From a Bond to a Business

Historically, the commercial real estate industry has been designed to operate like a Bond, a financial instrument. What mattered was security and constancy of income. 25 year Leases, with 5 yearly “upwards only” rental increases were the norm at the start of my career. These morphed into 15 years, with 3 yearly reviews and have slowly gone down from there. Some still occur, but the norm now is for single digit lease lengths and ‘maybe’ a mid term review.

In practice, and despite the ‘living in denial’ mindset of much of the Investment community, the real estate industry is now, at core, an operational business. The days of effectively ‘lock up and leave’ being the ‘operating model’ are over. As such, our customers are now our users, not our investors. For investors to achieve the returns they want we have to put their interests behind those of our customers. Sure, they do not like this, and many are refusing to accept the new reality, but the smart ones are onboard and realise this is a massive opportunity to outperform. We are moving beyond everyone rising or falling in lockstep; today, you can differentiate yourself like never before.

And removing friction and enabling discovery are the foundations upon which you’ll build your differentiation.

Removing Friction

We all know that ‘friction’ has traditionally been endemic within real estate. How we consume or interact with space has been riddled with clunky processes that make it uncomfortable, time-consuming and inconvenient. And the same has applied to real estate transactions and business models.

For example:

• Complicated lease agreements: Lengthy, jargon-filled contracts that are difficult to understand and negotiate.
• Inflexible lease terms: Long-term commitments that don't adapt to changing business needs.
• Manual and inefficient processes: Think slow payment systems, manual access control, clunky visitor management, or outdated communication methods.
• Poorly designed spaces: Workspaces that don't support the activities people need to perform, are uncomfortable, or lack necessary amenities.
• Lack of transparency: Opaque pricing, hidden fees, and difficulty finding accurate information.
• Inefficient property searching: Difficulty filtering for spaces which meet the specific needs of a user.

And all this ‘friction’ has been at the expense of user experience. Which, to be honest, no-one cared much about in the ‘Real Estate as Bond’ days. It was just the way the industry worked. Today though, as we were learning before the pandemic but which those years made absolutely clear, no-one NEEDS an office, or a retail store - they have to be made to WANT them. And in this new world the old ways of real estate have no place.

Friction is the enemy of user experience, and has to be ruthlessly expunged, if you want to achieve product/market fit. As demand changes, so must supply. And this is not going to change.

Customer-centric design, technology integration, flexibility, adaptability, and all round operational excellence - these must form the core of our new operating procedures.

And mostly the user must not notice - the joy of a great user experience is the absolute removal of friction. Everything just works, exactly as you need it to.

Discovery: Empowering Choice and Efficiency

On the flip side, "enabling discovery" is about making it easy for people to find what they need, when they need it, and how they need it within the real estate context. This involves:

• Seamless access to information: Providing clear, concise, and readily available information about spaces, services, availability, pricing, and building performance.
• Personalised experiences: Tailoring the user experience based on individual needs and preferences. Think recommendations for spaces, services, or even connections with other users or occupiers.
• Data-driven insights: Leveraging data to understand user behaviour and preferences, enabling better space utilisation and informed decision-making.
• Intuitive interfaces: Using technology to create user-friendly platforms for booking spaces, managing services, and interacting with the building ecosystem.
• Serendipitous encounters: Designing spaces and experiences that facilitate chance meetings and connections between people, catalysing collaboration and innovation.

The key is to anticipate user needs, even before they are aware of them, and ensure resources are readily available when required.

The Role of Technology

Technology, of course, is the key to removing friction and enabling discovery. We need to:

• Automate processes: Streamlining tasks like lease administration, payment processing, and maintenance requests.
• Provide real-time data and analytics: Offering insights into space utilisation, energy consumption, and user behaviour.
• Create digital marketplaces: Connecting occupiers/customers with landlords and service providers through online platforms.
• Enhance the user experience: Providing mobile apps for booking spaces, controlling building systems, and accessing amenities.
• Facilitate flexible space models: Enabling on-demand access to workspaces, meeting rooms, and other resources.
• Enable smart buildings: Using sensors and IoT devices to optimise building performance and create more responsive environments.

Essentially we need to understand the ‘wants, needs and desires’ of our customers in highly granular way, and then over satisfy them. Doing so is in reality about more than just technology, and the human creation and curation of the user experiences is a critical component, but with new technologies, especially AI, we can automate a lot of the ‘human touch’. Doing so authentically, rather than robotically, is going to become a super skill of real estate operators, but it is a necessity as the level of services now required is such that it cannot be provided economically through ‘humans’ alone.

The Foundations of #SpaceasaService -The TrillionDollarHashtag

Removing friction and enabling discovery is only possible with a deep knowledge of, and empathy for, the customer, but it is what provides the foundations for true #SpaceasaService. That is:

• User-centric: Focused on meeting the needs and expectations of the people who use the space.
• Flexible and adaptable: Able to respond quickly to changing business and market conditions.
• Efficient and sustainable: Optimising resource utilisation and minimising environmental impact.
• Data-driven and intelligent: Leveraging data to improve decision-making and create better experiences.
• Transparent and accessible: Providing clear information and easy access to services.

This is a call for a fundamental shift in the real estate industry. By embracing technology and adopting a user-centric approach, real estate can transform from a static asset into a dynamic service that empowers people and enhances their lives.

It isn’t just about improving existing processes, but developing entirely new business models. That recognise that the way to maximise value is by providing more than just space. In an AI mediated world (that is become more pervasively so each year) we need to focus on what can be done in our ‘assets’ that cannot be done in others. That act as a maven and a magnet for successful, forward thinking, businesses attuned to the new dynamics of business.  

The commercial real estate industry ‘knows’ that it is at a liminal point, where it is morphing from what is to what will be. Importantly investors are slowly working their way to acceptance of this fundamental change from being a Bond to a Business. Last week I read a well known investor comment ‘Can real estate survive as a distinct asset class, or will it be absorbed in the real assets and private equity envelope?’. My instinct is that the industry is going to become ever more operational, ever more focussed on user experience, and ever more technologically savvy. And underpinning everything will be the quantitative and qualitative tools that ‘remove friction and enable discovery’.

We all want to spend our lives inside great real estate. Whoever provides that is going to win!

Next Steps

What's the first step your organisation could take tomorrow to remove friction and enable discovery? Would you want to be your own customer? Imagine your were - what then?

We’d love to hear your thoughts—what’s your biggest friction point, and how are you addressing it?