Our Four Great Challenges

Many people, especially on LinkedIn, talk about challenging times, speed of change, and ‘how not to get left behind’.

Mostly though the substance of their arguments are relatively trivial and could have been written at any time over the last 40 years. Much change is actually rather slow, disruption is limited and the same old same old companies carry on as they always have.

But occasionally certain industries are hit with tumultuous change. Tech being the obvious example. In a few generations we’ve gone from mainframes, to PCs, to smartphones. And from client-server, to local networked applications to everything being in the Cloud.

And the undisputed, impregnable industry leaders, those whose power was ‘too great’, suddenly found themselves as also rans. IBM got trashed by Microsoft, who got trashed by Apple. When platforms change, leaders change. Every dog has its day.

But ….. it takes something big, really big, to fundamentally redesign winners and losers in an industry. Incumbents can handle most threats, but tsunamis are tsunamis. Sometimes resistance is futile. You can’t buck the market.

In evolutionary biology they call these moments punctuated equilibriums, where a species splits into two distinct species, rather than one species gradually transforming into another.

I’m wondering if the real estate industry is at just such a moment, especially the commercial sector.

Four massive challenges need to be faced, between now and 2030, now less than seven years away.

DECARBONISATION

First is decarbonisation. Using London as an example, 80% of its office buildings are below the minimum standard?of energy performance demanded by existing regulations, and will need to be upgraded by 2030. This equates to an equivalent of 15m sq ft per annum. Per annum!

Much the same applies around the world. 2030 represents a brick wall the industry is careering towards. Anyone hitting it will see value destruction on an unimaginable scale.

HYBRID, DISTRIBUTED & REMOTE WORKING

Secondly is the impact of the move to hybrid, distributed and remote working. Last week Cushman & Wakefield produced a US centric report saying they found ‘an unprecedented imbalance in supply and demand which, by the end of the decade, will result in a surplus of 330 million square feet of vacant office space that hasn’t kept pace with demands to support hybrid working and efficiency/ESG priorities.’ Delve in to the report and it looks even worse. Only 15% of office stock is currently absolutely fit for purpose. The rest requires some to a great deal of remedial work to be brought up to scratch.

The way we wish to work has fundamentally changed and is not returning to ‘how things used to be’. Most of the supply side needs to change to match current, let alone future demand.

REPURPOSING ASSETS

Which brings us to the third massive challenge. What on earth is to become of all this space?

Decades ago Management guru Peter Drucker wrote that ‘office buildings would be similar to the pyramids — we'd come to marvel at them, but they'd serve no functional purpose.’ For a lot of them this is coming true. The flip side is that the best offices will be in more demand than ever before, but that’s ‘the best’. Wither the rest?

We can convert some to residential, repurpose some as hotels, or urban farms, or logistics centres, or whatever. But finding a use for all the obsolete space is going to be difficult, to put it mildly.

SAVING OUR CITIES

And the fourth massive challenge flows on from this: how are we going to save our cities from the revenue crash implied as a consequence of the above. And from the changing patterns of use. How are we going to create cities where people want to be? Where will people want to do whatever it is that they’ll want to do in the future.?

This behavioural change impacts way beyond offices. It will impact every real estate asset class. Every assumption we have stored as to what to build where is being thrown out of the window. City centres are seeing this right now, but everything is connected and the flywheel of change will permeate everywhere.

Together these four challenges could melt the minds of real estate people. They require depths of thinking that one seldom needs to employ. If ever there was a wicked problem, this is it.

But if ever there was an opportunity to ‘change the world’ this is also it.

It’s also why #SpaceAsAService really is The Trillion Dollar Hashtag. Because it applies across the board in real estate. Wherever you look we need spaces that provide the services, physical, digital, social and emotional, that people need, wherever they are.

Work that out and good things will follow!

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The next cohorts of the online ‘#SpaceAsAService - The Trillion Dollar Hashtag’ course starts April 17th. One for Europe & the Americas and one for APAC. Visit trilliondollarhashtag.com for details and to register.