Last week, we had the pleasure of attending CREtech’s Global Virtual Summit. Thousands of industry thought-leaders and real estate tech professionals from around the world gathered virtually to discuss the trends in commercial real estate and what role technology can play in combating the mounting challenges faced by landlords, brokers, asset managers, tenants, and beyond.
The large-scale conference took place online for the first time in its history and ended up a success, being deemed the largest real estate tech virtual conference ever held.
Just as the conference had to be reimagined due to the coronavirus pandemic, so has the future of commercial real estate (CRE). Here are the 4 key highlights we took away from CREtech’s Global Virtual Summit 2020.
1. The office isn't dead, it’s just outdated.
While major tech players such as Facebooks’ Mark Zuckerberg and Twitter’s Jack Dorsey have declared that their employees may work from home “forever,” CRE players, such as Lisa Picard of EQ office, don’t see this as a long term office solution. Yes - there is a need for employees to feel safe in order to be productive, but there is also a need for human connection. So, where does that leave the physical office?
While expected work can be easily distributed, Picard cited 4 critical ”c’s” to effective work that are hindered by the home office: concentration, collaboration, community, and convenience. As humans, we don’t yet know how to establish the quality of in-person relationships in digital format. It has become difficult for workers to complete new tasks, advance in their role, grow through experiences outside their normal, and collaborate to create the next generation of solutions. In short, there are diminishing returns for a company the longer we stay in isolation.
According to Christian Ulbrich, Global CEO of JLL, the excitement of staying at home and saving the commute time has faded. Commutes provide structure - on the way to work, one can focus on the day ahead; on the way home, one can shift to leisure. Now, as Picard put it, “we aren’t working from home, we are actually living at work.”
Picard predicts a long term “phygital (physical and digital) strategy”, in which the digital world can be used for execution of tasks, and the physical world is necessary for creative work. She claims the best companies in the world aren’t driving efficiency out of their machines, they’re driving effectiveness out of their people. The workplace has to become a vehicle for this collaboration.
2. The reinvention of the office is a two step process.
The office cannot be transformed into a marketplace for businesses overnight. We have to first meet a more urgent demand - safety. According to the “New Normal" survey conducted by CREtech and Openpath, 63% of employees are not comfortable returning to work, yet 70% assume they will be required in the office majority of the time within a year. Thus, such office reinvention will happen in two phases.
Phase one will be an implementation of what is comfortable. Technology that alleviates pain points of the pandemic, such as sensors for capacity management, touchless access control, and employee experience apps, will be utilized to create safe distancing practices. If the tenant feels comfortable, the momentum to return to the office will continue to build.
In the long run, however, distancing is not what tenants want. In phase two, the office will become a collaboration hub for exchange of thoughts between colleagues, face to face interactions, and an overall sense of togetherness.
3. Proptech is a need, not a want.
There is a rapidly growing occupier demand for tech enabled space - a trend that would have happened regardless, but has been accelerated by coronavirus pandemic. In fact, in the opinion of Brett White, Executive Chairman & CEO at Cushman & Wakefield, the pandemic “has advanced the adoption of PropTech and Infrastructure Tech 5 to 10 years in a matter of months.” We are finally in the sweet spot of adopting technology to drive value for clients.
In the past, commercial real estate leaders would have cut technology first thing amidst a financial crisis. Now, according to Adam Stanley, Global CIO & Chief Digital Officer at Cushman & Wakefield, in order to stay on the offense, “Business leaders are saying: ‘How can we use an increase technology spend to reduce costs elsewhere?’”
The future of proptech is bright. Technologies are viewed as “investments that companies make that will be lasting within the properties - they’re a tool, not a trend,” said Michael Beckerman, CEO of CREtech, in his closing conference remarks. The commercial office space industry has the opportunity to collect a vast amount of data and turn it into something valuable. With 75% of those surveyed during the conference reporting they “trust corporations more than the government”, there is a responsibility to leverage that trust and deliver the customer the most powerful office experience yet.
4. For the first time, people matter more than buildings.
Landlords and asset managers have long been basing business decisions on how their assets are performing focusing on cost efficiency and sustainability - leaving their customers as an afterthought. But, with record high unemployment rates, and the uncertain future of many companies, landlords are scrounging to retain today’s customer. The pandemic may be the fracture that forces the customer to the driver's seat which shifts the focus to retention and wellbeing.
The workplace experience has become an “increasingly important differentiator,” according to Kitty Sullivan, Director of Investment at JLL Spark. Sullivan pointed out that experience is a great way to “communicate with people” and “transform fear into trust” in the workplace. Picard reported already seeing landlords creating flexible office solutions, shortening lease terms, and partnering with other operators. As lease terms shorten, the level of service provided has to increase, as tenants have a minimal commitment, and the barriers to move a company are now very low.
When reflecting on the transformation of retail over the past decade, “physical retail has moved into convenience retail or experience retail,” according to Ulbrich. The office market will likely reflect this trend, becoming flat to negative except for assets that actually provide the user an experience. If they fail to do so, they will mirror Blockbuster in 2010, as a customer-centric Netflix is bound to quickly disrupt the ecosystem. Beckerman said it best: “For the first time, people matter more than buildings.”
With all of the talk about the importance of customer experience, we were left with one burning question: who owns the customer experience in commercial real estate? Are property owners and their teams really structured and set up to deliver a differentiated and integrated customer experience?