Let’s Get Real Episode 16: How Real Estate and Tech Work Together
Discussions on the Workplace and Corporate Real Estate Podcast
Some of the highlights of the show include:
- The intersection of real estate and tech
- The founding of Real Innovation Academy
- Buildings are a standalone business, making it difficult to make big strategic moves
- Corporate real estate management is focused on efficiency
- Does occupancy as a KPI matter anymore?
- Offices matter less than ever, but they also matter more than ever
- Real estate as a service
- What do employees need to be as effective as possible?
- How do I create an office building that has 70%+ occupancy and 70%+ satisfaction?
- How to measure workplace productivity
- There’s no single answer on the future of real estate
- To create a great workplace, you need to consider 6 different industries
- The future of work is not obvious
- Crypto will impact real estate – but not in the way we think
Hey everyone, welcome to Let’s Get Real with Sandra and Friends, a workplace consortium podcast brought to you by Relogix. I’m excited to be sharing conversational musings about current events and how we envision the ever-changing world of work. I’m Sandra Panara, Director of Workplace Insights at Relogix. With 25 years of hands-on experience, I help value engineer global workplace portfolios and employee experiences by aligning workplace analytics with corporate real estate needs.
Have any questions, comments, or suggestions for future podcasts? Please drop me a line at [email protected].
This week, I’d like to welcome my two guests, Dror Poleg and Antony Slumbers, who are both co-founders of the Real Innovation Academy.
Dror is also the author of “Rethinking Real Estate”, and the founder of Hype-Free Crypto. Dror explores the impact of technology on where and how people live, work, and socialize. His insights have been featured in the New York Times, the Wall Street Journal, Financial Times, NBC, the Times of London, and beyond. Dror regularly briefs, advises, and teaches senior executives from multi-billion-dollar companies such as UBS, Bank of America, HSBC, AvalonBay Communities, and others.
Antony advises the boards of commercial real estate institutions, developers, and professional services companies on the impact of new technologies on the real estate industry, and the opportunities this brings, from how technology is changing the nature of demand to the changes that will come about in the nature of supply, operations, and business models. Currently, Antony is highly focused on Space-as-a-Service and Artificial Intelligence, the two trends that he believes will have the greatest impact on the market in the next few years.
Thanks for joining me today, I really appreciate both of you coming online. Funnily enough, I was really nervous this morning. I don’t know why, I’ve done so many of these podcasts in the past year, and I was like, [gasp] Dror and Antony are going to be on, and I was so nervous!
It’s Dror, he’s very scary! All good, it’s a sunny day, it’s nice!
Why don’t we kick this off by you both introducing yourself? Dror, would you like to go first?
Sure! So, I’m the author of “Rethinking Real Estate”, which is a book about the future of real estate, published just before COVID. It highlights a lot of the trends that we saw intensifying or becoming completely clear over the last couple of years, particularly the office itself becoming an optional thing for a lot of companies; the preference for more and more companies to hire from a global talent pool rather than a specific area or even multiple specific areas; the growing convergence between housing and hospitality and people staying for months in Airbnbs or people sharing apartments or renting them flexibly as hotels; as well as other interesting changes in the world of retail and industrial.
These days my main focus is teaching online. I’m teaching a course together with Antony about the future of real estate, training people from the largest companies in the space on all sorts of frameworks, case studies, and ways to think about change. The idea is for them to come up with their own ideas and resist barriers to change and innovation within their own organizations.
I also teach a course about crypto, which is more reasonable than it sounds. It’s called Hype-Free Crypto, and I’m basically trying to introduce crypto people to more reasonable approaches to using their knowledge in actual industries and solving real problems, and introducing people from other industries to how crypto may be useful to them in some narrow cases.
My background goes back a long way, I was actually working in PropTech probably a decade and a half before the word even existed. I started my first PropTech company in, believe it or not, 1995, and have since then gone in and out of five different companies, writing software primarily for property managers running large office buildings. The software handled things like business management systems and tenants’ engagement systems, which we were doing years before tenant engagement was a thing. So, I’ve always worked within real estate but always from the technology side.
And then over the last few years, I’ve done a lot more writing and speaking, and then a couple of years ago, started the Real Innovation Academy with Dror.
That’s fantastic, thank you for that! That’s interesting, I got introduced to Dror when I saw your book, which came through my LinkedIn feed and I was said to myself, oh, what’s this? I read it, we connected on LinkedIn, and I was fascinated by your approach and thinking about corporate real estate. That’s how I learned about your Real Innovation Academy, which I think started about a year ago, right?
