As the dynamics of the modern world reshape industries, commercial real estate stands on the cusp of a pivotal transformation. The age-old paradigm of distant landlord-tenant relationships is evolving, making way for a more engaged, proactive approach known as active ownership.
Defining Active Ownership
Active ownership represents a paradigm shift in the real estate world. Rather than adhering to traditional models where property owners and operators function separately, buffered by layers of intermediaries, this approach calls for a deeper engagement with customer needs and aspirations. Through such engagement, property owners not only build stronger relationships with operators and tenants but also position themselves adeptly in a constantly evolving market. As we delve deeper, we'll explore the key drivers that are pushing forward this transformation in the CRE industry.
The Catalysts of Change
Evolving Tenant Expectations: The convergence of advanced consumer technology and the "WeWork effect" has fundamentally transformed tenant expectations. As the immediacy of smartphone interactions and the precision of AI-driven services set new standards in service industries, WeWork reshaped the landscape of workspaces. No longer were offices just functional spaces; they became vibrant, community-centric hubs designed for both productivity and collaboration. This revolution in workspace design and amenity offering has left an indelible mark on what tenants demand from commercial real estate. Gensler's 2023 survey found that 48% of U.S respondents go to offices most because the want space to focus on their work. Tenants have high expectations that are constantly evolving.
Desire for Flexibility: Our volatile global landscape necessitates agility. Decades- long leases are no longer the norm. Modern businesses desire dynamic lease structures, mirroring their need for quick adaptation. They seek not just empty spaces, but partners in growth—landlords attuned to the unpredictability of contemporary business trajectories.
Post-COVID Work Landscape: The global pandemic didn't just bring about a temporary disruption—it has fundamentally reshaped how businesses view and utilize office space. San Francisco, a cradle for startups and tech giants, now grapples with a 31.8% vacancy rate, a stark contrast to its near-zero figures pre-pandemic. The rhythms of office life have altered. Data from workplace insights company Leesman reveals that 74% of UK workers now prefer to frequent the office for just two days or fewer every week, with mid-week being the popular choice. The post-pandemic world demands flexibility and adaptability. For many, the office is no longer a place they have to be but somewhere they want to be, depending on the day and the task at hand.
ESG Importance: Green is the new gold standard. In a climate-conscious era, both tenants and investors are doubling down on sustainability. This isn't a mere branding exercise; it's becoming integral to value propositions. Data underscores this: over 50% of European CRE firms report property value augmentation tied to sustainability initiatives. Jonathan Hannam, co-founder of Taronga Ventures notes in their latest paper on technology's role in ESG in real estate & infrastructure, “The major global sovereign investors and pension funds are now selecting real estate and infrastructure managers based on their ability to deliver measurable ESG outcomes - it is no longer a nice to have." By 2023, it's clear—sustainability is a necessity for landlords.
The Path Forward
Property owners have a big decision to make. The conventional, passive model of entirely outsourcing property management, with minimal engagement with customers and end users, is becoming outdated. In the face of these seismic shifts in the industry, owners must choose between continuing with the status quo or transitioning into active owners. Here's what making that shift looks like:
Embracing Active Ownership
Understand Your Customer: Use the wealth of data you already have to start building an accurate representation of who your customer is. Leverage the insights to start understanding their behaviors, preferences, and needs.
Adopt Holistic Technology: Select technology systems such as ility that help you consolidate your data, learn more about your customer, and build solutions that help improve the customer experience. With the large investment in prop-tech companies in recent years, there are sure to be future-facing solutions that help you with your portfolio-wide strategy.
Engage and Adapt: Establishing communication channels with your tenants, getting their feedback, and adapting to their needs will foster stronger relationships and long-term loyalty. The more information you have, the more you can tailor your product offerings for success.
The future of commercial real estate is tenant-centric. Property owners stand at a pivotal moment where they must decide their path. With the world evolving rapidly, the choice to be passive observers or proactive owners will shape the future success of their portfolios. Embrace the latter, and welcome a future where property is not just about land and structures but about people, experiences, and innovation.