovate like crazy. Against this many will keep to a bit of innovation theatre, not grasp just how fundamental the changes affecting the industry are, and will see value drain away, faster than they could ever have imagined.
Unlike the old days, we are not all going to rise and fall solely dependant on the real estate cycle. Some will thrive regardless, and some will be crushed.
And the beauty of this? It’s going to be down to the choices we all make. We have agency. And that is a beautiful thing.
PS. Filippo Brunelleschi needed several major innovations to construct what is still one of the largest domes in the world.
For a quick explanation click here
Or for a great book on this most extraordinary building, click here
The KPIs of the office of the future
Work - Ford Maddox Brown 1865, Manchester Art Gallery
I’ve been reading much commentary recently on how to measure, to value, the modern office. Especially post Covid, as we clearly head into a world of distributed working, where the HQ is no longer the be all and end all of our working lives.
Mostly I’ve not been very impressed. The thinking seems to be too constrained by how things have been, and iterating the past seems to be hard to get beyond.
So here’s my take (as given within the #FutureProofOffice course I co-run, with Dror Poleg, at the Real Innovation Academy)
The workplace has a problem. And it has a problem in three main areas.
It has a problem in the area of having unaligned incentives, a problem in the area of having a lack of data, and a problem in that it suffers from organisational silos.
Let’s start with the problems of unaligned incentives.
The trouble is you have landlords, occupiers, and property managers, each with incentives that go in a different direction. So the landlord just wants the highest rent possible with the lowest costs and requiring of the minimum of effort.
Then we have the occupiers. They want the lowest rent, but they also want flexibility and they want the highest level of service.
And lastly the property managers. Well, they are sort of stuck in the middle. What ‘they’ really want is to have some pricing power, to not be commoditised, which is very much the situation in property management at the moment.
So you've got three stakeholders, with completely unaligned incentives.
This ‘landlord-tenant dilemma’, with the property managers trying to be the neutral party in the middle, is a well known issue in the office market, and very much a consequence of the way we transact, via leases. It is so easy for there to be a financial disconnect between those responsible for paying the capital expenditure for operational upgrades, and those who benefit from them.
When we look at how the office market is routinely structured it is really no surprise that each party continually feels aggrieved at their lot. And that so many buildings are underinvested in. Maintaining an up to date stock, utilising the most advanced labour and cost saving technology, and setting stretching sustainability goals, is nigh on impossible with how the industry is structurally configured. The 3 or 5 year rent review process itself is like mutually agreeing to having a heated argument periodically.
The misaligning of incentives is, using a tech term, a very serious bug.
If you then look at the subject of data, you’ll find that everyone collects some data. But few collect what is needed, few have actually put that much thought into what data they really need to collect. And mostly you will find that the data that is collected is all over the place. Some of it is over here, and some of it is over there.
The general situation within real estate in connection with data, is there is not enough of it. It is not well enough thought out, and it is not well enough stored and maintained.
And then you have organisational silos. In my mind to create a great workplace requires the skills of what are, today, six different industries.
So, first off you obviously need people with real estate knowledge. Then you need people with IT knowledge, and Internet of Things, network knowledge, and you need data analysts, and you need HR people, and you need hospitality skills.
So there's actually six individual industries, each with their own incentives, that need to be combined, to create a really good workplace.
And this is a problem. And this has really led to what the elephant in the room is. And that is, if we're honest about it, on average, offices are hashtag double fail.
If you look at data from the Leesman index, who have over the last ten years done more than 800,000 individual employee surveys, you will see that they ask one particularly telling question - ‘does your workplace enable you to work productively?
Well, after these hundreds of thousands of surveys, only about 50% of respondents agree that their workplace enables them to work productively. And then if you look at desk utilisation, we all know it is roughly 50%. In fact, most of the time it is probably a bit lower than that.
So we have this situation that if we are brutally honest about it, half our customers aren't very happy with what we are selling them. And they are not using what we are selling them very much anyway. That really is something of a double fail that we just ignore.
But it is coming to the stage where we cannot ignore it anymore. Because the fundamental point here, is that within the real estate industry, we think of ‘Offices’. But it is all a bit of a category error. Because we are creating offices, we think what we have got to sell, and all our customer is after, is offices. But there's no business that actually wants an office. What they want is a productive workforce. It is exactly the same as manufacturers of household drills. Nobody wants a drill. What they want is a hole in the wall.
Because we are selling offices, that’s what we think our customer actually wants. But they don’t. They don't want an office, they want a productive workforce.
So what if you made improving the productivity of people the core value proposition within the Office real estate market
What if we stopped thinking about space, and started thinking about improving the productivity of people.
