Delusional Thinking on Planet PropTech

The Desperate an by Gustave Courbet, 1843-1845

Yesterday I listened to a podcast with two PropTech VCs and the CEO of a very large PropTech software company. And I was genuinely shocked.

After two or so years of the Pandemic and a good year or more of ‘normality’, one would expect real estate industry insiders to understand how fundamentally the nature of knowledge work has changed. 

Mostly, companies operated as well whilst in lockdown as they did when all in the office. 

And post lockdown it has been as clear as the sun in the sky that, mostly, no-one wants to lose much of the agency they gained from working from home. 

Yes, people want to get together, but only when it actually adds value, has a purpose, and is clearly planned. 

And they are doing so, roughly two-three days a week. 

What they want when they get to the office is now supported by oceans of data, as is what tasks and activities are best done in an office, and what better suits ‘elsewhere’.

We are very much in ‘known knowns’ territory. No guessing required. Any company that wants to understand what people want can easily find out at the macro level, and even easier amongst their own employees. 

Everything you need to learn about how to operate hybrid workforces effectively, how to maintain culture whilst mainly distributed, foster innovation remotely etc is readily available to anyone who bothers to look.

And the obvious conclusions are as obvious as they were by mid 2020. 

Knowledge work is now a distributed game. 

Offices are no longer NEEDED. 

People need to made to WANT them. 

We have the digital tools to work in a manner that befits the 2020s, not the 1980s. 

And all of this is like a gateway drug to realising one doesn’t have to work in the stultifying, presenteeism centric, hierarchical, regimented, command and control, intensely inefficient and ineffective way we did pre Covid.

Don’t believe that was the case? Look up the data? Ask around how your colleagues enjoyed old school office life. Look at how reluctant everyone is to go back there.

But returning to our podcasters, none of the above applies, or seemingly has even been considered.

Their reality is (to paraphrase):

1. Bosses know working from home = slacking.

2. If you can’t see people working, they probably aren’t.

3. People are ‘lazy bastards’ (yes, they actually spat this out).

4. Culture and innovation only happen in offices.

5. You will never progress in any company unless in the office all the time.

6. Office centric companies are definitely more productive than any other model.

7. One day a week away from the office, probably Friday, is enough.

8. And finally ….. the balance of power will soon be changing and bosses will simply order people back.

Full on macho management was, and will be again, the way to operate.

From which of course followed that the office market might be struggling now, but will recover and return to where it was pre pandemic. Sure, we need to add some more amenities, and do some sprucing up, but you know, business is business and this is how it’s done.

This is delusional thinking.

Discussing this afterwards, someone suggested to me that ‘it’s their bread and butter, their business, so they HAVE to take this line’.

I get that, and understand one has to ‘talk one’s book’, but in this case delusional thinking will help no-one. What will be will be.

And just last week Cushman & Wakefield published their ‘Obsolescence equals Opportunity' report in which they stated just how much US office stock is no longer fit for purpose. 

Only 15% of existing stock is ‘Top Class’, leaving 85% at different stages of the slope to obsolescence. 25% already is.

Which is a problem as ‘Top Class’ is what makes people WANT to go to an office. If the space is not ‘Top Class’ it’s likely there are better, cheaper, more convenient options.

So to be peddling the line that the podcasters were is not only delusional but missing out entirely on the plethora of new opportunities this changed market dynamic is opening up.

So much space needs to be repurposed, repositioned, demolished or otherwise transformed.

It is going to happen. You may as well start preparing.

Once you start seeing large investors giving back the keys to very large assets you know where this is going.

When you see traditional offices operating at 20-50% occupancy and even lower utilisation you know where this is going.

And when you see the strong demand for good to great assets, with good to great #SpaceasaService operators you know where this is going.

Sadly many real estate people, even those on the PropTech side, cannot or won’t see the writing on the wall.

And I, for one, know exactly where this is going!

The Unreal Side of Real Estate

Stop and Look – Orange and Yellow by Mark Rothko (1956)

I read an interesting interview today with Gábor Bindics. a cultural manager interested in the impact of spaces on social life, who is is based in Bratislava (link in comments).

He works primarily on public spaces, and asks this excellent question "Why is it that when we create a space today, we mainly focus on the physical part of it? We have great architects of physical space, but lack architects of social and experienced space?”

Why indeed?

One other sentence really made me think. 

Where he says ‘every space has a quality that consists not only of the physical part but also of the social and subjectively experienced part.’

