Updated: May 15
A couple of weeks ago I noted three impacts for landlords of Australian office buildings which I think will remain after COVID-19:
a loss of momentum for in-house leasing;
a pause on placemaking, with fewer experiences and less events; and,
a shift in focus from environmental sustainability to technological connectivity.
Then, last week, I shared three predictions about the impacts of Coronavirus on tenants of office buildings:
A rise in occupancy costs – with higher outgoings;
Working closer to home – a hybrid approach; and,
A more flexible and contingent workforce – accelerating the activity-based workplace trends
You can access those first two blogs here: https://www.cresuccess.co/post/the-australian-office-market-after-covid-19-three-impacts-for-tenants In this third and final blog in the series, I turn my attention to commercial real estate (CRE) service providers. Here are my three predictions of the impact on commercial real estate service firms in a post COVID-19 world.
1. Prop-tech investments will begin paying dividends – and feature more heavily in client solutions
Over the last four or five years, there has been a lot of talk about digital solutions for clients. CRE firms have acquired various prop-tech start-ups or recruited experienced technology personnel into their senior ranks. There has been a greater emphasis on technology in the way CRE firms operate.
These initiatives have been enthusiastically embraced by sections of CRE service firms, including most of the C-suite, and there is plenty of thought leadership promoting the various initiatives. However, these changes have been more tentatively adopted by the employees who interact most with clients and actually implement these solutions on the ground. Furthermore, the technology that has been adopted has not yet created the kind of leverage and efficiencies that it is intended to achieve. For example, there are tenant concierge platforms for the operation of space that are in place, but have not been universally adopted by end-users. In other cases, facility managers spend as much time showing people how to use the platforms as they would have taking work orders manually.
There are CRM and other SaaS systems for internal use which have the potential to disseminate information and monitor productivity more quickly and consistently, but are not consistently applied throughout firms (or in some cases, even within teams). The technology already exists to conduct inspections of space completely remotely, but the industry was not operating this way. I expect the massive slowdown of the airline industry and the closing of borders will give this technology solution a big push. There are also tenant-experience apps to book meeting rooms and remotely grant visitors entry to a building or office, artificial intelligence for property management that monitors buildings and identifies maintenance requirements before they cause operational issues, and valuation software that can accurately estimate values based on data that the firms already have. All of these capabilities exist, but for whatever reason the adoption rates have been low. I expect that CRE firms will be further developing and then pushing these solutions more, and that clients will be far more receptive to implementing them. 2. An increased focus on workplace strategy – an add-on or “nice to have” will quickly become a lead generator
Over the past decade, workplace strategy has been more of a thought leadership generator than a profit centre. It was a good way to start a conversation with some prospects (usually with those of a certain size or level of sophistication), or to add value to an existing client. Generally, only the stickiest and largest clients of CRE firms were using these add-on services on a regular basis. Now, all of sudden, workplace strategy has come into the mainstream and it is not just a debate about the pros and cons of hot desking or, for more sophisticated discussions, the productivity benefits of activity-based working. Workplace strategy has been catapulted to the forefront of the public debate about what the lasting impacts of COVID-19 will be in the way offices operate. Organisations are right now seeking to answer questions from anxious employees who want to know where they will be working in the near future and how social-distancing will be achieved within existing workplace configurations. To answer these questions, human resources teams will be relying on futurists who have been discussing these trends for a while, but previously didn’t have much of a captive audience outside of our industry. Despite the relevance of workplace strategy to tenants and landlords, some agents had been reluctant to take their workplace strategy colleagues to a client meeting. Why take someone to a meeting who creates more steps between now and getting a deal done? Perhaps adding value, understanding the client better, and creating cross-selling opportunities is a reasonable answer to that question. However, I don’t think that logic was prevailing often, or there was a lack of resources to enable it; workplace strategy teams within CRE service firms remain relatively small. Now, it will be the clients who will be requesting advice and insights from workplace strategists. Workplace change and transformation facilitators will be in high demand for implementation. The transactions side of the business will be chasing internal thought leaders to learn about the trends.
Future of Work thought leaders will be increasingly asked to join client meetings, and the workplace strategy team will become a source of leads for the transaction and accounts-based business, instead of it being predominantly the other way around. An economic slowdown and space-contractions by occupiers will only amplify this trend, further shifting power-centres within CRE service firms.
3. A changing of the guard – new leaders
New and more innovative ways of providing solutions for clients and managing people remotely will mean that some leaders will be left behind. As noted above, prop-tech will become a much more important part of client solutions, requiring leaders who embrace technological change and are capable of promoting it. The old-fashioned command style of leadership, which focuses on input rather than output and was already in decline, will become extremely irrelevant with a workforce which is increasingly dispersed. The leaders of the coming decade will be required to increase engagement and drive performance by managing remotely. These are new skills which some existing leaders are not well equipped with. To be clear, I am not saying that all long-tenured leaders are an endangered specious, or that leaders over a certain age are not capable of adapting. Don’t worry, the new senior leaders will not be all millennials just yet! Indeed, many of the existing leaders are there because they have the very skills needed to adapt and will be more than capable of getting the most out of their people in the future office. In fact, many firms regularly implement leadership changes, putting in place leaders they believe are “future ready” and ensuring that emerging leaders get their opportunities at the right time, before they get restless and jump ship.
What I am saying, though, is that some of today’s leaders won’t make it because they are unable or unwilling to adapt, with their style of leadership not being congruent with the new way of working. Some of these leaders may well be a lot younger than the ones who will do a great job in the 2020s. This changing of the guard will be part of the cycle of leadership churn that some firms regularly implement and all firms eventually go through. The Coronavirus will provide the impetus to accelerate the process for firms that previously perhaps didn’t have the time or motivation to make strategic leadership transitions, while other firms will be forced to confront these realities out of necessity. Now what… I hope you enjoyed this three-part blog series about the lasting impacts of COVID-19 on commercial real estate, with a focus on Australia’s office markets. Some people agree with my predictions, and others have different views. I have shared these thoughts to stimulate discussion and contribute to the debate – I welcome your thoughts to move the conversation forward further. Time will tell if these predictions come true. Until then, I will keep offering views on topics impacting our industry. If you have opinions to share, and would like support in enhancing your own professional profile by creating and sharing content, I would be happy to help you do that.