by Caitlin Simon — Originally published in the July/August 2019 issue of BOMA Magazine
Disruption. That one word characterizes the way we build, buy, sell, lease and manage real estate. The human need for connection, community and collaboration—bolstered by technology—and the relentless pursuit of innovation naturally propel us into an age
where disruption is the new normal.
The experience and sharing economies, along with our technology-driven environment, have blurred the lines of live-work-play in real estate, evidenced by the “co-everything” movement. Amenitization, convenience, location and socialization have formed the cornerstones of real estate strategy as investors look to differentiate their assets and expand their portfolios to capitalize on changing tenant preferences.
And, as technology becomes more sophisticated, future buildings will be designed from the ground up to be truly integrated and intelligent, collecting data and providing services to enhance asset value and increase tenant satisfaction and retention.
Following are some major trends, driven by advancements in co-everything and technology, that will impact the working strategies of building owners and managers.
THE AGE OF CO-EVERYTHING
The boundaries of space and use are increasingly blurred in this co-everything world. The sharing economy has eliminated market inefficiencies while providing flexibility for consumers and tapping into the demand for increased access. The shorter-term sharing of homes (Airbnb and VRBO), music (Spotify and Pandora) and vehicles (Uber and Lyft) has become commonplace for consumers, and this practice is bleeding into longer-term sharing of offices, retail space and apartments.
Certain sectors in co-everything have reached maturation, meaning that growth is still likely, but disruption has largely run its course. Other sectors that are younger or have a longer-growth
trajectory may continue to upend traditional commercial real estate offerings. What does the
future look like for these sectors?
Coworking has become a popular buzzword over the past few years, but the concept of flexible
office solutions has been around for decades. Some coworking companies are the largest private occupiers in select markets, including New York City.
Small companies and freelancers can find office space in locations where they may not be able to obtain a traditional lease due to costs or lack of credit. Larger organizations can leverage coworking to pursue open-source talent networks and collaboration with other tenants
while managing unpredictable headcounts and fostering employee experience and community
engagement. Thus, coworking is expected to become the new normal for many occupiers, as
well as landlords.
NAC’s Big-Disruptor Checklist
The inspiration for this article comes from BOMA International’s National Advisory Council (NAC), which is made up of C-suite executives from major commercial real estate firms around the globe. During their recent meeting
in New York City, NAC members were asked to identify the next big issues they anticipate facing. The results:
co-everything, technology, e-commerce, attracting and retaining talent, employee training and climate change.
According to Melanie Colbert, CPM, principal of Operations for LBA Realty: “The next big issues are the same issues we are facing today….They are the three Ts: technology (the volume and velocity of ‘PropTech’ and how
we leverage it); talent (attracting and retaining professionals to our industry); and training (how do we train and provide opportunities for personal and professional development?).”
Kevin Clarke, RPA, LEED AP, senior vice president of Real Estate Management Services with Avison Young, agreed with Colbert, saying, “I see the marriage of T-squared
(talent, training and technology) being an industry disrupter as the millennials and Gen Zs transform commercial property management. How data is accessed and then
[acted upon and] implemented by those wh)o strive to operate with lightning speed will impact the need to have personnel [cross-trained to perform these duties], along with more conventional functions.”
Brenna Walraven, BOMA Fellow, BOMI-HP, CPM, RPA, president and CEO of Corporate Sustainability Strategies, noted her concerns over the growing roll of carbon caps and taxes, which have the potential to “change property investment, operating strategies, tenant engagement and property uses.” She also identified the need for properties to “prepare for and plan recovery from climate-related weather
Coliving, a movement defined as communities of tenants seeking socializing, convenience,
flexibility and affordability, already is reaching its tipping point.
The way we live is changing. Goals of homeownership and a suburban lifestyle have given way to more urban and communal preferences, especially for those entering the workforce. Currently, there are 79 million millennials and 74 million Gen Zs, and a record 65 percent of under-35-year-olds are renting. Financial circumstances, the current housing supply and varying lifestyle habits influence the surge in millennials’ preferences to rent and adopt coliving as their standard of living.
The burgeoning number of coliving companies entering the market, including WeLive (part of The We Company, which also brought us WeWork), Ollie, Common and X Social Communities, validate the demand for the product. These companies have taken root in many major markets across the United States and are still expanding.
