Happy New Year to all our followers and hope that 2021 brings about a better year. Obviously, these words have been echoed across all industries and with Covid continuing to make life difficult and uncertain. Now, more than ever, it is important to find ways to keep our industry going and to be DYNAMIC.
Let’s kick things off, in this latest article of Proptech Talk we are going to mention a few points to talk about regarding the future of office space in Real Estate. Many people are pointing towards the pandemic as a cause of the decline in the property industry, especially in the Commercial Sector, however one cannot but claim these issues have been long in the making. I would argue that the pandemic has simply taken the tide out and there are some players that have simply been caught without costumes on.
So, in this article I will be setting out some brief points which will be discussed later on in further articles. If you haven’t seen any of our other articles and if you are a first-time reader, please head over to our #thetalk page and our #podcast page to check some our content.
What is the future of office space?
In this article I draw inspiration from Bill Conerly article “The Future of Real Estate” in Forbes.
What drew me to this article is not just the obvious issues with the Commercial Real Estate Industry in terms of office, but the key points raised by the author indicating how the Covid19 pandemic will impact the future of the industry.
This article is a good summary, if you haven’t read anything on the future in office space, and offers some basic points as to what Commercial Real Estate companies and REITs need to take into account when planning for the future, both in the short term and long term. There are three main points that the author alludes to, namely:
- Online platforms are here to stay and has trumped all the sceptics ideas of alternative ways of working;
- There is still a definite need for face-to-face meetings and remote conversations; and
- There is also the basis for having both the face to face and the online working coming together.
Does this mean that the old model is dead? Many companies have scaled down on the size of their properties and have minimized the number of employees that work from offices, requiring them to pre-book a slot in order to work at a specific office.
Beyond the Office
One of the issues that I have with articles on the future of office space, is that they are written in a silo. They are written without looking at the tenants or the owners of those properties as businesses, and merely look at how it effects the bottom line from a rental point of view.
How does business viability point of view provide a wider perspective? Such as the long-term effects of company culture that will inherently make your business strong or pass on certain skills that you are not even aware of being passed on.
Company culture is made of values and principles (and a whole lot more). However, there is a major difference between written culture and “lived” culture. The lived culture is what you actually end up doing and how you embrace culture and how you pass that culture on. It could be a particular calibre of people that when brought together pass on certain skills. It could be a combination of stated values as well as lived values that joined together and create the business that you have. Having said this it is not to say that culture will not be created through an online platform or a mixed one, I just feel that there is not enough being said about the holistic view on the impact in the sudden change in office dynamic.
Are we focussing on short term benefits, and forsaking the long-term impact? One example I like to think of is the sudden change in thinking when it comes to the “open-office”, after basically all companies changed their set-up only for research to show that these open-plans were actually a bad idea.
Should we be chasing efficiency?
Efficiency is another word that comes with the changing landscape and has been used in many articles describing the new flexible work office space. What does the word efficiency mean?
Efficiency obviously means doing something better, quicker, smarter and more profitable (in a business sense at least) – (Harder, better, faster, stronger – Daft Punk = great song). There is also another side to the word efficiency that is used to make people do more than they are obliged to.
Nassim Taleb’s book on anti-fragility opened my eyes to how the word efficiency is something that we all strive towards and is something that we may never achieve. In a nutshell, (because Nassim Taleb’s theories are extremely complex) it speaks about how the drive to be efficient actually makes us fragile. Efficiency is avoiding error and fault, not testing your fragility and giving you the ability to combat such fragility. Now this sounds complex and to break it down will take a lot more than a couple of sentences but basically: What correlation am I trying to make here? Companies that are seeking more efficiency out of this process may actually be making their companies more fragile. Having said that it would be interesting to see how the drive for efficiency, together with business looking to remove themselves from real estate, will impact the future developments of the industry.
The South African Consideration
One of the other main points that the author looks at is how the market compares to unemployment. Although unemployment in America is very different to unemployment in South Africa, it is a very important topic to note.
Jobs, Jobs, Jobs, Jobs! At the end of the day, it is all about jobs. With our unemployment rate being at an all-time high of 28.48% and more importantly with our youth unemployment rate being at55.75% as of (2020), it would be a missed opportunity for future tenants and owners of these organisations to focus on creating jobs and finding a way to include the majority of the unemployed sector with new ways of thinking.
Let’s use an example, call centres, these have traditionally been in large buildings with people sitting across from each other calling prospective clients all day (thank you Truecaller!). Is the future of a call centre now able to expand and include more people using rental to rather go online and include more people without the boundaries of the four walls of the past? Looking at a bit of a different business model, how will a purely online platform impact a sales team for example that relies heavily on cultural aspects like interacting, learning to read emotional prompts and signs that may make or break a deal. Whichever way you look at it, will we create or hinder the employment battle. One criticism of Proptech is that the integration will further divide the privileged from the rest, and should this be considered as a social responsibility before we progress further?
What does that mean for Property Owners?
Now these considerations are focused obviously on prospective tenants or property owners and not necessarily bigger organizations such as REITs. The main question here is how are the REITs going to accommodate the future of office space tenants?
I really like the statement that the author makes at the end of his article, which should send chills down the spine of any commercial property owner, namely, “Real Estate is value–less unless people use it.”
The problem with property is that it is a tangible asset. Are we beginning the age of multiple white elephants, standing on the corner of almost every intersection of Johannesburg, unused, dilapidated and ready to fall to pieces?
Or are the Commercial Property Owners going to adapt to the market? The more frightening question is are they able to?
I have no doubt that they are trying to adapt to the market, however it requires some clever thinking, adaption of the business model and finally the need for technology integration into service offering.
How is Proptech going to help our struggling landlords to gain new tenants, to entice them and to continue servicing them? It is my opinion that the Commercial Real Estate industry has long forgotten how to offer good service, which has partly led them to become fragile and unable to react to these trying circumstances that we are currently facing. In the past the commercial section was very much “carbon copy” in virtually everything it did, based primarily on the comfortable position it found itself in.
Value of property means more than service. The copy paste method that goes from a leasing agent offering all the way through to the commercial lease drafted and to the management of that tenant has led to poor service and in part led to the backlash that the Commercial Real Estate industry is facing at the moment. Yes, flexible office space, and shared office space have entered to game and changed that up a bit, but has service from the REITs really improved?
My question to the organisations out there is what are you doing at the moment to take these considerations into account. Are you looking at:
- large-scale downsizing of office space;
- how different organizations are working remotely;
- how your building is catered to adapt to these changes;
- how you can improve your service in a time where so much uncertainty is still governing the way organizations work; and
- lastly are you using technology as a means to provide better service.
These are but a few considerations that I believe organizations need to consider. There is still a lot of uncertainty even though organizations have taken online platforms as a new way of working, the uncertainty still governs every day thinking and it is an opportunity for Commercial Real Estate to find a way to adjust, failing which, we will be stuck with white elephant buildings as a symbol of how an industry failed to find a way out.
Add to this the plethora of investors and banks that have debt and equity in these companies and you are looking at a bubble bursting that could spell despair for all….
If you liked this article, please head to our other articles on the #talk and listen to our content on the #Podcast. What did you think? We would love to hear from you and if any of our readers are interested in an interview, we are more than happy to interview anyone from the property sector. I hope you enjoyed this article and please note we will be following up on this to expand on the key points that we have mentioned in here.