Two years ago, already!
It coincided with COVID. We started thinking of the idea and mulling it over for a year before COVID, but then when COVID started, we decided it was a great time to start it. We were both suddenly home with nothing better to do, and also everyone is now going to think about these things and are going to feel them in their bones and be terrified about what’s going to happen to real estate.
For sure, the timing couldn’t have been better. Dror, thinking about your book, “Rethinking Real Estate”, what inspired you to actually write it?
So, a bit like Antony, I was dealing with the intersection of real estate and tech for a long time. In my case, it was more from the real estate side. I was a developer in China of all places, building shopping malls and office buildings and apartments. Particularly with the shopping malls, technology was always on our minds. We had to install sensors, manage traffic, and install much more complex systems than you’d have in a normal residential or even office building. We had to think like a consumer brand because we had to both work with other brands that lived in our mall, and we had to market the mall itself. So, we didn’t think only about our tenants, but we thought about our tenants’ customers and how our tenants can make themselves more attractive.
I think in the retail development process to begin with, there’s a lot of what the rest of real estate needs to know, in the future. So, consumer thinking, the use of technology more intensively, involvement in the turnover of your customer on a daily or monthly basis, rather than, “come see me in ten years and we’ll renew your lease”.
Then about seven years ago, I tried to escape from the real estate world and founded a start-up that was a location-based social network, an app that allows you to find friends nearby. And the only people that were interested were real estate people, so they dragged me back and said ok, let’s use this for our multifamily projects or a coworking space or sporting venue or for a university campus, to let people interact with people nearby or basically engage our audience.
And as I started looking at that, I realized that that’s not the business I want to build. I’m not interested in just being a SaaS provider to real estate people, God forbid. There are other people to sell to that are nicer in the world, real estate people are so tough and demanding [laughter]. But I realize there’s a big story there about tech and real estate that has really broad implications and affects every aspect of the assets themselves, but also the nature of the assets as financial products. Like the assumptions about how stable their income is, and how thick should the management layer be, and all sorts of things that I thought institutional investors should know about. And when I look backwards, I figured ok, I actually know a lot about this because I’ve been dealing with real estate and tech for a long time, even though like Antony, I never thought about it in those terms and never called it PropTech.
And the more I researched the more I found stuff that I thought people should know, and at some point I said, ok, I have so much information here, I just have to write a book about it because it doesn’t look like anyone else will.
That’s a really great story. I was always fascinated by the perspectives that you bring forward, just reading even some of your blog posts around real estate. It’s one of those things where it’s not necessarily focused on just the landlord side—there’s also elements from a tenant’s side, so it’s a nice balance between the two. When you think about PropTech, CRE PropTech specifically, it’s usually very landlord-specific, and it’s not so much about the tenant. Whereas in our world, we’re very much about the tenant and trying to elevate the tenant and their knowledge and giving them information so that they can make appropriate decisions. And what we’re seeing is those two worlds coming together.
That leads me to my next question which is about the Real Innovation Academy, which I actually had the pleasure and privilege of attending. Antony, maybe you can tell us a little bit about the Real Innovation Academy and its purpose?
It’s kind of an interesting background, actually. Dror and I met over Twitter, the best place to meet smart people, several years ago. And we’d come from different directions and basically ended up in the same place, and we were thinking about what needs to happen. This was 2019, and we started thinking: the fundamental problem is that real estate people don’t know anything about tech and tech people don’t know anything about real estate. And they don’t understand each other’s worlds and incentives and dynamics and the forces behind the real estate industry and the technology industry. What matters to tech, and what matters to real estate. And both Dror and I had been writing and speaking on these for quite a long time.
So that was the starting point, finding real estate people who wanted to know about tech, and tech people who wanted to know about real estate. Which by default, targeted it towards, we like to think, the most interesting people in real estate. Because the real estate people that are thinking about this, and the tech people that are thinking about that, are all by default the people who are looking to innovate in real estate to somewhere new.
And they also have a sense of practicality—to be interested in both sides means you understand that this is a big beast. And big beasts do take time to move. But when they do move, you can’t stop them. They just keep going. So, we weren’t really sure who it would attract. We thought to start with, it would attract people who read our stuff. But what’s actually transpired is there is a breadth of backgrounds of the people that have done the course. We’ve got people from 48 countries, every continent apart from Antarctica—that’s the only place we haven’t got anyone from.
We’re working on it!
