THE BLOG
Human + Machine: The Unbeatable Double Act
Archimedes of Syracuse
We have to embrace the machines. And by machines I mean all forms of computationally powered software and hardware.
Not because if we do not they are going to take over the world, but because on our own neither are we. We may think humans run the world but in reality most of modern life is run by machines, and the things that work best are those where humans and machines operate in a smooth and symbiotic relationship.
Truth is that the machines, alone, will not ‘win the race’ but neither will humans. We have evolved to a state where we need each other.
We need to be thinking about machines as leverage.
Archimedes of Syracuse said ‘give me a lever long enough, and a fulcrum on which to place it, and I shall move the world’. Well today, machines are our levers and we are our own fulcrum. Humans and machines are complimentary, and if working together, hugely more powerful than working apart.
Human and machines have entirely different skill sets. Simply put what machines are good at is anything that is ‘structured, repeatable, predictable’. Anything that can be defined by a formula, however complicated, or that involves patterns, however obscure, is catnip for machines. Many humans are good at such things as well, but our brains cannot scale like machines can. Humans will never out perform machines at anything ‘structured, repeatable, predictable’.
The flip side of this is that humans are vastly better than machines at anything that involves Design, Imagination, Inspiration, Creation, Empathy, Intuition, Innovation, Abstract & Critical Thinking, Collaboration, Social intelligence or Judgement. These are the quintessential human skills and for now at least, we’ve not learnt how to imbue machines with them. Machines might one day outperform humans at these but it is not, most likely, something to worry about during the next decade or two.
According to a McKinsey report back in 2017, in the world of work Humans & Machines are pretty evenly matched. They 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 demonstratedtechnology.’
That 49% represents tasks that are ‘structured, repeatable, predictable’. If you think of workplaces where desks are lined up, like cells in a spreadsheet, that is the type of work probably being undertaken. Take input A, apply process B to it, and output C. We are all familiar with such tasks. Sometimes they are even quite complicated and mentally taxing. To a machine though they are just logical steps, and all around us we can see endless numbers of such tasks being replaced by ‘Robotic Process Automation’. All of this type of work is leaving the building. Half of what people are paid to do globally is ‘leaving the building’.
AI, as one of the most important technologies attacking the ‘structured, repeatable, predictable’ market is particularly adept at 'Communication, Perception, Knowledge, Reasoning and Planning’. In practical terms this means being able to understand the contents of photographs or videos, and the spoken word or written text. As well as being able to ingest, digest, and analyse vast data sets, looking for patterns, key words or phrases and taking predefined action based on what is found.
With such capabilities, which are very much quantitative, it is not hard to understand why the famed computer scientist Andrew Ng, has said "If a typical person can do a mental task with less than one second of thought, we can automate it using AI”. Which means that, if we look through the lens of Daniel Kahneman’s book ‘Thinking Fast and Slow’, we humans need to be concentrating more on ‘Thinking Slow’, and leave the machines to deal with ‘Thinking Fast.’.
This though is all a good thing. Leave the machines to do what they are good at and concentrate on what we, humans, are good at. Surprisingly the great Artist Picasso summed all this up rather well. He said ‘Computers are useless, all they can do is give you answers’. And that is exactly the point; essentially machines are good at quantitative tasks whilst humans excel at qualitative ones. And therein lies the ‘jobs to be done’ of humans. Thinking up the questions for machines to answer.
So what has this got to do with real estate? Well, Winston Churchill provides the answer to that. He famously said in 1942, during a debate on how to rebuild the UK Houses of Parliament after they had been bombed:
“We shape our buildings and afterwards our buildings shape us’.
This has never been more true than today, and is a key way to think about real estate, and the workplace, going forward. Because it is human skills that will be in most demand in a deeply technological world. As technologies continue their exponential development it is going to be human skills that are enlisted to shape just how those ‘superpowers’ are utilised. It is going to be humans designing the future, not machines. Value is no longer going to come from being really good at structured, repeatable, predictable tasks, because one by one machines are taking over those tasks. And moving further and further up the value chain as well. An absolute imperative of successful companies in the future will be that they contain people with very highly developed human skills who are able to discern, design and implement strategies that co-opt the extraordinary power of machines in the service of a human centric purpose. People who can use their qualitative skills to create products and services that are both technologically sophisticated and deeply human centric. Mostly the technology will be hidden, but the human front end will be the golden goose.
Who has the best environments for humans such as this to work in, with their servant machines? Who can create and curate environments that allow people to operate at the cutting edge of their cognitive ability? Who can develop places and spaces that inspire, that calm, that invigorate, that are empathically ‘fit for purpose’. And who understands what ‘fit for purpose’ is? Who knows enough about their customers, and operates space flexible enough, that it can adapt, morph and be constantly iterated to remain ‘fit for purpose’?
