How Businesses Can Lead A Corporate Real Estate Revolution

How Businesses Can Lead A Corporate Real Estate Revolution

Complexity is the defining business and leadership challenge of our time. But it has never felt more urgent than this moment, with the coronavirus upending life and business as we know it. For the past few months, we’ve been talking to leaders about what it takes to lead through the most complex and confounding problems, including the pandemic. Today we have a second conversation with corporate real estate veteran Chris Kane, author of Where is My Office? Reimagining the Workplace for the 21st Century. Kane was the Vice President of International Corporate Real Estate for The Walt Disney Company, before acting as Head of Corporate Real Estate at the BBC. He is a Fellow of the Royal Institution of Chartered Surveyors and a founding member and director of Six Ideas, a global consultancy focused on workplace development and innovation. 

David Benjamin and David Komlos: In your book, you say that the commercial real estate sector is “set in its outdated ways and firmly resistant to change” and that “winter is coming” for the sector. Have you seen any signs that winter is now here and the resistance is breaking?

Chris Kane: Despite the future of offices and office work being catapulted into the mainstream as a result of Covid-19, the corporate real estate sector still struggles to see the link between people and place because as a landlord, it’s very, very difficult to unwind decades of good times. 

The office sector is synonymous with mass standardization, huge value accretion, windfall profits, and ‘easy bucks’, and the industry is fighting to defend that status quo. They’re telling themselves this is just a market downturn similar to the global financial crisis and everybody will come back to their offices. The truth is that the problems are much more structural. I agree that people will come back to the office, but not as intensely as before. 

When the history books are written about this period, it will be seen as a pivotal time in humankind and its evolution. But landlords are hoping that this is all going to go away and we’ll get back to normal at some point in the not too distant future.

David Benjamin and David Komlos: In addition to Covid-19, what other factors will fuel what you call a “workplace revolution” going forward? 

Kane: One factor is the shift from consolidation to networked and distributed work. In the future, you’ll still have the big city center office buildings in downtown Toronto and in Manhattan but they will be used very differently. We may even have hit ‘peak office’. We may have sufficient office stock so that, like tending a garden, we need to repurpose or replace the stuff that’s not fit for purpose, rather than adding more. The reality is that even pre-Covid, most office occupiers only used 50{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} of their capacity, and it took the pandemic to force businesses to ask what is the purpose of their offices?

Another factor is that demand is going to be very different in the years ahead, and that will force the real estate industry to figure out who its customers really are and to start talking to them to better understand their needs. 

Policymakers will also play a role in driving change. Some cities are looking to use the shift that’s underway as an opportunity to drive their sustainability agenda. In Paris, for example, the mayor has worked with Carlos Moreno, an urban planner, to introduce the concept of a 15-minute city, where you live, work, and play all within one neighborhood. 

David Benjamin and David Komlos: How will the commercial real estate industry need to adapt?

Kane: The sector thinks it’s delivering an asset, but its consumers want a tool to enable their business. The disconnect is partially because the sector and its end consumers have never had a direct relationship; everybody is talking through intermediaries. That’s going to have to change. 

With respect to the shift from fixed to fluid use of space, WeWork let the genie out of the bottle by showing companies that there’s choice. Whereas 90-95{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} of our office space has always been bought, leased, or sub-leased, over the next three to five years, that number is going to drop to about 50{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb}, and the other half will rely on other on-demand models (like work from home, “third places” and distributed co-working facilities). 

The digital age has enabled people to work anywhere, anyhow, anytime. Some companies won’t ever go back to forcing people into two-hour commutes. That doesn’t mean they’ll get rid of office space completely, because there is still a social interaction richness to an office environment. Leaders will certainly have to adjust their thinking to include many other options as well. 

We’re in for an interesting time, and the real estate industry hasn’t yet faced up to the disruption that’s underway. 

Benjamin and Komlos: Going forward, what will it take for the sector to wake up to its need for transformation, if not a global pandemic?

Kane: The transformation the sector needs to go through is really complex, and I’ve learned that navigating complexity requires doing the difficult work of engaging people and seeking out a variety of perspectives. The challenges now are too big for one sector or one individual to take on. However, a lot of people in my sector have a vested interest in the status quo, so they don’t want to do that work and don’t understand why it’s important. I think the first thing to do is for real estate providers to start building a relationship with their customers and start talking about this stuff directly. We need big, powerful organizations to recognize that they have choices beyond just buying or leasing a building, and to demand change. 

We can’t rely on people in property-related roles to make those demands because they have a strong emotional connection with commercial real estate that makes them reluctant to rock the boat. Business leaders, HR Directors, managers, and so on – they’re the ones who may have to lead the way into the necessary conversations.

Benjamin and Komlos: Any other advice you can offer? Parting words?

Kane: The real estate sector can actually make more money if they get smarter about all of this. It comes down to shifting the focus from buildings to people, recognizing that it’s not either/or between the office and the home, and breaking down silos so we can really think about this holistically. The industry needs to offer a blended range of options – core, flex, on-demand, and work from home.  All underpinned by a space as a service model with a sustainability focus,  rather than just renting space.

It’s time to do away with the medieval concept of landlord and tenant; it’s time for a remodel.

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