We found that we’ve had people who are in their early 20s, just starting in the industry, up to main board directors of some of the biggest real estate companies in the world, but we’ve also had brokers, we’ve had flex operators, we’ve had designers, we’ve had all manner of different people. And I think what we try to do is give people an understanding of the technology that they need to know, the dynamics of the real estate industry—a lot of the problem tech people are having is selling into the real estate industry. They try and sell it to the wrong person at the wrong time, and with the wrong incentives. Dror’s stuff on this in the course is excellent, I learned a tonne. But the importance of understanding the motivations of your customer become very clear.
And then there’s also a bit about thinking like a tech person—understanding networks and ecosystems and platforms and build-measure-learn and iteration and things never ever being finished and understanding the customer and value propositions. We do quite a lot of that.
One of the people in our first course, a chap from Hong Kong, said—this is a really weird course. It’s a third real estate, a third tech, and a third a baby-MBA. But I think that’s good. And it’s aimed at people who really are taking a business approach to real estate. You have to understand these dynamics.
What we’re fundamentally trying to do is create a network of the most interesting people in real estate around the world, and hope to catalyze relationships and networks and new ways of thinking, new products, new services, new ways of financing—really, all the interesting stuff to counter the argument that “real estate’s staid, what are you going to do with it.” We take the approach that people spend 90% of their time indoors, inside real estate. So, whether offices are going up or down or retail’s going up or down, it really shouldn’t matter to a real estate person because they’re still going to be in real estate. If you understand what people want, what they need, then build it for them. It’s been an incredibly interesting journey to date.
That’s really interesting. The thing that really interests me is thinking about how slow real estate has been to adapt and change. We’ve been talking about flexible work since I started in CRE, which was over 25 years ago. I think the biggest “aha” for me was I went to an IFMA (International Facilities Management Association) show just shortly after joining Relogix, and I was talking to would-be customers who were still talking about the same things that we were talking about 25 years ago. I couldn’t help but think, what’s happening? Why are we still talking about the same thing? Obviously, I understand that real estate is very iterative because a lot of companies follow trends, there’s a number of different forces that are driving whether you use real estate or not, but it’s always baffled me how slow real estate has been to adopt change. They’re very entrenched in traditions. What do you think the reason for that is?
Where do I begin! I think the overarching umbrella for all of this is some sort of monopoly mindset—the mindset that we don’t have to change. The mindset that, even if we’re acknowledging that all sorts of things are changing on the demand side, this is none of our business. It’s our tenants’ business, it’s our service providers’ business, it’s the brokers’ business, and we’re just here to build a building and whoever needs to sell it or to make it comfortable for others—let them do that. That’s not our problem.
I think this type of monopoly mindset was reasonable for the last 100, 150 years. Because companies needed to be in the center of cities and cities only became more important, even with the rise of the Internet in the last 30 years. So, landlords were reinforced in that mindset. They said, there’s all these theories about remote work and about people being able to ship things more quickly and communicate better, but based on what we’ve seen, they just need our buildings more than ever before and they want to be in them. Rent is high, why should I change? And of course, none of that is true anymore. Now landlords are starting to really feel the effect of the Internet, with the help of COVID.
I think underneath that, there’s a lot of structural reasons why it’s so hard for real estate companies to change.
One is because they’re real estate companies. Most big real estate projects in the world are either held by REITs or by private equity funds—in both cases, these are financial organizations that have a very narrow mandate: to own physical assets. They’re not allowed to go and build some amazing technology platform or go and build some amazing service brand or go and hire all sorts of people to decide what other people want to eat for breakfast or what they want to wear and what kind of temperature is their favourite. You know, we’ve seen in the hotel industry that we had to develop separate companies with separate investors and separate mandates in order to provide these kinds of softer layers on top of the assets, to build those brands and provide those services.
Second, even within those companies, it’s very hard for them to think strategically and to act strategically because real estate companies themselves are very fragmented. If you look at a big private equity fund, I don’t need to mention any names, but let’s say a big one that owns 1000 buildings, in theory. When you look at it from the outside, you say, oh wow, this is the landlord that owns 1000 buildings. So, if they decide tomorrow to have a green roof on each of them in order to become more sustainable, that’s going to be amazing for the world.
But it’s not really a matter of decision for them, because each of their holdings are divided probably into 10 different funds, each fund managed by different people, each fund has a different life span, so they have to sell buildings at different points in time, and the people who run them have their own incentives for bonuses for specific buildings that are sold. Each building probably has another partner entity which is a different financial entity that this entity doesn’t have control over. Each building probably has one mortgage and probably another layer of debt that is controlled by another party. Each building is managed by some property manager which is usually a third party, which might be a different one for each building.
