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Real Estate: Equally Cursed and Blessed. Guest Post Antony Slumbers.

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The Real Estate Industry is equally cursed and blessed. That was my overriding feeling following a day at the FUTURE: PropTech conference a couple of weeks ago. Blessed because nothing much is changing in terms of how the industry works, but cursed because something much bigger is coming down the tracks.

First, the upside. Residential is not my area but for all the talk of ‘disruption’ the industry is largely the same as it was a decade ago. The vast majority of people use a traditional estate agent and list their properties on the portals. The online (or Call Centre as I’ve heard them disparagingly called) agents have spent a lot of money but not got very far. Truth be told most people are more bothered about getting the very best price for their homes than saving a small % in fees, and that fear of losing out (a primal human instinct) is hard to counter. Yes there are new marketing tools (VR will be big, though perhaps niche until smartphones become our VR devices) and it is imperative for EVERY agent to offer first rate technology at every touchpoint of the consumers journey, but is the residential market being disrupted? An emphatic NO.

The Commercial industry, my area, is being changed even less. Public data sets are only slowly becoming available, the agents guard their own data, and even now there is no good search system available for ‘Joe public’. On top of that it is estimated that a third of the worlds real estate assets are still managed via spreadsheets. And judging from many of the comments at FUTURE: PropTech, surveying firms are adamant that that is how they wish things to stay. The industry mindset is still very protectionist, and any notions of free and open markets growing faster than closed ones is dismissed, often angrily. In this world, the primacy of the Lease is everything and the thinking goes that if data surrounding Leases is closely guarded then the industry has little to fear from ‘Disruption’.

So an industry truly blessed; the mechanics of the market are stacked in the favour of incumbents. Let the good times continue.

Ah, but life is not fair; you knew there would be a catch didn’t you? And there is. A big one. You see, most successfull companies do not fade or die because someone comes along and does what they do dramatically better than them. Once powerful and on a sustaining path, incumbents are very hard to shift. “Weebles wobble, but they don’t fall down”, as has been said. No, the real threat is always from something coming along that changes the value of exactly the thing these companies do do. The danger is that the market changes and one is stuck producing a product, or service, that whilst brilliant, and efficient, is simply no longer desirable anymore. The PC killed the Mainframe and Mini Computer (DEC, Wang), the smartphone the mobile phone (Nokia) and the compact camera (Jessops), Uber the taxi business.

And this is what is going to happen to the commercial real estate business. It is not that Lease data, (and all that sits atop it) will suddenly become open source, and publicly available, and in doing so open up the industry to a wave of competition that will destroy margins, or empower customers to route around the advisory services they are currently lavishly charged for today. No, the point is that the Lease itself will go the way of the Dodo, becoming something that is simply no longer fit for purpose. Now, not entirely of course as a decent chunk of the market (top end, large corporates) will still require large amounts of space on secure long term terms. But the business landscape is becoming ever more barbell shaped – large numbers of big and small companies, with a diminishing number of mid sized firms. 80% of city of London based businesses have fewer than 10 employees. Just 205 employ 250 or more. As this trend develops do you really see long leases remaining relevant? Serviced office space has quadrupled in the last twenty years; factor in the growth of Co-working (which plays to multiple primal human instincts) and it is not hard to envisage a majority of space being occupied ‘as a service’. It is already commonplace to use ‘Software as a Service’, transportation (Uber) ‘as a service’ or accommodation (AirBnB) ‘as a service’. Why on earth not workspace?

All of which means many traditionally minded commercial real estate players are protecting a market that is (whisper it quietly) dying. The seeming normality of the industry today is very much flattering to deceive. The curse that is yet to be felt is merely sotto voce.

There is though another blessing out there. and that is that the entire technology landscape is moving from hardware and software to services, and the death of the Lease fits in with this trend. The smartphone may only be nine years old but essentially it has been perfected; witness the moans that the iPhone 7 is likely to look near identical to the iPhone 6. The format conundrum has been solved (Blackberry tried a square phone – it sold about 3 of those) and on device processing speeds are at near physical limits. So where does the industry go from here? The answer is services: natural language voice control is the next big thing in interface design. Instead of typing onto a keyboard we will increasingly just talk out loud. Google Amazon Echo for a foretaste of this world. This device is US only for now but, along with the newly announced Google Home, is a pointer to what having a PA (personal assistant) means in the late twenty teens. We thought the age of robots and artificial intelligence would look like something out of The Terminator, instead it looks like something from Heals.

What has this to do with commercial real estate? Everything. We all have a supercomputer in our pocket and the worlds knowledge available on demand. And this is changing all our aspirations; increasingly we crave experiences, not ownership. And what we’ll spend our money on is wrapped up in one word, services. Everything ‘as a service’, collaboratively so. Because what we can afford to do together is more than we can do apart. So I may only have 10 work colleagues but we all want to work in great spaces. We don’t need them all the time though, as our work and interactions with colleagues, clients and suppliers can happen from anywhere. And because we don’t need them all the time, we are prepared to pay much more for a great experience during the lesser number of hours we do. Coffee used to be cheap and from a pot; now it is expensive and presented to us by a Barista. We don’t care if the price is triple what it was; the experience is what we value.

Technology changes behaviour, not the other way around, and it is becoming invisible. Great spaces have a rich, but hidden, digital layer that enlivens them and makes them much more appealing places to be. The technology is allowing us to become more human, with far less restraints than historically. And the big restraint that we no longer want is the Lease. So it will die.

Once the industry figures out a new financing and investment model for this world it will explode. Freed by technology the real estate industry will enter a golden age. Different but much better.

Real Estate: Equally Cursed and Blessed. Guest Post Antony Slumbers.

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