Five technologies set to reshape office space

Technology is changing real estate. The impact is already visible in the retail space where the rise of e-commerce is held responsible for the crisis in brick-and-mortar shops. Managers and investors are working out where value-add can be found and where to place capital. But it is not just retail assets being impacted by technology; offices are being impacted too. Here is a flavor of the technologies making a difference.

Internet of things: Greater operational efficiency

IoT is allowing office space to be tailored to specific individual tenant needs while cutting costs. Smart buildings and smart furniture can already make office operations more efficient.

With the aid of sensors, operators can keep track of how frequently conference rooms are used, maximizing office space. “Using the latest technology to improve office efficiency gives managers new ways to cut costs and focus on value-add,” says Jake Edens, Colliers International’s senior vice-president of technology and innovation.

According to TH Real Estate’s innovation and technology strategist, Jack Sibley, tenants also want office space that offers a healthy working environment. To manage its assets and promote workplace productivity, TH Real Estate has teamed up with Demand Logic, a company providing software to optimize property maintenance for clients like The Crown Estate and Transport for London in the UK. The firm has been running trials with special sensors that keep track of humidity and temperature to ensure productivity is maximized in TH Real Estate-owned buildings, although Sibley clarifies the firm is still in the early days of implementing the technology. “We see it as part of our duty to provide spaces which promote the health and wellbeing of our tenants,” he says.

Tenant apps: A customer-focused approach

Offices are becoming less about floor space and more about providing a desirable workplace environments. Younger workers in particular expect more than a desk at the office, observes Zach Aarons, co-founder and partner at MetaProp. To recruit and retain tomorrow’s talent, companies will need to provide new office buildings, amenities and conveniences as standards change. A shift in employee office preference is going to reverberate up to property owners. It is no longer enough to just lease space. “You can’t call them tenants anymore,” Aarons says. “Now they’re your customers.”

In this respect, offices are starting to mimic hotels; more B2C focused than B2B. Improving operations is core. Within the next two years, Sibley expects flagship buildings to roll out management apps that improve the tenant experience by providing one platform to handle all needs, emergencies and communication. Tenants will report a broken elevator, reserve a conference room or place a coffee order all on one app provided by landlords. “If GPs are trying to raise a core-plus or an office value-add fund and they don’t know how to implement a technology and innovation strategy, in their next fund cycle, they’re toast,” warns Aarons.

Blockchain: Minimizing headcount and floorspace

The technology behind cryptocurrency is likely to streamline business operations and cut down on the number of employees required to be physically located in an office. A 2018 La Salle report, Blockchain and Real Estate, predicts the technology has the potential to reduce back office operations in fund management companies, accelerating the trend of shrinking office space demand as headcount decreases.

Outsourcing will further exacerbate shrinking headcounts, says Mark Grinis, EY’s global real estate, hospitality and construction leader. As headcounts change, the need for large offices declines, and Grinis believes tenants will no longer want to sign 30-year leases. “Companies like ours would love a three-year lease because it’s hard to anticipate space needs,” he says.

AI and big data: Predicting trends and tracking performance

Data collection and implementation of machine learning and artificial intelligence is already helping managers and investors to identify and predict market trends, track how office space is used and monitor performance on matters such as sustainability benchmarks.

It can also help managers and owners foresee issues before they arise, says John Gilbert, COO of Rudin Management and executive chairman of Prescriptive Data, which co-invented the Nantum building operating system.

While it is too early to deduce how this technology will impact investment return figures, Gilbert says his firm’s office tenants are craving the data that has been collected. They want to know what they should be doing from a sustainability standpoint and they want to report that information back to investors and employees, according to Gilbert. Blackrock has adopted Prescriptive Data’s technology by installing Nantum TF on its 52nd Street office in New York to collect data and drive energy consumption patterns down. “Blackrock is one of the leaders in the mayor’s carbon challenge,” Gilbert says. “They’ve been able to benchmark and cut their carbon consumption.”

Data also allow tenants to spot trends in employee attendance on certain days of the year and to optimize office space accordingly, explains EY’s Grinis.

Colliers International has invested heavily in collecting and analyzing data in recent years, says Edens. Colliers’ clients are increasingly interested in the capabilities of data, whether to help with benchmarking or using past deals to spot trends and give clients a competitive edge.

“Machine learning and AI allows humans to feed data into algorithms, resulting in the computer picking up on trends and teaching itself,” explains Dominic Wilson, co-founder and managing partner at Pi Labs, a leading European venture capital firm in real estate tech. “If the algorithms are correct and the quality of the data is clean and robust, then the chances of error are much lower and processes like rent reviews can be automated,” he says.

Driverless cars: An end to the office parking lot

“There’s going to be a transportation revolution in the next 10-15 years,” says TH Real Estate’s Sibley. The UK-based firm is working on scenario-testing for when driverless cars become available, potentially changing how people move around in cities and altering the need for office parking lots. “As the future becomes more uncertain, underwriting is going to become more challenging and you have to look at a wider range of scenarios every time you make a decision,” Sibley says, adding that TH Real Estate is considering the flexibility of its assets.

“Flexibility means thinking about what to do with existing properties if, for example, 60 percent of the parking space becomes unnecessary and what to do if people start moving around cities differently.”

Land once occupied by parking lots can be replaced with new office buildings, and the convenience that autonomous vehicles provide can lead the re-establishment of corporate campuses outside of urban city centers, CBRE Group senior vice-president of digital enablement and technology David Eisenberg suggests.

“The availability of land once reserved for parking will change supply and demand dynamics,” he says. “Funds that have the best user research on the consumer impact from driverless cars are the funds most likely to outperform in the future.”