So if the CEO of said private equity decides to go and change all of those buildings tomorrow, he has to now go and convince 5000 different stakeholders with different financial incentives, including people within his own organizations, to now forfeit profit that they can make this year in order to serve some goal that might be profitable in 5 years, or in order to serve some goal that is not profitable at all but aligns with interests that are important for the broader company but not that specific building.
Ultimately, because every specific building is like a standalone business, it becomes difficult to make these big strategic moves. A tenant like Microsoft can say, all our offices will become sustainable tomorrow because we’re deciding to install something. But the landlord cannot do that in most cases, at least not at scale.
Similarly, there are a lot of other structural reasons why it’s so difficult to push things, to make change—even if you wanted change, let alone if you don’t want or if you don’t care about it. And then there’s more of the usual suspects—it’s a relatively older industry, a relatively male-dominated, relatively less diverse industry, and most of the people who are there usually went through the same type of training and have the same type of history. So, it just doesn’t have the type of vibrance that you have in the most vibrant organizations in the world today.
If you look even at tech companies, even though they’re called tech, a product team in a tech company can have a behavioural scientist and a designer and a psychologist and a programmer—people who study completely different things and came from completely different worlds. These are the ones that are creating the best products in the world. And in the real estate industry, we just don’t have that kind of mix.
So, the little that Antony and I are trying to contribute is: to pull people towards those blind spots and structural barriers and try to alleviate them; give voice and power to more diverse people; for the people that are already in there, to give them a broader perspective and understanding of the need for a broader perspective; and to give them some knowledge that they can use to either be effective, or at least to become a little humbler and make room for other ideas and other people.
One of the things that has always been troubling to me, which I made a post about a while ago, was about the fact that from a tenant perspective, corporate real estate management has always been highly focused on efficiency and effectiveness, which seems kind of paradoxical right now. In the past, corporate real estate has been a bit of a wasteland, where that opportunity to reduce space really hasn’t been a priority. And I’ve never really understood that, especially when you consider the fact that the cost of real estate is the second highest cost that a company incurs next to labour. It kind of makes you wonder, why doesn’t it matter? When you’re managing costs in the business, you’re either driving revenues or reducing costs. And ultimately if you’re reducing costs, you’re increasing your profit.
So, why is it ok to just continuously spend on real estate when there’s information that’s pointing you to understand that space is not being used? I would like to hear your thoughts on the question, does occupancy as a KPI matter anymore? Occupancy meaning people coming into offices, considering the fact that we’re almost 2 years into working out of the office, you’ve got a tonne of buildings, companies have just suddenly realized that maybe we don’t need as much real estate. There’s a lot of conversation around knowing occupancy but it kind of feels like it doesn’t really matter anymore, or that measuring that doesn’t matter anymore.
I think the paradox is that offices matter less than ever, but they also matter more than ever. Much, much more than ever. You mentioned that people used to be very concerned about efficiency and effectiveness. I’d say they were only ever really concerned about efficiency. They were thinking about occupancy—how many people can we notionally get in this space? And they somehow completely ignored the fact that actually, half the time people weren’t there anyway.
The elephant in the room of the office market is that offices historically have been incredibly inefficient and ineffective. They just have not been enabling people to be productive. What I think has happened over the last 2 years, firstly, is that everyone has realized that, funny enough, remote working by and large works. People didn’t really think that before, or at least a certain type didn’t think that before. Of course, we’ve now realized it does. But we’ve also realized what doesn’t work.
I think what’s going to happen in the office market is that the cheap end of the market is going to be fine, because there are always people who just need cheap space, just keep the rain off my head. The top end of the market, and I think this is probably the top 30%, maybe up to 40% of the market, is completely going to change in tone and is absolutely going to become a service industry. People are going to go to offices for deliberate purposes and to do very specific things. And offices are actually going to turn from knowing nothing about what’s happening inside them to everything that’s happening inside them.
The whole point is, Antony is in the office, I’m paying him a lot of money, how do I ensure he’s as productive as possible? What does he need, has he got the right space, the right environmental conditions, has he got the right tools, etc. etc. and everything’s going to move from being about a productive workforce. There’s this line that no company wants an office, they want a productive workforce. So how do we enable our people, and from a landlord’s point of view, how do we enable our customers’ people to be as efficient, happy, healthy and productive as they can be? Because if you want to get the most out of the most expensive input in your business, you’ve got to make your people happy and you’ve got to make them healthy, and then they will be productive.