With affordability challenges and new renter demographics, coliving now is a fully fledged
niche asset class. Over the next five years, significant capital will be deployed toward delivery of thousands of more beds across the world. As new generations enter the rental market, preference will be centered upon coliving brands that provide convenience, affordability
and a vibrant community. And, as more companies seek to capture talent across a wider geographic area, more markets will become viable for coliving developments. Don’t be surprised to see more coliving companies partnering with coworking providers to create all-in-one mixed-use properties that truly put the “live” and “work” in the live-work-play model.
Industrial Warehouse and Distribution
Third-party logistics providers (3PLs) have long provided shared services and expertise needed to assist companies with their warehousing and distribution needs. New providers, such as FLEXE, Inc., have emerged over the past few years to provide different types of flexibility and cost savings for tenants in the e-commerce fulfillment, retail distribution, inventory and overflow space.
Server and Cloud Storage
The data center industry continues to use colocation as a model, in which companies can lease space and services for their computing needs alongside other enterprises with similar requirements. These arrangements reduce costs for clients while removing the hassle of managing the bulk of their IT services.
In an increasingly digital world, pop-up retail stores are an avenue for online brands to dip into
physical store space. It is a beneficial concept for small business operators hoping to build an
in-person connection with new customers and for larger companies looking for temporary space in high-traffic locations. Additionally, pop-ups can help established brands to efficiently test new concepts or build public relations buzz.
Co-everything has furthered the evolution of the mixed-use trend by providing flexible options for integrating complementary uses at a single site. The walls between living, working, traveling and shopping are literally breaking down, delivering customizable operations for customers, occupiers and investors.
TECH DISRUPTION NEVER ENDS
The hype cycle of real estate technology has progressed through a series of phases. Such technologies as blockchain and quantum computing hyped up real estate tech innovation, leading to a period of enchantment and high, inflated expectations for future innovations. But
ultimately, the number of technologies, costs and complexities of application and integration have overwhelmed and disillusioned investors and building operators alike.
Nonetheless, technology continues to mature at an astounding pace and, according to research
from Forbes and KPMG, total real estate tech investment will reach $20 billion by 2020. Investors are more enlightened than ever and are steadily beginning to test and implement new technologies at their properties.
From completing real estate transactions with bitcoin and using drones for property marketing, to AI-driven facial-recognition security systems and concierge robots to manage lobby traffic flow, the possibilities for the industry are endless. Digital twins and digital advertising are two pieces of the larger tech puzzle that have recently gained increased interest with respect to building both operational efficiencies and revenue streams.
In commercial real estate, a digital twin is a virtual replica of a building, process or system, bridging the physical and digital worlds with sensors to collect real-time data about a physical item. This digital duplicate can be analyzed, manipulated and optimized. Digital twins can have a huge impact on commercial real estate by allowing building operators to connect previously unconnected systems—from security and heating, ventilating and airconditioning (HVAC) to wayfinding—to gain new insights, optimize workflows and monitor processes remotely.
Digital twins can create energy efficiencies and better predictive maintenance, resulting in lower utility costs, less maintenancerelated disruption and better budget forecasting for tenants.
Other practical uses of digital twins include construction monitoring and document inventory,
space utilization and replication of the customer experience with a living schematic of how and here to deploy devices and sensors using the Internet of Things (IoT). Created with asset-level data, digital twins present a myriad of opportunities for asset-performance management, operational efficiency and business optimization.
Digital signage is booming in the United States. Outdoor digital billboards and signage, known as digital out-of-home (DOOH) advertising, contribute to the digitally connected ecosystem of smart cities and enhance people’s lives by providing such resources as wayfinding, real-time news and weather updates and locally relevant advertising and information (see more about smart cities on pages 38-40).
Building owners can capitalize on additional streams of revenue by selling digital billboard or
standing kiosk ad space to local businesses and major brands. It also is an opportunity for leasing agents to market assets in captivating, nondisruptive ways.
Interior digital signage, such as elevator screens or common-area kiosks, are eco-friendly options that add to the co-everything movement, as ownership can allow local businesses or major brands to advertise, thus injecting retail into the mix. In addition, property managers can inform tenants of events, which fosters the “play” atmosphere at work.
DISRUPT OR BE DISRUPTED
The commercial real estate industry is being disrupted, and building owners and property
managers must meet these disruptions head on. Those who anticipate what’s next and can adapt quickly position themselves to capitalize on growth and revenue opportunities and may enhance their portfolio value.
ABOUT THE AUTHOR: Caitlin Simon is managing director of Capital Markets & Investor Services for Cushman & Wakefield