What if that was our offer to customers?
Now you have probably seen the graphic from the Green Building Council a few years ago that points out that on average 1% of the cost of running an office building goes on utilities, 9% goes on rental costs, and a full 90% goes on the people working in that space. So clearly, if you make a 10% impact on 1%, or a 10% impact on 90% you are making a massive difference in impact.
Within the real estate industry, we really do focus on the 1%, and the 9%. And historically, we really haven't paid much attention, at all, to the 90%.
And if you think about it, this is what left the door open for the Flex Operators. For all their subsequent difficulties, the WeWork founders are to be much admired for seeing that the human had been left out of the loop, and that a different type of ‘office’ was possible, one that actually looked, and was, human friendly.
With Flex operators having taken vast amounts of space over the last few years, and filled them, it is clear that customers loved the new product they were being offered. And people love the product because the product, the flex market, is human-centric. It appeals to people. The traditional real estate industry concentrates on the energy and the rental costs and the building. And almost ignores people altogether.
So I think to differentiate, you need really need to start thinking that the core value proposition, and what you're offering, is not space. It's not a building. It's improving the productivity of people in that building.
Now, if we did this, the real estate industry would actually no longer be about real estate. Everything that you know about real estate now will be as valid tomorrow, next week, next year, as it is today. But going forward, it will be ‘necessary, but no longer sufficient’.
Because really real estate is going back to what we've just looked at, as something that needs to be built up from a whole range of skills. So we will say IT, IoT, Data, Workplace, HR, Hospitality, all these skills are required to create great user experiences, and great user experiences will go a long way to being the key to creating productive workforces.
So if we thought like this, if we put people at the centre of our value proposition, we could look to how we can break down those silos, align incentives, work from data and add a huge component of human onto all this machine. This is very much a Human plus Machine world we are moving into. So if we did that, what data do we need to make improving the productivity of people the core value proposition?
Now, we've gone through hundreds of documents, hundreds of reports, and dozens of books within the literature - there has been endless amounts written about improving the productivity of people within the office. And there has been loads and loads of attempts to do it, some taking the form of asking hundreds and hundreds of questions. Mostly, they failed, because they haven't really focused, really focused on what is it we really need to know. What are the key variables we need, to be able to improve the productivity of people, within our office buildings.
And actually, we need quantitative data. And we need qualitative data. So we need objective data. And we need subjective data. And we need all of this data to start working together. Because the industry works in silos. A lot of this data that we're going to discuss is collected in some place. But it is never, ever joined up. It never works together, and it's never available to analyse properly, as one.
So let us have a look through what data we really need.
In terms of quantitative data, so the objective data, absolutely the key starting point, even more so now after the pandemic, is environmental conditions. So the big four are temperature, noise, lighting, and air quality, which includes the tracking of particulate matter, carbon dioxide and carbon monoxide levels, total volatile organic compounds, and humidity. These are the most important environmental factors that need to be measured in real time and at a very granular level.
Then we need to, at the FM services level, check things like Helpdesk requests, how many are received and in what categories. What is the Meeting Room availability, broken down at the individual room level? What is the vacancy ratio by room? What is the the speed of visitor processing? How quickly do we get people into our buildings? How welcoming is the reception they get when someone comes into a building.
More quantitative data is required about our workplace. We really need to understand the utilisation of our space, not just an average across a whole building or a whole floor, again we need to understand this at a very granular level, what space is being used, at what time, by what teams and in what location.
And then obviously density, we need to understand what is the space to desk ratio. And we need to measure some factors to give us an understanding of health and well being. So if you start to track the number of sick days taken, how many days are lost by people not being well?
How many health complaints do we get within the building? How many workplace accidents do we get? What is the staff turnover?
This is where you have to start working WITH HR,
because only they have this data, but it rarely gets incorporated into quantitative data studies. So a lot of the time you don't really understand how well a space is performing, because you just do not have access to this level of data.
Then you have the qualitative data. So this is the subjective data. This is derived by actually asking people how they feel. Now a lot of people dismiss how people ‘feel’ but it is actually incredibly important. Because a lot of time you have to correlate between how someone feels and how how a particular space is operating. And you need to understand people, people’s circumstances. If people have had a particularly tough time at home, or getting to the office, they are much more likely to moan about it's too hot, too cold, or whatever? So there's a lot of nuance that needs to come into this. And we need to understand how employees, as people who work in this space, how they feel about their space.
So in the spaces they work in, is the temperature, right?
Is the noise level okay? How is the air quality for them?