There are so many paradoxes going on in the world now, that to actually do the hard Adam Smith thing of getting the most output from your people, you need to do the fluffy stuff. You need to make them happy and keep them healthy and then they will be productive. I think offices are going to turn into tools to enable people to be happy, healthy, and productive. And that’s going to be their job. What’s the job of this office? It is to make the people inside of it as happy, healthy, and productive as possible. So, I’m going to need to understand the wants, needs, and desires of the people in this space so much more than before, to enable me to provide them with exactly what they want.
It’s a very “luxury” mindset. How do you get the most out of someone? Give them everything they want and need in a framework that incentivizes them to do their best.
Regarding occupancy, the trick is going to be that offices historically ran at about 50% occupancy, even less. There are the famous data point surveys, which has now done 900,000 individual employee surveys, and they asked the question, does your workplace enable you to be productive? And I think at the moment, it’s something around 57% say yes. So, 40-odd percent of people in offices say that their workplace does not enable them to be productive. That’s such a massive fail. And 50% occupancy is a massive fail.
The question is going to be, how do I create an office building that has 70%+ occupancy and 70%+ satisfaction? And then think, what’s the value of an office building that can offer 70/70 against 50/50? I think the paradox again is going to be that the best buildings for the best operators are going to generate more revenue than they’ve ever done before. As I say, the bottom will be alright, and the middle is just going to completely fall out. Because if the office I’m going to genuinely does not give me anything better than I can get without going there, what’s the point of going? And from the finance director’s point of view, what’s the point of paying for it?
A lot of companies are going to have to pay attention to giving their people great space. Or they’re going to have to say, no, we’re not going to do that, let’s go completely remote, and build our businesses like that. There are the oddities, I’m thinking of the Goldman Sachs of the world as the oddities—they pay people so much money they can say, “be in” and they have to be in. Otherwise, people are not going to go back and you’re going to have a huge amount of obsolete space. But the best space is going to be fantastic.
So, if you’re lucky enough to work for an employer who seriously cares about making you happy and healthy, you know that in the background they’re trying to make you productive as well, but that’s great. Happy and healthy will do, and then I’ll do my bit.
You talk a lot about productivity, and I’m not surprised because productivity is something that we’ve been talking about for a long time. It’s one of those things that’s fascinating to me, because we’ve never really been able to measure productivity. We talk about it, but there really isn’t a concrete way of measuring productivity. It’s so subjective. You can provide the best space, be in the best location, offer flexibility and all kinds of stuff, but at the end of the day, what makes someone productive is whether or not they actually feel productive and there are so many factors that play into that. Do you think that productivity will become a new KPI for businesses going forward, and actually figuring out how to measure productivity?
Can I jump in there? This is my hobbyhorse: I think you can measure productivity. But you have to measure productivity through the lens of what we, as real estate people, can affect. We cannot make a bad company good. We cannot make a rotten culture a good culture. And rule number 1, if you’re running a company, is have a good culture. First thing.
What we can do is enable people to be as productive as possible in terms of their cognitive function. For Antony to perform at his best, he needs to be in an environment where the CO2 is right, the noise and lighting is right, the air quality is good, and then boom—he might work for a rubbish company with a rubbish culture, but in terms of cognitive function, this space has enabled him to be as good as he can be, given all the other variables.
I think that’s the way real estate has to look at it. How do we provide space that enables people to operate at their maximum cognitive capability? Because that’s what we can control. And we know that if we have bad air quality or poor lighting, too much noise, too little noise, we know it trashes cognitive function. There’s a report in my Twitter feed today of someone that had correlated air quality with the competence of a chess player. And the result is it has an amazing impact! If you put the chess player in a badly ventilated space with poor air quality, they’re not as good a chess player!
So, if we stick to really fixating on the part of the equation that we can impact, then absolutely, you can have a huge difference. If you come to my brand, you know I’m going to put your employees in the right space that enables them to be as good as they can be. Go to their space and tell me: do they tell you what the air quality is? Do they guarantee the environmental conditions? No. I will do that for you. I can’t make your business better, but I can enable your people to be as good as they can be.
To expand what Antony said, to offer them the best possible office for them to do whatever it is that they have to do—is actually not a single office. It increasingly means empowering them to access a network of different locations or different rooms that are specialized for whatever specific task they’re trying to do. Because sometimes they’re trying to focus, sometimes they need access to tools to do a podcast or edit video, sometimes they’re trying to impress a client, or run an amazing meeting. Each of those requires a different space that is optimized for it.
