Sustainability - The Third Fly Wheel for #SpaceasaService

M.C. Escher’s Day and Night - 1938

Sustainability is often thought of as an ‘extra’. This is what we want to do, now what do we have to spend to tick the ‘sustainability’ box? How much am I going to have to pay to keep Greta happy? And so on.

In reality sustainability is actually the third leg of the #SpaceasaService super stool, the other legs being Health & Wellbeing and Productivity. Acting together each of these operates as a flywheel for the other. Each factor maximises the other. If you want space that enables people to be as productive as they are capable of being, then you need to put them in an environment that takes care of their Health & Wellbeing. If you want to take care of people’s Health & Wellbeing then you need to put them in a sustainable building, because sustainable buildings require the technologies that enable excellent environmental conditions. 

Put simply sustainability is where safe, happy, healthy, productive and frugal meet. It is a critical ingredient, not an extra. A part of the core offering in #SpaceasaService.

However, ‘Houston we have a Problem’. According to research by Carbon Intelligence, given the carbon reduction trajectories of different asset classes, by 2035, 50% of buildings won’t be ‘Paris Proof’. I.e they will fail to meet the targets laid down in the Paris Agreement, the legally binding international treaty on climate change adopted by 196 Parties at COP 21 in Paris, on 12 December 2015. The consequences of which will be lower asset values, lower rental yields and stranded assets. 

At a huge scale.

Jean Eaglesham and Vipal Monga, wrote an article in the Wall Street Journal on November 20, 2021, entitled “Trillions in assets may be left stranded as companies address climate change”.

In their words: 

‘The International Renewable Energy Agency has estimated that $7.5 trillion worth of real estate could be “stranded”; these are assets that will experience major write-downs in value given climate risks and the economic transition.’

At a climate conference in Copenhagen in May 22, a representative from GRESB stated that 25% of the assets they report on are already categorised as stranded assets, and only 7% are aligned with the Paris Agreement.

These are worrying statistics. Even if you’re of the more sceptical persuasion they’d need to be orders of magnitude wrong to not be worrying. If it’s your money in these assets, or you’re responsible for other peoples money, it is hard to not be concerned. We could be looking at value destruction at a level unprecedented in real estate history. This is way bigger than a cyclical market crash.

There is though some good news. This is a subject upon which incentives are aligned. Investors are demanding sustainable assets. Given their own mandates they are finding it increasingly hard to even consider investing in assets not considered ‘sustainable’. Regulators, at the local, national and supra national levels, are now wielding increasingly large carrots and sticks. In many cases one can take advantage of tax breaks, preferential loan terms and the like when building super sustainable, but one is also liable to large and growing fines for not reaching certain sustainable targets.

For example, In New York, Local Law 97, sets carbon reduction targets of 40% by 2030, and 80% by 2050, for NYC real estate. To achieve these goals, Local Law 97 sets building CO2 emissions limits and a building that exceeds these limits after 2023 will be subject to a $268 per metric ton (MT) tax.

In the UK Minimum Energy Efficiency Standard regulations (MEES) will start to apply to commercial buildings from 2023, and those below a certain standard cannot be leased. Yes, cannot be leased. It is estimated that circa 10% of buildings will fail this test. That is bad enough but when the target rises as planned by 2030, it is estimated 85% would fail. There is even a stepping stone stage, where you have to achieve a certain rating by 2027.

In short, unless legislation is retracted we are going to see a massive upgrading of stock or a massive number of stranded assets. Most likely we’ll be seeing both.

Of course there are two ways to look at this regulatory ‘burden’. If you’re on the wrong side of it you’ll be mightily aggrieved, but if your assets are high quality, sustainable ones you’ll be in a very strong competitive position. 

In fact, if you have high quality, sustainable assets today you are already in a strong position because the demand for such assets is booming, not least of all because the best companies are already insisting, as with investors, on them. Try letting an unsustainable building to a leading company. You have no chance. But also try letting unsustainable space to modern, progressive, start ups or early stage companies. They in turn are being driven by the wishes of their employees, who more and more are taking a high minded approach to where they work. Besides everything else, sustainability is great Branding.

