Space as a Service

As work becomes more flexible, so will the workplace.

IN ITS 2016 “Workspace, Reworked” report, JLL stated that “up to 30 percent of corporate real estate portfolios will include flexible space by 2030.”  Although even this is something much of the industry does not want to hear, their prognosis is not nearly aggressive enough. The numbers are likely to be closer to 30 percent by 2022 and more than 40 percent by 2030.

Why? Because the commercial real estate industry is undergoing a structural change that will reshape every facet of the market that has existed for the past 50 years or more. This change is not just a function of the natural, cyclical real estate cycle. Rather, it is a set of structural changes to the fabric of the market. These changes are the byproducts of a world where technology is leading to fundamental changes in how businesses operate, the work people do and, especially, how and where they do it.

Five technological megatrends are the “great enablers” of all the changes now taking place. And each of these trends is on an exponential growth trajectory. Indeed, they are all hitting the uptick of the exponential curve. They are:

1) The ubiquity of the supercomputers (aka smartphones) now in everyone’s pocket.

2) Pervasive high-speed connectivity.

3) Cheap and abundant cloud computing.

4) Billions of internet of things (IoT) sensors connecting anything that can usefully be connected to the internet.

5) The rise of artificial intelligence (AI) and robotics.

In combination, all of these trends are reshaping demand for space. The very nature of the work people do is being reshaped to the point that many people no longer need an office in which to work, or even a store in which to shop. People may desire them, but they do not need them.

The Changing Nature of Employment

On-demand or some other form of contingent work is becoming the norm for many people — perhaps up to 40 percent by 2020, according to an Intuit study conducted in 2015.  In its 2016 “Workplace 2020” report, Google wrote that “Flexible working will be the defining characteristic of the future workplace,” and the bigger the company the more so this will be true. “Companies employing over 6000 people will be 66% flexible by 2018,” Google concluded.

From Rent Collector to Service Provider

In this world, purchasing flexible space, or “#SpaceAsAService,” becomes an obvious response for individuals and companies. Just as it is technology that changes behavior, not the other way round, so this demand will lead to a change in the nature of supply. Put simply, the real estate industry is going to be forcibly moved from being a rent collector to being a service provider.

And that changes everything. The shifting purpose of offices — robots will do anything rote or predictable, so offices will need to be places that catalyze human skills — and the fact that they will often be operated “on demand” will lead to a lot of obsolete space.

The necessity for office buildings to become much “smarter” will transform what it means to be a property manager. Short leases, or rather the death of the lease, change notions of valuation, financing and asset management.

The really big change, though — the fundamental, maybe even existential challenge for the real estate industry — is that the business of real estate will no longer be real estate. Rather it will be all about service, data and brand.

In a #SpaceAsAService world, your customer will be anyone who enters into and/or works in your building. The value you are able to build around your physical asset will be a reflection of the user experience (UX) that you can provide each and every one of those customers. Because in an on-demand world, they can simply go somewhere else.

How do you build a great UX? By using data in a way the industry has not even touched upon to date. You need to know who your customers are, their needs and desires, how they wish to work, what services they require and what it is about your space that they engage with. Then you need to understand how your space is being used at a much more granular level than most property owners and managers do today. You need this information not only to allow you to move from preventative to predictive (on-demand) maintenance, but also to analyze and A/B test new layouts and configurations.

Put all that together, the services and the data, and that will be your brand. Today, brand really is everything. It is your brand that will attract users, enable you to maximize revenue and build a waiting list for your space. There will be a large yield gap between the best branded spaces and the rest.

Thus the consequences of #Space AsAService go far beyond “a bit more co-working space.” Physical assets are going to need to become smart by default, property managers are going to need to refocus from operations to user experience, landlords are going to need to become experts in AI and data analytics — as well as morph from product to service companies.

If demand does indeed result in all of the above coming to pass, commercial real estate will become a very different industry, providing a better “service” to a happier customer. Those of you who recognize and embrace this shift will probably make more money as well. Are you up to the job?

This article is adapted from one that originally appeared on April 24, 2017, in the author’s blog. See www.antonyslumbers.com/theblog.