Which is another thing—landlords tend to think about the space as a single thing that you’re giving the tenant, but more and more businesses want to empower their employees to have access to whatever it is they need at the moment in order to be amazing. And enabling that access ultimately is a different business, I think, from just saying, we’re building a space and renting it out.
It’s funny, I was talking to a couple of people in the brokerage space about the conversation around this change, in terms of the amenities and leaning more towards sort of the hospitality model, where buildings are not just about segmented tenant space, but are instead about opening up that space so that you can have a similar experience to when you go into a hotel and have access to all spaces, even though you have your own room to stay in. What are your thoughts on that? Do you think that’s enough? Is it the amenity part? Is it the hospitality feeling, the concierge, and being almost waited on hand and foot when you walk into a building, that brings people back?
No—I think a lot of that is landlords running towards what they already know how to do and trying to do more of it, bigger, better, and faster. Let’s add more marble, more elevators, more space. It’s going to work in some cases, it’s going to convince certain tenants, but that’s not the answer.
It’s a bit like if McDonalds is seeing people talking about new diets or concerned about heart disease or interested in having better nutrition and saying, ok, let’s do an even bigger burger! You’re just doubling down on what you’ve always been doing. So again, for some customers, they might be excited and say oh wow, now I’m getting half a pound more of beef, but those other new and growing groups of customers want something completely different.
I think the biggest answer to whatever question you have about the future of real estate is that there is no single answer. We’re moving from an industry where there was a clear idea of what we’re supposed to do as landlords, a clear middle, one size fits all. Most landlords have tried to figure out what the new one size fits all is, so we can just go on doing that and not have to think again for the next 20 years. The answer is, that thing doesn’t exist anymore.
If we go back to the hotel industry analogy, the hotel of the future is not a Marriott or a Hilton or a W, it’s 50 different things, depending on who you’re trying to target, at what point, and sometimes at what point in the same day. It might be the same person in different situations that have different tasks they’re trying to achieve. It’s a much more dynamic business. You have to make decisions that involve trade-offs—I only cater to these people, which means I’m now not attractive to 90% of the rest of the market. But for the 10% I am targeting, I’m going to be amazing.
This is the opposite of what real estate has been doing until now. We have elevator music in office buildings, and elevator music is basically synonymous with something that has no character, is bland, doesn’t offend anyone, and in real estate that has been a feature. Our building is for everyone, we build it the same way, and we don’t care if you’re an adverting agency or law firm or a bank, we’ll just give you that box and you do whatever you want with it.
The landlords themselves now need to start making those decisions to about who their building is for. What do they care about? Maybe they care about the marble, maybe they don’t. Maybe they just want stairs and a room for dogs or maybe they want a gym or childcare—each group wants something completely different. And even within the same company, probably, there are groups of people that want different things, which is why a network is probably the solution for the future, and not a landlord trying to figure out what everyone on earth is going to want at any given moment. Far better-equipped entities than landlords have not managed to figure out a magic thing that works for everyone all the time.
I think ultimately, that’s why it means that landlords now have all these responsibilities and things to figure out, and most of them will realize that they can’t figure them out and that they have to outsource them and partner with other entities that are better at that. And they will partner with different entities for different projects as they see fit. Just like they partner with hotel brands. One building might be really good for young people who are backpacking and want to share a room. And another building is really good for wealthy families that are coming to Manhattan for the first time for a weekend. And the landlord could be the same for all buildings, but he cannot be the operator for all the buildings if he wants to be competitive.
We’ll see the same thing in office and multi-family and even in industrial, and other things that were considered boring until recently. But now they require you to be more and more specialized. And even if they wanted to, and most landlords want to, I don’t think they’ll be able to become as specialized as necessary, in most cases.
This is the absolutely critical point, isn’t it? The fundamental change in the industry, which is something we bang on about in the course so much, is that real estate used to be a product industry. It used to be about building something, selling it, or leasing it. It’s not a service company. Now, instead of selling someone a product, it’s about delivering them a service.
And delivering it to a consumer as well, not to an entity that has 1000 employees.
Exactly, and that’s what makes it so incredibly interesting at the moment, because to succeed, you’re going to have to understand either your existing customer, or the customer you’re aiming to attract at a really granular level. If you look at the really great brands, particularly the really great luxury brands, they know so much about their customer, they understand what makes them tick, what they need, what it is they desire, and real estate is going to become like that. That’s why you’re going to get much, much better real estate. If I were working in fashion, and there’s a developer who’s developing spaces for people in the fashion industry, it’s going to be better than what anyone else has ever produced, because it’s absolutely going to be designed around the things we do.