So investors, regulators and customers incentives are aligned. This is a rare thing in real estate and can only lead in one direction. To succeed you have no choice but to create sustainable assets. So even the bad news, that getting to where you need to be is going to be an expensive journey, is neutralised. Of course all these costs are a bad thing but you’re not alone. All your competitors are in the same boat.

There is also a very considerable long term benefit from the need to create sustainable buildings. And that is that:

‘sustainability is the mechanism by which technology is injected into real estate.'

In order to create sustainable buildings, which as we said above are one leg of the three legged #SpaceasaService super stool, owners and developers will have to install technology into their assets in a manner hitherto unprecedented. They will have to think about the entirety of how their buildings perform, and invest in a panoply of technologies that they most likely would not have considered previously. At long last the real estate industry will be forced to become technologically savvy and in turn will undergo a wholesale digital transformation.

There are even more sustainability forces transforming real estate. In Europe, which is ahead of the other two global superpower blocks, China and the US, there is the EU Taxonomy. This is a framework designed to help define what are considered environmentally sustainable economic activities. At its launch in March 2020 this was stated:

“The COVID-19 pandemic has reinforced the need to redirect capital flows towards sustainable projects in order to make our economies, businesses and societies, in particular health systems, more resilient against climate and environmental shocks and riskswith clear co-benefits for health.’

And right at the core of the taxonomy you will see sustainability linked to the Capital Markets. The point being that money and sustainability go hand in hand. No sustainability = no money. Want money, get sustainable. The bond is defined in Law. At least in Europe, though the US and China are bound to follow, even if in their own idiosyncratic ways.

All of which is a very good thing. Where this is leading is to an increasingly bifurcated real estate industry. There will be assets that are sustainable, that promote Health and Wellbeing, and that enable people to be as productive as they are capable of being. These assets will most likely be operated in a #SpaceasaService manner, where the wants, needs and desires of individuals will be used as key inputs to how spaces are designed and curated. And there won’t be all that many of them. There will also be assets that are none of the above. They will be either in low demand, orstranded entirely.

At one end of the market we will see assets where occupancy and utilisation, satisfaction and Net Promoter Sores will be higher than ever, with commensurate high capital values, and at the other end extraordinary value destruction. In the middle there won’t be much; demand for average work spaces will be very low. Home trumps average easily.

Once this tsunami of change becomes obvious to all, we’ll (hopefully) see a great resurgence in real estate, where all the stranded assets are demolished, rebuilt or renovated. Where we rethink what types of real estate we need, and where we need it. And where we put people at the centre of our thinking.

Sustainability is about more than saving the planet; it’s also about saving us. It’s the driver of change we need to genuinely ‘build back better’. And that’s no bad thing is it?

Health & Wellbeing: You want productive employees don’t you?

Summer evening on Skagen Sønderstrand - Peder Severin Krøyer 1893

The waning of the pandemic has left us with 3 zeitgeist defining realisations. First that we can, should we wish to, satisfy most of our retail needs online. Physical sales have rebounded but online ones have not diminished much from the boost they received via enforced lockdowns etc. Secondly that remote working …… works. Or largely does. Circa 70% of knowledge workers say they can work more productively out of the office than in it. And thirdly, that buildings can kill us. Put a large number of people in close proximity in badly ventilated spaces in the presence of an infectious virus and you’ll end up with ill, to very ill, to dead people.

We have actually known about this for years, decades even, but largely ignored it as mostly people simply got ill, or the flu, but seldom died. So collateral damage, as it were, did not warrant doing much to mitigate the situation. Well I think we’ve learnt our lesson over the last couple of years, and for most individuals, second only to the commute, is fear of unhealthy environments back in the office.

So almost all landlords and companies are now having to address those health & wellbeing issues that only the most progressive landlords & companies paid much attention to pre pandemic. Covid has in effect forced us, en masse, to do what we should have been doing anyway. And hallelujah to that.

