The conference focused on exploring the concept of real estate as a service.
Real estate today can be a lot different things to a lot of different people, especially for commercial real estate. This fact was the focus of the Convene Summit, “The Office of the Future”, held last Friday, October 29 in New York City. The summit was attended by nearly 450 professionals that included a wide range users and providers — a mix of commercial landlords, tenants, service providers, and just about everything in between, including many new types of landlords and services that are finding new ways to realize value in the physical places that we build.
Convene hosted the event in their newest space on 46th Street, one block east of Times Square, which served two valuable roles: one, as a great place to hold the conference, with all the necessary accoutrements (the food was awesome) and two, as an example of the type of services and spaces that are becoming available and building value in the commercial real estate market. The conference focused on exploring the concept of real estate as a service.
Changes facing the commercial real estate industry
Ryan Simonetti, CEO of Convene, kicked things off with a great overview of the disruption and rapid change facing the industry for both users and providers alike. For most organizations, today talent is the “input” and innovation is the “application” — or, in some cases, the consequence — that has become the desired output.
For that process — or experience — to occur, you need highly successful and interactive workplaces. The speed of change and the amount of information has become extreme and is only increasing. Simonetti mentioned that as a result, his company does a two year strategic plan that is reviewed quarterly and that there is only about 12 months of revenue visibility. Long term leases are a big risk.
Wrapping up a great overview, he made three predictions:
- In 2025 the world’s largest landlords will “own” no real estate
- The average commercial lease term will approach one year by 2040
- The workplace of the future will be a tribal ecosystem of people, services, and machines enabled by technology and integrated into one coherent physical experience
This set the stage for the day and some great discussions about the workplace as a service.
The issues that are driving real estate decisions
A panel of tenants and landlords followed. One of the themes that ran through the discussion was wellness. It seemed that everyone has realized the value of not just healthy employees, but mentally sharp and fully engaged employees. Constant change was another dominant theme, and adaptability ranked high, too. Concerns were expressed about rapid growth and having almost immediate access to contiguous space was a priority; both landlords and tenants were now assembling space through strategic lease expirations.
According to the landlords on the panel, they still like long leases, and in New York there are enough big and well-established companies that a long-term lease is still a financially viable option, especially for well-positioned properties. There is value to be had from some properties that may not be well positioned, but were viewed as non-traditional office space and had very unique characteristics. Older buildings — like warehouses and manufacturing facilities — have become extremely valuable to tenants looking to differentiate themselves or create and exciting workplace to attract great talent.
The panel also recognized the collective value in the health of the New York City economy. The suburbs are dead; 80 percent of all new jobs were occurring in cities. One interesting observation was that great places to meet people, hang out, and interact with others are perceived as more valuable to tenants and employees than the traditional quality construction and well-maintained building.
Things like wellness and the ability to connect with nature are often intangible, but right now they’re viewed as driving real value in the workplace. One panelist spoke about the importance of investing in art and how access to outdoors, street life, hotels and amenities are highly sought after.
Wellness in the workplace
Jennifer Cooper from the International WELL Building Institute talked about how the built environment was affecting our health and explained the criteria for WELL Certified buildings. One of the points that made the audience gasp was that we spend 90 percent of our lives inside buildings. She forced us to realize how important this was by underscoring the fact that buildings are now more impactful on our lives than doctors are. The WELL Building Standard is now two years old and has certified 58 million square feet of space.
The value of placemaking
Ric Clark, the head of Brookfield Properties, spoke about the idea behind Brookfield Place — the company’s office, retail, and public space in Battery Park City — and the substantial investment in art and open space. He also discussed a the value of placemaking and said that traditional office buildings are not good enough anymore.
There were several panels throughout the day that discussed building amenities, workplace as a strategy, and real estate as a service. The panelists shared valuable experiences and how they were changing the real estate landscape. The common themes were about people, their wellbeing, connecting to a community, eliminating inhibitors to their work and enabling tenants to be innovative and create real value for their organizations. Most interesting was the new and increasing variety of services that are available and now a growing part of the real estate industry.
There were a few noticeable absences from the conversation. WeWork, which is the 900 pound gorilla taking the industry by storm, and Regus, probably the largest landlord of flexible office space in the world. Both companies have demonstrated that there is a huge void in the traditional market and a very large appetite for highly flexible space and services that are growing rapidly.
When you boil it down, the real estate industry — which is historically slow to adapt — is still healthy and evolving quickly. Landlords — many of whom are still constrained by financing and need long term leases to underwrite the properties — still have an important role, but there are many new service providers that are finding and extracting value from underutilized assets in the sharing economy.
When you listen to the conversations in commercial real estate and related businesses, and see how the industry is reacting to the new economy, it comes down to finding what is important to people. It was very much about “follow the money” — not in a corrupt or political way, but the focus for landlords in shifting to supporting the business of their tenants and helping them to build a community and attract their employees. A healthy ecosystem of users, suppliers, and service providers is evolving and growing rapidly