Another thing we go on about in the course is Clayton Christensen’s “Jobs to be Done”. It’s about understanding what it is that this product or service is delivering to the person, what is it they’re trying to achieve. That’s why it’s so interesting and it’s also going to make the industry so much more inclusive and diverse, because we’re going to need a whole new set of skills within the real estate companies, to be able to deliver these services. I used to say, an office takes 6 different industries: real estate, the data industry, an IOT and networking, workplace, hospitality, and HR. But these are six industries that really do not talk to each other. You write about this brilliantly all the time. To create a great workplace, you need the input of all of them.
The great real estate company of the future is either going to have all that inside, or is going to build a network where they’re the sum, and they’re going to build a network of suppliers who work very, very closely with them across all those different inputs. That’s completely different, but vastly more interesting.
Another thing that keeps coming up in the course: we ask people on the course if you were giving the commencement speech at a prestigious university, what would you say to graduates to convince them to come into real estate? And the thing that comes back, very noticeably last year, was they all said, it’s diversity, it’s important, it’s impact, it’s our place in the world. So much is mediated through real estate. The software industry pats itself on the back all the time, saying, we’re going to change the world. But real estate can really change the world. Real estate people can really change the experiences of people. You can’t change the world as easily as software, in the sense that you can’t cater to the whole world…but you can cater for an awful lot of people, and you can improve the lives of an awful lot of people. That’s a great, inspiring thing.
It’s certainly a big ship to turn.
It’s turning though!
Even the mindset changes make such a big difference. You don’t need to re-build all the buildings in the world. If anything, you need to not rebuild all the buildings in the world! Just having that consumer mindset of saying, ok, I actually need to care about the people in the buildings, they are my customers now, I need to get to know them. I always give the example that every time I have a birthday, I get 50 emails from all sorts of companies whose websites I visited once or bought something from. And they’re trying to make the most of every piece of information that they have about me, to appeal to me and think about what would make me happy and willing to spend.
Now I’m not a renter anymore, but when I was a renter in Manhattan, you can spend almost $100,000 a year on rent that goes to your landlord. And this entity didn’t even wish me a happy birthday, they don’t know who I am, they don’t want me to know who they are, because they’re probably hiding behind three different LLCs—what kind of business is this? [laughter] I’m paying you so much money, don’t you want to know something about me or try to leverage our relationship? You know when I came in, when I walked out, who visited me, what I ordered. There’s so much you know about me and you’re not doing anything with it. I’m almost offended, you know! We’re annoyed when Facebook tracks us, and I’m offended when my landlord doesn’t know anything about me!
I think we have to approach it like the joke about how you eat an elephant: one bite at a time. If you approach the real estate problem as, how do I change real estate? You won’t see change. But if you approach it that I can build X for my customer-base, there’s probably 20 to 30% of the market that would agree with 90% of what we say in the course. And 70% would go, I’m just not interested, I’m going to send a rent check at the right time. But that 30% in such a big market is still big. You don’t need all the market.
Very true. The future of work is not obvious. We talk about the wider acceptance of hybrid, work from home, work from anywhere, coworking—they’re not new. I’m trying to think about what’s next, and it feels like it’s so much bigger than we can imagine.
Recently, there was a company that announced a people-counter solution that’s bridging crypto with traditional business. I wanted to get your take on this and whether businesses should be paying attention to crypto, DOAs, NFTs, and all this stuff. To me, it feels gimmicky, but it’s way over my head and I don’t really understand that space. So, I wanted to get your perspectives on how you can bridge those two worlds together.
Sure—I think the project you’re referring to is a people counter that they’re incentivizing people to install in different places and compensate them with tokens. They then collect this data about occupancy and traffic. They’re building on a model that a few others have used before with hardware and crypto, mostly in terms of installing Wi-Fi hotspots or LongFi hotspots, to try to create networks where you incentivize people to install different things and to maintain some sort of public good.
I have to say, in this case, I don’t love this idea, because you’re infringing on peoples’ privacy and maybe not always letting all the relevant entities know that you’re collecting this information. You’re kind of incentivizing cowboys to go and collect data on other people without letting them know.
More broadly, I think crypto is really, really important. It’s an important thing to understand, just like the Internet was important to understand in the mid 90s. It also means it’s just like the Internet back then, in the sense that most of the names and topics and uses that we’re seeing now are probably not going to survive. They’ll have to mature and turn into other things.