Which really chimed with my #SpaceasaService thinking, which is heavily focussed on the ‘humanity’ of space, in the sense of providing the perfect environment for enabling people to complete their ‘jobs to be done’ efficiently and effectively. And for helping them be as happy, healthy and productive as possible.

So I dived in some more:

Does ‘every space have a quality that consists not only of the physical part but also of the social and subjectively experienced part?’

To which the answer is surely yes.

The physical part of a space includes its tangible elements such as its size, shape, layout, lighting, and materials. 

The social part of a space includes the activities, behaviours, and interactions that occur within it, as well as the social norms and values that influence those activities and interactions. 

The subjectively experienced part of a space includes the feelings, perceptions, and meanings that people attribute to it based on their personal experiences, memories, and cultural backgrounds. 

All of these elements combine to create the overall quality of a space, which can have a significant impact on how people use and perceive it. 

This makes perfect sense for public spaces but does it apply to commercial offices?

The answer is again, I think, yes.  

Commercial office spaces are not just physical structures, but also social and experiential environments. 

The quality of a commercial office space is not only dependent on its physical design and layout, but also on the social interactions that take place within it and how people subjectively experience the space.

So for example, a well-designed office space with natural lighting, comfortable seating, and modern technology may be physically appealing, but if employees feel stressed, isolated, or uncomfortable within the space, then the quality of the office space would be low. 

On the other hand, an office space that fosters a sense of community, collaboration, and well-being among employees can contribute to a positive work environment and boost productivity.

This has to be right doesn’t it? Especially in this age of hybrid, distributed and remote working?

We really should be designing our workplaces not just with functionality and aesthetics in mind, but also with the social and subjective experience of the occupants as a key consideration.

As I’ve said for years ‘The Real Estate Industry is no longer about Real Estate’!

Thoughts?

Seven characteristics of the best PropTech companies

Relativity, by M. C. Escher, 1953

So what separates the truly exceptional PropTech companies from the rest of the pack? It is a question that many have pondered, and one that requires a nuanced understanding of the rapidly evolving landscape of digital disruption in the real estate industry.

First, the best PropTech companies understand that their success is not just about selling technology. It is about creating value for their clients by helping them solve their most pressing business challenges. This requires a deep understanding of the real estate industry and the ability to think creatively about how technology can be applied to create value.

Secondly, the best PropTech companies are not just focused on short-term gains. They are in it for the long haul and are committed to building sustainable (I.e profitable), scalable businesses that can adapt to changing market conditions. This requires a willingness to invest in talent, technology and infrastructure, as well as a willingness to experiment and iterate until they find the right product/market fit.

Thirdly, the best PropTech companies are relentlessly focused on user experience. They understand that the success of their products and services depends on how well they meet the needs and expectations of their users. This requires a deep understanding of user behaviour and an ability to create intuitive, user-friendly interfaces that make it easy for users to achieve their goals.

Fourthly, the best PropTech companies are agile and responsive to market changes. They understand that the real estate industry is constantly evolving and that their success depends on their ability to adapt to changing market conditions. This requires a culture of innovation and a willingness to experiment with new ideas and approaches.

Fifthly, the best PropTech companies are committed to building strong relationships with their clients. They understand that trust and transparency are critical to building successful partnerships and that their success depends on their ability to deliver value to their clients. This requires a commitment to open communication, a willingness to listen to feedback, and a dedication to meeting their clients' needs. Vitally, these strong relationships provide the distribution needed to rapidly get adoption of new products and services.

Sixthly, the best PropTech companies will build ecosystems with other suppliers. They understand that they are a node in a network, a cog in the enormous real estate ‘system’, and must be able to easily connect with old, as well as new, services. Real value comes from integration. 2+2 can = 5.

And finally, the best PropTech companies will have products or services that are 10X better than the alternative, the status quo. That can offer clear differentiation for their customers, and push them from sticking with ‘the way we do things here’.

In summary, the best PropTech companies are those that are focused on delivering value to their clients, building sustainable, scalable businesses, creating exceptional user experiences, being agile and responsive to market changes, building strong relationships with their clients, integrating with ecosystem partners, and have 10X products or services. These are the companies that are leading the way in digital disruption in the real estate industry, and they will continue to shape the future of the industry for years to come.

So….. is that you?

Our Four Great Challenges

Detail from Edvard Munch (1863–1944),The Scream. Lithograph, 1895. Private collection, Norway.