Do they have good lighting? And we need to know this for everybody? Everybody, because you cannot generalise here. Everybody has a particular thing that they are interested in. And we need to hone in on really understanding the needs of individuals.
And there are many qualitative data points in terms of FM services. People like to feel that they have control over their personal environment. Do they have that? They are obviously interested and keen on understanding the quality of the catering and refreshments. How easy is it to book meeting rooms? What about the cleanliness of toilets. It feels like a very trivial thing. But it is a very big thing to everyone if you have dirty toilets. How tidy is the workplace? Is it regularly cleaned? Does it look good?
What is the quality of the decor? Is this workplace a nice place to be?
What is the quality of the visitor management service. How well are guests treated when they come for a meeting. Do they feel welcomed into the building, or into a particular office floor. This matters. People often judge a company by such matters. After all, they can choose who they want to do business with.
And then of course, we should be undertaking regular wellness surveys. You cannot manage what you cannot measure, as they say, and that applies to wellness as well.
There is a lot of detailed data that is required around workplace settings. It is vital that people have the equipment that they need to do their job, but also access to the right spaces in which to do it. So you need to ask people, do you have the right space? For the personal meetings you have? Do you have space for thinking? Do you have space for creative thinking? Do you have space for relaxing? And is it easy to find somewhere to take a break? Are there spaces where you can learn from others?
Are there spaces where you can do individual focussed work which is desk-bound? And what is the quality of your desk? And what is the quality of the hardware and the software you've been given to work with? What is the quality of the meeting rooms? What is the quality of connectivity within your workplace? Can you work anywhere? Is there a good wifi signal everywhere?
Do you have storage for all your belongings?
And what are the end of journey facilities like, so if you're cycling to your building, what is it like when you get there?
These are really, really important factors and drivers in the satisfaction, or not, of office space.
Above all of that, we need to spend a lot of time actually looking at ‘Wellbeing’ in general. Now probably the best way to do this is to look at the work that the Well Foundation and Fitwel are doing because they are both tailored for Real Estate. But the point here is what we are trying to do. There is a great deal of research about the impact on cognitive function of environmental conditions. Many peer reviewed papers exist about this. It is not a subjective question about ‘can a workplace enable you to be more productive’. It can, because at the very least, what it can do is ‘do no harm’. And a workplace can be operated in such a way that it performs as well as it is capable of performing.
Because we know if a space is too hot or too cold, or has carbon dioxide levels that are too high, or is too noisy, or has poor lighting, or is too humid, or not humid enough, that the effect will be that the occupiers of that space will have their cognitive functions impaired, and that will, has to, reduce their productivity.
Get these environmental factors right and we know we can help enable people to be as productive as they are capable of being.
Now we cannot make a bad company good by putting
a bad company in a great workplace. But we can make a great company better by putting them in a great workplace.
Because the whole point here is really understanding the conditions, the best conditions, that this space can offer. And measuring and monitoring and optimising on an ongoing basis to provide optimum environmental conditions for the tasks that people have to do.
Now, of course, there's the question of, well, will anyone pay for this? And to an extent this is relatively early days, because frankly, very few people actually pay the attention to monitor their workplace in anything like the detail we are discussing here. But the RICS, the Royal Institute of Chartered Surveyors, put out a report last year, about the use and value of commercial property data. And there's a comment in there that says ‘there is evidence from Knight Frank of landlords in Europe, offering a top slice of rent over and above the market rent, geared to experience, in a similar way to turnover rates in retail.’
And I think the whole premise of this is that this is about creating a user experience that is dramatically better than the user experience of your peers and competitors, and a user experience that you can prove, with data. Will people pay for better? Historically, everyone pays for better.
So to sum it all up, what we're really looking at is how do we understand our building, through really in depth, granular and often real time data? So think about it. Think about it like this, we better understand how our building is actually working. We know the temperature, air quality, lighting, noise levels, everywhere, and through time as well.
Then we get to understand how the space is used, by the people within it. We learn about occupancy levels, density, footfall, desire paths. We are no longer guessing which spaces are busy or quiet, at any particular time of day, or day itself. We start to know enough to be able to predict how the building is going to be used.
And then we need to know more and more about our customers, the more we know about our customers, in terms of their ‘jobs to be done’, the tasks they need to do during the day. And the spaces they need to do them in. What are their wants, needs and desires. This is absolutely what this is all about - it is about how do we create a great user experience. You cannot do it without really understanding all of this sort of data.
If you had all the data referred to here, could you really not demonstrate value? Of course you could. We just need to do what we know we should. Forget how it’s been done to date, we know there is a better way.
How about we stop talking, and started doing?