When it comes to real estate, I’ve seen the same monopolistic instinct pop up when real estate people think about crypto. They’re mostly interested in those very real-estate-y angles, like, can I raise more money with this? Can I tokenize my building? Can I incentivize people to install some piece of hardware in the building so I can collect something about my tenant without letting them know about it?
While I think crypto will have a huge impact on real state, most of that impact will not come from the obvious real estate directions. It will come from how it affects the nature of work itself, the way other organizations work, the way people collaborate—which in effect will impact the demand for offices or demand for flexible housing and other things like that. And they will create all sorts of new marketing methods and again, new ways to market consumer products that are relevant for anyone who’s trying to market something. Which is what real estate people should be thinking about, but again they’re not thinking so much about real marketing and how to engage with communities. They’re just thinking, what can I install in my building or how can I raise more money?
These are important questions, but not the ones that are going to lead you to understand something about the nature of demand and how it’s changing. It all sounds a little vague, because it’s a huge topic.
To me, it’s one of those things where, when I first read the article, I thought, this could be interesting regarding privacy. Could that technology be used to allow individuals to control when and how much information they share, where you get compensated for sharing your location, in a sort of reversal? That was where my mind went initially, rather than business or real estate or whoever taking advantage of collecting information and them making money off our information.
But then it sort of makes you wonder, is the whole crypto NFT space something that is meant to keep us honest? In my understanding, that’s sort of how it’s being presented, because of traceability. Or is there that element of someone ultimately being able to take control, some entity that obviously is decentralized. Is there someone else that’s controlling that, and you think it’s a good thing, but potentially there could be some fallout as a result?
So, crypto making people honest is not something I’ve observed! As a theoretical promise and premise, I think yes, the idea of decentralization is really interesting, but ultimately, even those decentralized networks, even if they’re governed by a community and not by some tyrant, the way the community itself is governed is a huge question. We’re seeing now a lot of experimentation in that space, which is why it’s so exciting.
It’s a lot like what we see in our own politics with democracy. Is democracy a good thing, does it always lead to the best outcome? As Churchill said, it’s the best outcome after you’ve tried all the other ones. It’s bad, but all the other ones are worse.
We might have a similar situation with crypto, where ultimately this kind of shared governance might be valuable but it’s definitely not going to be as ideal as a lot of people imagine. It’s not going to be a magic thing where you say, ok, we’re going to collect a lot of data on people but instead of being owned by Facebook, it will be owned by a community. That sounds really cute, but then when you understand what a community is, it’s ultimately a group of people and some have more power than others just by sheer participation, not everyone is going to vote about every issue, and not everyone is going to understand every issue, not everyone is going to care as intensively about every issue. You have all these inefficiencies that ultimately will reach some equilibrium. It might be better than what we have today, but we shouldn’t use it as an excuse to do even worse things with technology with the assumption that they’ll be in the hands of a benevolent community.
I think that’s really interesting. The way I see it, it’s probably like arguing about Geocities and Decentraland. Decentraland is going to be the virtual world of everything, but it’s much more likely to be Geocities, which most people haven’t even heard of, but it was a huge thing back in the day. I don’t know whether we’re 2, 5, or 10 years away from things coming out but I think fundamentally, there’s a battle going on where I can completely buy in to the more hippie side of crypto, the idea that we don’t want the world to be run by six monster companies, and we should have more control over our identity, agency, and all that—completely. I get all that. But then I also see waged against that is the this almost alt-right, libertarian, smash the state, down with the dollar, don’t tax us, sod off, we run everything world, and they’re fighting.
I think fundamentally, what crypto’s going to end up needing is non-tech humans to get involved. It’s a bit like when Steve Jobs came back to Apple and that chap stood up and accused him, and said what are you doing here, you know nothing about tech. Jobs sat there for about 20 seconds, fuming, and then he made that wonderful 5-minute talk about starting with the customer, and working back to the technology. You have to think about what it is we can do to make our customers’ life better, and then work back to the technology. I think so much of what could happen with crypto could be fantastic, but it needs a lot of input from the non-Peter Thiel types. And it could do with an awful lot more women in there. That would be good.
Women, and apes!
Exactly. The art is absolutely terrible. To be honest, it’s a topic that drives me mad and takes up far too much of my bandwidth, but I desperately want to make sure I’m not the bloke who got the Internet really early and then dissed on crypto when it really was important. So, we shall see.
Well, thank you to both of you, this has been really fun and very informative. I really appreciate your time and your insights!
Our pleasure, Sandra.
Take care, bye!