Understanding is not enough

It’s crunch time for real estate

Sam McClary, editor of the leading UK Real Estate ‘Trade Journal’ Estates Gazette, posted this on Linkedin today:

‘Real estate has finally understood the power of people, that different viewpoints are probably better viewpoints. That property isn't bricks and mortar, it is people, it is experiences, its emotion, its home.’

Finally is absolutely the pertinent word here. Many have been talking about this for years, and my own long form essay ‘The Trillion Dollar Hashtag’ (https://www.propmodo.com/space-as-a-service-the-trillion-dollar-hashtag/) dates from January 2019. So it’s good to see that the industry has raised its eyes to the horizon and seen there is change afoot.

The problem though is that understanding the world has changed is not the same as change itself. What this statement is saying is that the real estate industry’s customers no longer want to buy a product, they want to be delivered a service. They no longer want what the industry is providing. Because by and large the industry is still firmly in the business of selling or leasing a product. They shift bricks and mortar, or steel and glass. They do not sell experiences, or emotion. They are not, culturally, a people centric industry.

The fact that there are notable exceptions to this rule does not invalidate it. Yes there are many individuals, though fewer companies, that have fully embraced the future of real estate and are working on and innovating towards new products and services, underpinned by new business models. But they are the outliers. Beyond lip service how much innovation are you seeing within real estate? Innovation that is not sustaining but disruptive. Innovation that is looking to reinvent what it means to be a real estate company?

Not a lot I suspect.

Which ‘was’ fine. Until recently, and especially until the pandemic set in motion a revolution (see https://www.antonyslumbers.com/theblog/2021/3/16/this-isnt-an-acceleration-its-a-revolution), you did not have to innovate much in real estate. What always had worked, continued to work, and ‘tenants’ (not customers) needed your space. In practice real estate had a captive market. And innovation is not a priority, rightly, in captive markets.

Those days are gone, though many do not yet realise it. When your customer changes from needing your product to having to be made to want it, you have a problem. Retail real estate learnt this a decade or more ago. The office market is learning it now.

The fundamentals of demand changing (’property isn't bricks and mortar,’) necessitates real estate companies change fundamentally as well. New skills, new business models, new technology, new data, new culture and new people. Every component of a business has to be assessed for product/market fit, after understanding what the dynamics, incentives, wants, needs and desires of this new market are.

Where does one start?

Probably the best place to start is by being cognisant of the fact that whilst most jobs are not going to be made redundant by new technologies and the new ways of working, every job is going to be changed by them. The key unit of change is a task. So break down each workflow within your business to the series of tasks required and look at them in terms of robustness and resilience. Are they tasks that could be performed better, faster, cheaper in new ways or with new technologies, and do they involve something only you can supply? Do you have any unique IP or capabilities that make them resilient to competition?

Simon Wardley - https://blog.gardeviance.org

Then place them on Charles Handy’s famous ’S’ curve (as amended by Simon Wardley), where at the bottom left you have products or services with real competitive advantage but few customers, and then through the curve that moves from customised to productised to finally, top right, commoditised where you either own or co-own the market or you are nothing. Good profits can be made anywhere on the curve, but they will only flow to the companies optimised for each stage of the journey.

What constitutes being optimised is beyond the scope of this post but essentially it is where your value proposition matches, in granular detail, a real customer need. Getting there requires in depth understanding of their ‘jobs to be done’, their pain points and their understanding of what success means.

It is clear that, post pandemic, what individuals, teams and companies want from their real estate is going to be very different from the world we left behind in early 2020. In fact they don’t want ‘real estate’ at all. What they want is places and spaces that enable them to be as happy, healthy and productive as they can be. And most of that will come from software and services, not hardware. The four walls and a roof that we were selling is now just the wrapper.

None of this will be easy. But the opportunities it unleashes are vast. People spend 95% of their lives inside real estate. Once you start thinking less about asset classes and more about what is needed to make the most of that 95% of time, you’ll see, as the outliers already are, that we in the real estate industry are at the core of building back better.

The alternative is to understand change is afoot, not change, and then see your market taken by somebody else.

The game hasn’t even started; don’t lose it before it does.