The real estate sector is changing. An industry once centered on bricks and mortar is undergoing a major transition to better serve tenants and users.
In particular, office owners have been forced to adapt to pandemic-era changes, leading them to embrace occupiers in new ways. “Our building end users are customers, not tenants; or taking it a step further, [they are] guests,” says Andy Booth, senior portfolio manager at manager Nuveen Real Estate. He says the pandemic accelerated the trend of people-centric real estate within the office sector, meaning it is imperative that landlords provide a full service to end-users of their properties.
“This involves a focus on people and understanding exactly what end-users want,” Booth notes. “Whereas traditionally real estate companies have focused on ‘hard’ building services, office owners now need to act as a partner with our occupiers, assisting them to achieve their goals of talent acquisition, working collaboratively on ESG targets and encouraging people to engage in a physical workplace with their colleagues. The focus shift is to the ‘soft’ services in operating our buildings.”
These are views echoed in consultant McKinsey’s The Future of the High-Rise report, which argues that end-user expectations surrounding the ‘soft’ aspects of building construction and management will begin to reshape the construction and real estate sectors over time.
Location is still key to end-user satisfaction, says Alexander Gebauer, chief executive officer of West Europe at insurer Allianz Real Estate. Prime offices in high-density, talent-pool cities will be the “most attractive to users and most resilient to the hybrid-working model,” he adds. Unsurprisingly, such locations also topped CBRE’s ranking of cities with the highest construction costs in its Global Cost Trends Guide 2020-2021.
Many existing tenets have survived the pandemic, while others are now being viewed differently. “Central locations bring users better access to public transportation networks and the amenities for networking and socializing,” says Gebauer, yet tenants are now viewing this perk through an ESG lens, and value the efficiency afforded as a contribution toward reducing their carbon footprints.
“We see this in the data – leasing in prime, central locations is thriving and, for the best assets in these global cities, pricing is still competitive,” he adds.
Ian Mayhew, managing director, UK asset management at manager Barings, says amenities start with the building itself. “The likes of high EPC and BREEAM ratings, WELL-enabled design and WiredScore accreditations are hugely important in developing and refurbishing spaces. It also means outdoor, social and relaxation spaces, with amenities for exercise including bicycle storage.”
View on technology
Nick Wright, head of digital sales at ww UK, explains the value of tech to real estate’s customer-centric approach.
“The shift in the industry towards customers, the people who use the building, and creating a place where people want to be is seeing rising adoption of experience technologies. Building apps that connect a customer to the services, amenities, communications and community of a building are improving experience and customer satisfaction and potentially reducing void rates. All these technologies are adding value through data to reduce cost and gain insight into end-user preferences to improve how the building is positioned with end users and ensure it is retaining or improving overall market value.”
The introduction of flexible workspace operators to office buildings is also increasing, Mayhew adds. “These not only provide an engaging dynamic within a building in their own right but can provide increased flexibility to other tenants as they expand or need additional desks for peak periods.”
However, it is inside the assets where the real change is taking place. New technologies are allowing asset owners to gather data on occupancy, usage and the working environment to “design layouts that prioritize user health and well-being,” according to Gebauer, another way in which the rise of ESG is shaping the future of real estate.
“We can automatically monitor and adjust air quality, temperature and light to boost attention levels and productivity,” Gebauer says. “We can deploy AI-based tools to take over the operational management of the building, thereby continuously optimizing its ESG performance. And we have smartphone apps which make the building part of the users’ network, offering services such as contactless entry, room bookings, a digital concierge and community management.”
As a result, the real estate sector is budgeting more for technology now than before the pandemic, according to CBRE’s Global Cost Trends Guide. While there is a rise across the board, the trend is most evident in Asia and Latin America and Caribbean.
There is also an increased focus on well-being. Nuveen’s occupier base has signaled that “convenience is key,” with building owners in a unique position to assist occupiers by acting as “facilitators to coordinate events programming, assist in occupiers’ ESG aspirations through energy reduction initiatives or aligned social value projects, and provision of fully realized office space,” says Booth. “Essentially, office end users are seeking places with purpose.”
Capturing data on how buildings are used by their occupiers is a growing trend, and it is key to providing the best service for tenants, says Mayhew.
In the build-to-rent sector, owners and operators can monitor residents’ use of facilities such as co-working spaces, gyms and private dining to inform future decisions on provisions. “The use of bespoke apps for buildings can help capture this data for operators and also around what maintenance is required, where and when, which can feed into the optimal running of buildings,” adds Mayhew, with insights used to evolve the model for future schemes.
Gebauer explains how data gathered through “smart packages” – suites of digitally connected sensors and devices installed into assets – provides a “multiplier effect” on the capabilities of asset managers.
The data can also be used to provide snapshots to tenants, allowing for collaboration and intuitive conversations about how rented spaces can evolve. Discussions around other technical elements, such as cybersecurity, are increasingly common.
The external forces driving these changes are far from settled, and as the private real estate industry looks for more clarity on the future of the sector, it is clear that end-users will be central to forthcoming developments.