Many people, especially on LinkedIn, talk about challenging times, speed of change, and ‘how not to get left behind’.

Mostly though the substance of their arguments are relatively trivial and could have been written at any time over the last 40 years. Much change is actually rather slow, disruption is limited and the same old same old companies carry on as they always have.

But occasionally certain industries are hit with tumultuous change. Tech being the obvious example. In a few generations we’ve gone from mainframes, to PCs, to smartphones. And from client-server, to local networked applications to everything being in the Cloud.

And the undisputed, impregnable industry leaders, those whose power was ‘too great’, suddenly found themselves as also rans. IBM got trashed by Microsoft, who got trashed by Apple. When platforms change, leaders change. Every dog has its day.

But ….. it takes something big, really big, to fundamentally redesign winners and losers in an industry. Incumbents can handle most threats, but tsunamis are tsunamis. Sometimes resistance is futile. You can’t buck the market.

In evolutionary biology they call these moments punctuated equilibriums, where a species splits into two distinct species, rather than one species gradually transforming into another.

I’m wondering if the real estate industry is at just such a moment, especially the commercial sector.

Four massive challenges need to be faced, between now and 2030, now less than seven years away.

First is decarbonisation. Using London as an example, 80% of its office buildings are below the minimum standard of energy performance demanded by existing regulations, and will need to be upgraded by 2030. This equates to an equivalent of 15m sq ft per annum. Per annum!

Much the same applies around the world. 2030 represents a brick wall the industry is careering towards. Anyone hitting it will see value destruction on an unimaginable scale.

Secondly is the impact of the move to hybrid, distributed and remote working. Last week Cushman & Wakefield produced a US centric report saying they found ‘an unprecedented imbalance in supply and demand which, by the end of the decade, will result in a surplus of 330 million square feet of vacant office space that hasn’t kept pace with demands to support hybrid working and efficiency/ESG priorities.’ Delve in to the report and it looks even worse. Only 15% of office stock is currently absolutely fit for purpose. The rest requires some to a great deal of remedial work to be brought up to scratch.

The way we wish to work has fundamentally changed and is not returning to ‘how things used to be’. Most of the supply side needs to change to match current, let alone future demand.

Which brings us to the third massive challenge. What on earth is to become of all this space?

Decades ago Management guru Peter Drucker wrote that ‘office buildings would be similar to the pyramids — we'd come to marvel at them, but they'd serve no functional purpose.’ For a lot of them this is coming true. The flip side is that the best offices will be in more demand than ever before, but that’s ‘the best’. Wither the rest?

We can convert some to residential, repurpose some as hotels, or urban farms, or logistics centres, or whatever. But finding a use for all the obsolete space is going to be difficult, to put it mildly.

And the fourth massive challenge flows on from this: how are we going to save our cities from the revenue crash implied as a consequence of the above. And from the changing patterns of use. How are we going to create cities where people want to be? Where will people want to do whatever it is that they’ll want to do in the future. 

This behavioural change impacts way beyond offices. It will impact every real estate asset class. Every assumption we have stored as to what to build where is being thrown out of the window. City centres are seeing this right now, but everything is connected and the flywheel of change will permeate everywhere.

Together these four challenges could melt the minds of real estate people. They require depths of thinking that one seldom needs to employ. If ever there was a wicked problem, this is it.

But if ever there was an opportunity to ‘change the world’ this is also it.

It’s also why #SpaceAsAService really is The Trillion Dollar Hashtag. Because it applies across the board in real estate. Wherever you look we need spaces that provide the services, physical, digital, social and emotional, that people need, wherever they are.

Work that out and good things will follow!

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The next cohorts of the online ‘#SpaceAsAService - The Trillion Dollar Hashtag’ course starts April 17th. One for Europe & the Americas and one for APAC. Visit trilliondollarhashtag.com for details and to register.

#SpaceAsAService and the hyper competitive company

We are already in the age of ‘Superstar’ companies. McKinsey wrote a report about them in 2018. They concentrated on the rapid growth of $Billion+ companies, and demonstrated how ‘In this group, economic profit is distributed along a power curve, with the top 10 percent of firms capturing 80 percent of economic profit’. Superstars also exhibited ‘relatively higher levels of digitization; greater labor skill and innovation intensity’.

5 years later this superstar effect is, if anything, becoming more pronounced. It is also though becoming noticeable amongst all companies, from startups upwards. Covid, by acting as a forcing function, has magnified this trend. Being pushed to work from home rather than the office necessitated a wide range of technological, behavioural and societal changes that have all played into the hands of the best companies. The actual and the aspiring superstars.

