Space as a Service is Changing Real Estate and the Way Companies Work
As published in Propmodo.
Tech is changing the world at a breakneck pace, but not always in a good way. For those invested in the traditional commercial real estate model, tech has you in its sights. But now is not the time to break out your trumpet to prepare for traditional commercial real estate’s funeral with a touching tribute of “Taps.” On the contrary, to avoid an untimely death, now is the time for commercial real estate owners to pivot from a model of commercial real estate as a means for filling space and collecting rent, to building an untraditional office that engages tenants, supports the human side of business, builds a community, and ultimately monetizes their space to offer services to their tenants.
As Anthony Slumbers explained in great detail in a Propmodo Metatrends article, Space as a Service, The Trillion Dollar Hashtag, space-as-a-service is a necessary and potentially hugely valuable part of the new shift in commercial real estate. But adaptation is necessary for evolution.
At a Propmodo Metatrends 2019 event, a roundtable was convened to examine space as a service, its impact on traditional commercial real estate, and its future in the marketplace. To examine this topic, we enlisted the help of James Duong, head of Business Development at Spaceflow, Tyler Herbert, head of real estate at Convene, and Sanjiv Sanghavi, Vice President of Product for Knotel.
We’ve all seen The Office. In the past, commercial real estate revolved around huge companies installing long rows of gray cubicles, executive offices and conference rooms along the walls, and a kitchen in the middle as a place to congregate. This model is no longer the norm, but rather the outlier. As noted by Slumbers, to adjust to this change in commercial real estate, property owners “are starting to look at what services they can provide for their tenants rather than just how much space they can provide. No longer is real estate viewed as a product, [but] now the new paradigm is becoming space-as-a-service.” As tech – and most importantly AI – more frequently takes over the repetitive tasks that required armies of white-collar workers to do in the past, companies can now modify their operations to become leaner by focusing on enabling people’s creativity. This is leading to a modification of companies’ long-term model of a large headquarters in a “first-tier” city to a focus on decentralized, flexible leases in a diverse set of locations. Commercial spaces will need to focus on shorter-term – daily, weekly, monthly – space usage and be configured to help people be as efficient as possible to accomplish their jobs.
What are the Challenges Facing the Traditional Commercial Real Estate Model?
At the beginning of the panel, Duong outlines the idea that tech was initially created to bring people together, but in reality, it made it so that people could achieve jobs more efficiently on their own. Convene’s Tyler Herbert, having come from an asset management role, agreed that there was a disconnection between how spaces were designed and managed. Sanjiv from Knotel didn’t come from a real estate background but has innovated another previously “static” industry, fitness, when he founded ClassPass and sees parallels in how gyms and offices can optimize space.
He notes that people are social creatures that need to be together, but a challenge for property owners is to build an office space that is a convenient place for people to meet that also supports innovation in employees. No longer can the vast horizon of cubicles meet the needs of today’s tech-enabled workers. Offices must allow for collaborative environments where ideas can be shared, but also quiet places for people to act on these ideas.
Sanjiv adds that flexibility is key in space as a service. For example, to meet tenants’ needs, owners must be able to adapt by allowing for flexible leasing schedules and changeable office layouts such as modular offices. This adaptability will help meet shorter-term tenants’ needs while enhancing their employees comfort levels. While this may not meet the old business model of long-term, stable leases, this flexibility will help companies adapt to the dynamic business world that is driven by ever-changing tech and give property owners the ability to quickly change an office layout to meet a new tenant’s needs.
Herbert agrees with these concepts. In the past, companies used to design a space, hire and architect, and throw money into building an office, then hand it off to a property manager to bring in tenants. But, he says, “that’s only halfway there, as operationalization and monetization of a space was something that was completely amiss.” Despite landlords designing beautiful, fancy office spaces, they were not building them to meet to the changes that tech brought upon the commercial real estate industry. Space as a service means that office spaces must be built to foster community and help companies’ talent thrive. Companies must ensure they attract new and talented employees that can focus on driving further innovations, while working in a comfortable environment. Therefore, having an office space that fosters this community and supports efficiency will breed happy employees and allow companies to focus more directly on their operations. These offices will not fit the mold of the traditional office space and must be adaptable.