Colorado Real Estate Journal - September 21, 2016
This is a most interesting time to be in the commercial real estate business. There are several sea changes underway, particularly in the office sector. Today, the commercial real estate industry revolves around the customer – that is, the tenants are in charge. They not only have all the information they need at their fingertips, but also they want to be serviced very differently. At this year’s MIPIM Conference (the international real estate show for professionals – www.mipim.com) in France, there were calls to move to a service versus asset-management business model and calls to give up our addiction to rent versus charging for space usage. This is because customers today want much more flexibility and shorter leases. And we must balance our need to do the business and get the investment that matches their wants. Companies like WeWork, Liquidspace, Regus (Logo slide) and others are providing business settings with very different models, and the deal terms are very different as well including monthly arrangements. WeWork has stated they are driving to densities of 50 square feet in their tenant spaces. If steady revenue streams from building leases are being challenged, ultimately the value of those properties for owners and investors will be impacted as well. With cap rates low and profit margins razor thin, we are in the midst of a business revolution. There also is a revolution going on in terms of the kind of workplaces tenants want – open floor plates, collaborative space, healthy environments, including the WELL building standard and more. Tomorrow’s workforce wants choice, authentic workplaces and transparent environments. What is the balance between simpler, leaner, meaner green office with biophilic designs, including living walls and those promoting high density, activity-based and adaptable offices enhanced by technology and connectivity? The future will see even more wearable technology, as well as augmented technology to try things out and, of course, more sensors and Big Data that everyone will be analyzing looking for advantages. I also have to highlight a few predictions from Chris Lee, head of the real estate consulting firm CEL & Associates, including that, by 2025, robotics will reshape the functional footprint of 60 percent or more of today’s commercial buildings – although maybe not quite like what’s pictured just yet! Some of his other predictions include: •Expect the total office space square footage per employee to decline to around 100 sf within 10 years. Collaborative workspace, mobile offices, increasing numbers of employees who work remotely, greater autonomy and work-style flexibility will drive this change. Office buildings will become network orchestrators, not employee domiciles. Video, messaging and conferencing are altering how people interact. •In a related trend, individuals will meet in cyberspace with no travel or meeting space required. In an “alwayson” environment, knowledge and skills follow the individual, and physical space is less relevant and seldom necessary. By 2025, virtual space, holograms and other Internet-based technologies will render many of today’s meetings outdated and ineffective. Office buildings, apartments and retail centers will have dedicated areas for virtual meetings. •Every operational aspect in property management will be driven by and connected to the Internet and each other as the “Internet of Things” becomes more commonplace. •As a result of a more connected commercial real estate industry, data breaches and cybercrime will increase dramatically. Real estate firms and asset owners will need to install devices, systems and firewalls to protect data and prevent elevators from free fall, HVAC systems from shutting down, safety and security systems from being rendered useless and tenant data from being stolen. Defenses against cyberattacks will be mandatory for every real estate firm in the next 10 years. Much of the drive here is what is being covered and reported on about exciting new mixed-use and corporate buildings. Projects like Shanghai Tower’s tiered construction provides multiple separate zones for office, retail and leisure use. The tallest building in the world right now also is one of the most energy efficient. Also, Amazon’s 3.3-millionsf Seattle Biosphere project is a unique, cutting-edge development and a model for the future of design. And Facebook’s Disney-inspired new California campus includes a nine-acre green roof, with a half-mile walking loop, 400 full-grown trees, plus whiteboards, Wi-Fi and plenty of places to sit, so employees can work al fresco while collaborating and innovating together. What a time to be in commercial real estate, especially if you invest in, own or manage existing buildings with all of this going on around you. It is a dynamic, challenging and quickly evolving time to be in this profession. BOMA and many of our affiliated associations are researching the options and opportunities around us to create future value in these buildings as they compete with the latest new building stock.