These fit into two core buckets which, I believe, will act as massive drivers of adoption of #SpaceAsAService real estate.

The first bucket is technology. The best companies are trialling, testing, and adopting where appropriate, every digital tool that enables an end to end digitally native company.

It is estimated that a startup with 35 employees has an average of 102 SaaS (Software as a Service) tools, with a power law distribution where 5-10 account for the bulk of usage. The SaaS universe has become so large that one can find world class tools, available on demand, that cover just about every use case within just about every business.

Starting from scratch is a great advantage as a new company can adopt best in class with no ‘technical debt’, but the best companies have been big users for years, and Covid egged them on. Being dispersed, and needing to work more asynchronously, with better channels of communication, and more need to activate ones culture without the crutch of a corporate HQ, led all of them to either upgrade existing systems or leverage, rapidly, new ones.

And every good SaaS tool is a force multiplier, enabling one person to generate the output of 2, 5 or even 10 people using ‘old school’ technology. The latest AI systems, such as ChatGPT, DALL-E, or GitHub Copilot, have been described as like having an army of interns available to you, on demand. Skilfully used, these tools are extraordinary augmenters of humans. Superstar companies not surprisingly cannot get enough of them. They embrace them, test them, and roll out those that work well for them, at speed. As a tool of competitive advantage against ‘the average’ they are without doubt widening the gap between the best and the rest. And this gap, once opened up, is nigh on impossible to close. Technologies interact, and act as fly wheels for each other. Simply put, the faster get faster.

The second bucket is productivity. The best companies are relentlessly focussed on maximising the potential of each individual. They are employing advanced, scientifically validated, tools to help people maximise their potential. They know that athletes get personal programmes to ‘tune’ their performance, so why not knowledge workers? They know that management of highly talented people is not a guessing game. Every manager is committed to learning, and learning everyday. 

Daniel Pink famously wrote that ‘Purpose, Autonomy and Mastery’ are the keys to being happy and productive. Companies need to instil into their employees a sense of purpose, that what they are doing day to day matters. Everybody needs a sense of purpose. Then they need to be given the agency, the autonomy, to work out how to do what they need to do as efficiently and effectively as possible. And finally they need to be given all the requisite tools to enable them to master their brief, their work, their contribution, their output.

The superstar companies of today and tomorrow obsess about this.

Combined with pervasive adoption of productivity enhancing technology, a relentless focus on productivity across the board becomes easier. One simply has the tools and techniques needed to ‘make it happen’.

And that is where #SpaceAsAService comes in. I’ve described it as a refocussing of real estate around people, where pleasure and productivity IS the value proposition. Where understanding the wants, needs and desires of individuals, underpins the provision of the places, spaces, products and services that enable people to be as ‘happy, healthy and productive’ as they can be.

And flexibility, of location, space and time is central to making this work. So it is no surprise to see the best companies lean in to the opportunities that Covid has made clear as to how and where one needs to work. The Gordian knot tying work to ‘the office’ has been irreversibly cut, and the best compares are embracing this as well when they debate and decide how they use real estate. Yes, they will utilise core space but they’ll also adopt flexible space en masse. 

Offices are going to have a much more particular purpose in the post Covid, ‘Superstar Company’ era. No longer are they where people go as a matter of course. One goes for a reason, and that reason needs to be worth the effort, and time, to get there. 

Average companies are quite likely to fail at adopting hybrid (or distributed - call it what you will) successfully, because they won’t work hard enough on their technology and productivity. We’re already seeing dumb mandates galore. A Future Forum survey reported that ’60% of executives said they’re designing their companies’ policies with little or no direct input from employees.’ Imagining the result of this thinking isn’t hard, and it isn’t hard to understand why the best and the brightest will not work for companies that operate like this.

They’ll be working for, or with, the ‘smart’ companies, and almost definitely they’ll be utilising #SpaceAsAService.

They understand what #SpaceAsAService means, and how it’s the third bucket, to match their other two, of technology and productivity.

For us in real estate this means we need to double down on finding product/market fit with the best companies. Because real estate is not a bit player here: forward thinking companies want, AND NEED, a forward thinking real estate industry.

#SpaceAsaService - The TrillionDollarHashtag’ is no joke. Behind every great company will be great real estate. 

And today, there isn’t nearly enough of it.