This is no easy task. Getting to a stage where you are maximising technology in the service of humans is a complicated, punishing task. Until you have cracked it. Then the technology, tuned to need, will enable space to operate like software. Where instead of stopping at ‘Build’, space is operated on a ‘Build, Measure, Learn’ basis. The longer it operates, the more it understands and the better it gets.
The workplace is going to become much more human, and much more technological. Make no mistake, the technology is vital, but the most important KPI will be creating spaces and places that catalyse human skills. Because if you don’t what exactly is the point?
Just remember we are living in a Human + Machine world, and neither side can win on their own, but the goal, the aspiration, the desire must be that the machine is their to improve the lot of the human. And real estate can most definitely play its part in making this happen.
Antony
Productivity: Where does Real Estate fit in?
The famously productive artist, Pablo Picasso, with Brigitte Bardot, in his studio. True #SpaceasaService
Within the real estate industry we tend to operate under a misconception, which is spelt out in this saying:
‘Businesses don’t want an office, they want a productive workforce.’
Just like people do not want a drill, they want a hole in the wall, we tend to think our customers want to buy or rent an office from us, because that is what we have to sell. Or at least that is what we had to sell as a product industry. As we are moving into being an industry selling ‘Space as a Service’, increasingly we need to be selling productive workforces, not offices.
To do so we first need to understand just what it is that a real estate company can impact as far as productivity goes. Fundamentally that boils down to not being able to make a bad company good, but enabling a good company to be better.
A recent anecdote I heard involved a large, wealthy American company. They supposedly had an amazing Gensler designed office, with all the bells and whistles one could dream of. What they did not have was a workforce prepared to return to the office post Covid. When discreetly asking why, it turned out that what they had the most of was a truly toxic working environment. For all the good that an excellently designed and thought out office was doing, it stood not a chance against a management culture that was despised by the workforce. Having maintained productivity away from the office, the consensus was ‘let’s just skip the office thing altogether’.
Real estate cannot fix a rotten culture.
What it can do though is enable a productive workforce, should a customer wish to leverage that ability.
Productivity in the workplace is a difficult thing to define. It is true that we can create spaces that provide the services that individuals need to best undertake their current ‘Job to be done’ (aka #SpaceasaService). And we can measure the effectiveness of particular strategies to do so, but their impact on actual productivity is hard to capture definitively. However there is something we can measure that does have a direct bearing on productivity. And that is cognitive function.
Cognitive function refers to multiple mental abilities, including learning, thinking, reasoning, remembering, problem solving, decision making, and attention. I.e the things we need to do to perform ‘knowledge work’. And each of these can be measured and quantified. In fact there is a mountain of peer reviewed studies into this subject matter, but for our purposes all we need to know, for sure, and we do, is that cognitive function is impacted by environmental conditions in the space around us. Simply put, if you put someone in an environment that is less than optimum their cognitive function will be impaired. And operating at maximum productivity is hard to do with impaired cognitive function.
To take just one example of this, as reported by the Harvard T.H. Chan School of Public Health, the Global CogFx study, is a research project conducted among 302 office workers in six countries (China, India, Mexico, Thailand, the UK and the US) that aims to understand the effects of indoor air pollution on cognitive performance. In September 2021 they published a paper (https://iopscience.iop.org/article/10.1088/1748-9326/ac1bd8) that shows the significant acute effects of PM2.5 and ventilation on cognitive test performance.
In their own words …..
‘Some key takeaways:
We developed an ecological momentary assessment framework to administer cognitive tests based on real-time indoor PM2.5 and CO2 measurements.
We found 0.8-0.9% slower response times for every 10ug/m3 increase in PM2.5. Throughput (correct responses per minute) was 0.8-1.7% lower for the same concentration increase.
We also found effects of CO2 (a proxy for ventilation) on cognitive function. For every 500ppm increase, we saw response times 1.4-1.8% slower, and 2.1-2.4% lower throughput.
We did not find a lower threshold at which effects from low ventilation are no longer present.
In addition to the well-established health benefits from lower PM2.5 levels (e.g. reductions in cardiovascular disease, asthma attacks, premature mortality), and from higher ventilation rates (e.g. reduced infectious disease transmission, fewer sick-building symptoms, and reduced absenteeism), our findings provide further incentive to improve air quality in indoor spaces.
Higher ventilation rates and enhanced filtration that exceed current minimum targets are important public health strategies, and we must pursue them.’
The above covered the impact of CO2 and Particulate Matter 2.5, but we also know that similar deleterious affects occur when one’s immediate lighting, noise and temperature veer away from optimum levels. Improving the condition of each of these has been shown to have an average weighted impact on productivity of 1.1, 1.4 and 1.2% respectively*.