For more reasons that you might think. Promoting good health & wellbeing is a good, worthwhile aim in its own right, but it is also one of the three flywheels that, operating in unison, are the necessary drivers of a happy, healthy and productive workplace. The other two being productivity and sustainability. 

Ultimately a company is looking for a productive workforce. As Paul Krugman famously wrote, “Productivity isn’t everything, but in the long run, it’s almost everything.” The more output we can get from each unit of input the better. Lazy but super productive people are a good thing, as they are the ones likely to find the quickest, fastest, easiest, most efficient way of getting things done. But either way, without productivity growth none of us are going very far.

But how do you get a productive workforce? There are of course many factors, but what is certain is that they need an environment to work in that looks after their health & wellbeing. You aren’t going to maximise productivity without doing so. The aim is to provide people with environments that enable them to operate at maximum cognitive function. Where they can work as well as they are capable of.

And how do you get an environment that maximises cognitive function, health & wellbeing? Almost definitely by focussing on creating the most sustainable building you can envisage. Exactly the tools and technologies that underpin sustainable buildings are those that enable you to create great environmental conditions.

The bottom line is that health & wellbeing, productivity and sustainability are flywheels for each other. They are not separate outputs. They are not different skillsets. They are three factors that have to be thought of in a unified way. Feedback loops abound and you need to be planning for all three as you consider each one. What differentiates a #SpaceasaServicemindset is doing just that. Thinking of the whole not the parts. Thinking of the ‘system’ that will enable these flywheels to fly. It won’t just happen. Getting two of them right is relatively easy, getting all three is not.

Let’s though now look at what IS required to create a ‘Healthy Building’. Here I am going to fall back on the definitive guide in this matter, Joe Allen, who leads the Harvard T.H Chan School of Public Health. His May 2020 book ‘Healthy Buildings’, co-authored with John Macomber, has been described as a ‘call to action for everyone to demand healthy buildings with cleaner indoor air’, but I am going to paraphrase the key points from an earlier paper he led entitled ‘The 9 Foundations of a Healthy Building’.

For each of these you can dive as deep as you like, but at a generalist level, this is the gist of what matters.

Ventilation - plenty of it, fresh and recirculated, but avoiding street level (or car park) intakes and filter well. Maintain and monitor in real time and most likely exceed regulatory requirements. 

Air Quality - check the chemical emissions of your furnishings and building materials. Surprisingly nasty things can lurk there. Monitor humidity, CO2 and PM2.5 levels. Not annually, but continuously (same with ventilation). We’re looking to optimise, optimise, optimise.

Water Quality - careful with disinfectant levels, test water quality regularly, and look out for water stagnation in pipes.

Thermal Health - temperature & humidity are key determinants of how comfortable we are. Some like it hot …. Some don’t. Provide control or varying temperatures in different parts of your workplace. Monitor constantly. Don’t get into the trap of running heating & cooling at the same time. Getting this right takes thought.

Dusts & Pests - prevention is better than cure, avoid pesticides but have an ongoing plan. 

Lighting and Views - lighting that fights our circadian rhythms is a bad thing. Try to let nature do its thing. And views please. Happiness is a nice view. And vice versa.

Noise - is a productivity killer. Or an enhancer. Noise levels appropriate to the task/function are vital.

Moisture - enough is enough. Anymore is bad. Monitor and maintain ‘correct’ moisture levels.

Safety & Security - make sure everyone in your building is safe and secure. Meet fire safety and carbon monoxide monitoring standards.

Do read the source report* for this wafer thin summary. A lot of this is common sense but the devil IS in the detail. Most buildings run quite to very inefficiently, so there is a lot of low hanging fruit to create better spaces than your competition. 

The bottom line is that we know what is required to create a healthy building. For #SpaceAsAService operations the bar has to be higher than is traditional because the aim is to be better than the norm. Top operators will place providing great environmental conditions at the centre of their ‘Brand Promise’. In a post Covid world there will be great competitive advantage in providing spaces that genuinely are good for our health and well-being.

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.

1. 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.

2. 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?

3. 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.

4. 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.

5. 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.

6. 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?

7. 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.