CRE Is Shifting To Serve An Agile Workforce

• At the Disrupt CRE conference in New York City, Ryan Simonetti, co-founder of Convene, laid down five megatrends that will impact the way people work.
• Although the ways companies utilize their real estate has changed and the way we work has changed, the workplace is not built for today’s evolving ways of work.
• Technology and agile ways of working will galvanize several other standard real estate policies and procedures that are ripe for disruption.

In the not too distant future, landlords will own no assets, tenants will not take leases, and the concept of office-as-a-building will no longer exist, according to a New York City-real estate expert.

Rather than office buildings, “office as a service” will include flexible workspace, gracious hospitality and seamless partnerships with landlords, predicted Ryan Simonetti, co-founder of Convene, at the Disrupt CRE conference recently in New York City.

In commercial real estate, technology is driving an evolution from a space-based strategy to an experience-focused approach, such as the one pioneered by Convene, according to Simonetti, whose firm partners with landlords to deliver meetings and workplace experiences.

Such outsourced real estate services will be standard, with offices resembling full-service lifestyle hotels, with spaces, surfaces and technology that deliver a differentiated user experience.

Simonetti identified five megatrends that will impact the way people work.

1. Demographics. Having five generations in the workforce, each with their own set of expectations, requires both a new workplace strategy and cultural approach. While Millennials now account for half of the workforce, 2015 saw workers over 65 outnumber teen workers for the first time since 1948.
2. Technology. By 2020, some 50 billion connected devices will exist, an astronomical increase from the 500 million in 2003, raising the question of what such an ubiquitously connected network means.
3. Urbanization. City dwellers generate some 70% of global GDP. With more than half of the world’s population living in urban settings, and 1.5 million moving to a city weekly, the power and impact of urbanization cannot be underestimated.
4. Resources. PwC predicts 8.3 billion people will live on earth by 2030, causing an unprecedented strain on resources. Upwards of 50% more energy, 40% more food and 30% additional clean drinking water will be needed to sustain the population.
5. Globalization. Access to information has been democratized and we will see economic power shifting from western nations to emerging countries.

The ways companies utilize their real estate has changed and the way we work has changed, Simonetti said. However, the workplace is not built for today’s evolving ways of work, which has given rise to the agile workforce.

Currently, just 2.7% of flexible commercial real estate is flexible, but by 2030, JLL predicts it will comprise 30%, a 10x increase.

Coworking is the first step in the larger CRE industry shift, with 67% of businesses choosing some form of flexible working as a permanent part of their business strategy.

In Convene’s business, where Fortune 1000 clients drive 80% of revenue, every large enterprise client has committed to outsourcing real estate as a long-term strategy in the last 12 months, Simonetti reported.

“It’s not necessarily about optimizing real estate but creating a superior workplace experience to drive talent strategy,” Simonetti stressed. “Because space matters. The workplace experience matters.”

“In today’s age of acceleration, human capital is a company’s most valuable resource,” he emphasized

The shift in values is being driven by Millennials, who value choice, flexibility and experience over pay and all other factors.

Technology and agile ways of working will galvanize several other standard real estate policies and procedures that are ripe for disruption, Simonetti predicted.

1. Long-term leases will not exist. Less than a decade ago, the average lease term was 10 years. Today it is currently 7.3 years, which, perhaps not so coincidentally, is the average life expectancy of a company today (7.2 years). “Owners don’t know where their business will be in 24 months,” Simonetti said, so the concept of long-term leases just doesn’t make sense. “The majority of Fortune 500 companies won’t hold leases.”

2. By 2030 the world’s largest landlords will own no assets. Building ownership will model the sharing economy pioneered by operators of hotels, transportation and retail who own no physical assets.

3. Agile models will become the norm. The opportunity cost of a workplace experience in a class A building in New York City has reached $23,000 a year, according to Simonetti. Yet utilization rates are at historic lows: desks utilization is only 34%, meeting rooms 35% and break rooms 44%.
   
   Thus, models that provide flexibility and agility at less than half the price will be viable options, such as space consumed by the minute and hour in buildings with service-based infrastructure.

4. All office buildings will be smart buildings. Sensors and systems will gather data, streamline processes and deliver intelligence that anticipate human needs.

5. A customer-centric philosophy will drive CRE. Landlords and brokers who once focused solely on capital markets and tenant creditworthiness will approach deals and decision-making from the customer’s point of view.

6. Third places will be the preferred workspace. Today’s data says that 65% of office workers would be more productive outside the office.

The only way to fight in a world of complexity is through speed and agility, Simonetti emphasized. The pace of business today – one in which 52% of Fortune 500 companies that were on the list are no longer there – will never move this slow again.

Quoting a Chinese proverb, Simonetti closed with “When the windows of change blow, some build walls, and others build windmills.” Simonetti suggested the industry build windmills.