The fundamental point here is that these are factors which can be under the control of real estate people, so if we put our minds to it we can create the environmental conditions that enable our customers to operate at maximum cognitive function. We can ‘do no harm’ to their ability to be as productive as they are capable of being. In other words we can ‘enable a productive workforce’. And when doing so amounts to a cumulative increase in productivity of circa 5% that is worth shouting about. Now 5% might not sound much but for contrast productivity in the UK was only around 1.3% higher in Q1 2022 than Q4 2019, before the pandemic. Truth be told anything that enabled a 5% increase in productivity would be a big deal.
We can go further though. A true #SpaceasaService workplace would not only be constantly monitoring environmental conditions but would be acting upon this data and operating space as if it were software. In the tech industry they have a mantra of ‘Build, Measure, Learn’ where you build something, get it rapidly into the hands of a user, measure how it performs, learn from that and then rebuild incorporating this new knowledge. And repeat. And repeat. In real estate we normally stop at ‘Build’. Don’t measure and don’t learn. But not so in the #SpaceasaService world. Here we’d measure, and optimise, not only the systems controlling environmental conditions but also look to reconfigure the physical space itself. Whatever was required to enable people to perform as best they can.
Winston Churchill, in 1942, during a debate on how to rebuild the bombed UK Houses of Parliament said ‘First we shape our buildings, and then they shape us’. That was true then, but even more so today. Our immediate environment has an enormous impact on how we feel, how we think, and how we perform. The space around us matters. And we, in the real estate industry, have control over that space. So it is incumbent on us to make it as fit for purpose as possible.
Adam Smith, the godfather of free market capitalism, would be, in the context of real estate, decidedly ‘woke’. Because he would understand that the desired output might be ‘productivity’ but that the way to maximise that would be to help people be as ‘happy and healthy’ as possible. The most productive people are most likely to be those who are also happy and healthy. And fundamental to enabling this is to maintain the very best environmental conditions.
The World Green Building Council have a well known graphic where they show that, in operating a workplace we spend 1% on utilities, 9% of rent, and 90% on people. Historically in real estate we’ve concentrated on the 1% and the 9%. In the future we need to concentrate on the 90%. We need to fixate on what we can control that benefits the 90% the most. And that is the environment we put them in.
We need to stop selling people space, but leaving productivity up to them, and start to separate space from cost. We should be in the business of selling people a productive workforce:
‘I’m not selling you space, I’m selling you a productive workforce. Would you like that?’
Antony
PS - This is part of the subject matter we'll be deep diving into at trilliondollarhashtag.com
* Oseland N and Burton A (2012) Quantifying the impact of environmental conditions on worker performance for inputting to a business case to justify enhanced workplace design features Journal of Building Survey, Appraisal & Valuation 1(2):151–165.
Whatever the future holds …..
Impression, Sunrise - Claude Monet - 1872 - Musée Marmottan Monet, Paris
Flexibility and resilience are two words we need to take to heart in real estate. If the Covid experience has taught business anything it is that we need to be flexible and we need much more resilience.
We are rapidly heading into a 1970’s era of ‘Stagflation’ mostly because the global supply chain system has proven to be so lean that when it breaks it breaks bad, and hard though it is to believe we are seeing a resurgence of tank and artillery warfare on the European continent.
In the future we need to think much harder about ‘Whatever the future holds …..’
Charles Darwin’s ‘The Origin of Species’ is often spoken of, wrongly, as being about the survival of the fittest. But what he actually said was that it is ‘Nor the strongest, but those most able to adapt’ that win the evolutionary wars. Adaptability and flexibility are close cousins.
There is much ‘Sturm und Drang’ at the moment in the battle between employers and employees as to who has to return to the office, and for how long. We have companies ranging from saying ‘no need to ever come back’, to those saying, or mandating, 2 or 3 days or week, to those on the other end of the spectrum saying everyone back, five days a week.
In reality the arguments are irrelevant, because it is a certainty that talent will win this battle. Companies may be able to force some of their employees to do as they say, but the employees that really matter (speaking commercially), that they want to attract and retain, now have what economists call ‘optionality’. They have choice and agency over where they work. And it is 100% certain that they will be looking for flexibility, across three axis:
First they will want flexibility of time, so that they can work the hours that suit them best, that enable them to maximise their productivity.
Secondly they will want flexibility of location, so that they can work wherever makes sense for them.
And thirdly, they will want flexibility of space, so that they can work in a physical environment that is best suited for their ‘job to be done’. Different tasks are best undertaken in different spaces.
And every individual, team or company is going to require a different mix of the above. There is no generic office answer anymore. Anyone telling you that ‘return to the office’ will mean X, Y and Z is a fool. The fundamental reason why flexibility is such a valuable thing is exactly because everyone will have different needs.
The Greek philosopher Heraclitus talked about ‘all is flux’. He wrote that “No man ever steps in the same river twice. For it’s not the same river and he’s not the same man.” We need to start planning our real estate for this reality. Whatever was fixed needs to become flexible. We need to think of interiors, workflows and business models as emergent, as things that are constantly developing, iterating, changing.
Nicholas Nassim Taleb has written about things that are ‘anti-fragile’, that ‘thrive and grow when exposed to volatility, randomness, disorder, and stressors’. Well, in real estate it is increasingly hard to know what will be required in 2, 5 or 10 years, so we need to build spaces and places that are not over optimised for specific uses but that are designed for adaptive re-use.
In Paris it is becoming mandatory when submitting a planning application for new offices to demonstrate how the building could be converted to residential. That really is planning for emergence.
Much of our ability to be more flexible is going to come from a growing ‘circular economy’ mindset. Where we start with how something is designed, the materials used, and the construction methodologies and ensure that everything can be easily deconstructed, re-used or recycled. Increasingly the supply side is developing products and services that fit this mould, from partitions that are simply moved, from areas within a floor plate that change use from day to evening, and from furniture ‘as a service’ models where it’s easy to swap in or out, chairs, desks or whatever, according to evolving needs.
This is the essence of ‘Space as a Service’ - spaces that provide the services needed for any particular task, whenever and wherever.
It is from this flexibility that resilience flows. And it applies across all asset classes. Where are the points of weakness, where are the bottlenecks, where are the over optimised areas? What is solid, what is permeable. What is fixed, what can shape shift?
Historically the real estate industry has considered flexibility and resilience, but never as deeply as is needed in the future. It is clear that the pandemic has generated second and third order consequences that are far more disruptive than we have been used to. And these are on top of the seismic implications of ever more powerful technologies that are upending industry after industry.
Here are seven drivers of change (as borrowed from an excellent research report on the future of logistics*) that we must pay attention to, and become resilient in the face of.
Covid and/or a new virus. Perhaps we have just experienced a once in a century pandemic. But, in reality, there is little reason to think that is the case. We need to be ready for the next one, and grateful if we have over reacted.
Climate change. We know we are liable for more regular, more extreme weather events. These may hit us directly, or indirectly. The Butterfly effect is real; how resilient are your assets to climate change, near or afar?
Sustainability. This is an obsolescence game. We’re almost at the stage where owning assets with poor sustainability characteristics is a slam dunk way to destroy value. You cannot really be resilient in the face of sustainability, you simply have to be sustainable.
Geopolitical uncertainty. As Covid retreated we thought the ‘good times’ were about to resume. How wrong we were. War in Ukraine has broken the global energy markets and is leading to a remodelled European consensus. Is this period of geopolitical uncertainty going to end soon? I wouldn’t bank on it. As such we all need to look at our assets and figure out what they might be impacted by. Energy price hikes is the obvious one, but there will be others.
Technological development. This is a big one for manufacturing and logistics, as the cost of a robot is the same in Shanghai as it is in Swindon. And as ‘machines’ do more and more, repatriating manufacturing and other processes, to lessen long supply chain risk, is highly likely. Within offices and retail, new technologies enable people to work and shop without visiting physical offices or shops. What can your office or retail assets offer that is resilient to customers going elsewhere? It’ll need to be good, and better every year that passes.
Retreat from globalisation. An urge to be less reliant on others is going to make Western countries in particular, retreat from globalisation. At least to an extent. Trade in digital services could become more globalised but for physical goods the trend looks likely to be the reverse. Either way, who needs what real estate could be set for quite some change. Resilience will come from having what the market needs. Do you?
Inflation. Just in time manufacturing works excellently in a low inflation world. Buy what you need in two months, in two months. In a high inflation world that model looks less desirable. Buy what you need in two months now, because in two months it’ll be more expensive. This though is not how we’ve thought for a very long time. At the least we need to be thinking about what do we use or need that might be in an inflationary spiral? Do we buy it now? If so where do we store it, and how does this impact on our cash flows. Resilience in the face of inflation is a new skill we need to learn, and fast.
So in conclusion, in order to design our businesses for flexibility and resilience we need to be considering new form factors, workflows and operating procedures. It sounds like an easy thing to do, but in reality this could mean an almost complete re-engineering of how your business works. Every input and every output needs to be analysed. Everything fixed, or fragile, needs to be inspected and appraised for transformation. Anything that cannot be made flexible and resilient needs to be assiduously monitored and profiled for knock on risk.
It is very easy to say ‘we are flexible and resilient’, but executing on actually being so most certainly isn’t.
*’Supply chain adaptation will boost European occupier demand’
Tom Duncan, Head of Research, Cromwell Property Group.
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’……
———————
PS This is just one of the eight ‘Factors of Success’ in the #SpaceasaService world. To read about the others, start here