HOW TECHNOLOGY IS TRANSFORMING CRE OFFICE SPACE - FEBRUARY 2018 - HQO
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How Technology is Transforming
CRE Office Space
Zach Driscoll, Customer Acquisition Manager, HqO February 2018
Contents
CRE Tech At A Glance 3
Internet of Things (IoT) 5
Co-working & Space Arbitrage 6
Data & Personalization 7
Digital Hospitality & Amenities 8
Meet HqO 9
References 10
2 How Technology Is Transforming CRE Office Space
CRE Tech: How We Got Here
In 2017, the real estate technology sector raised over $5 billion
in funding – more than 150 times what was raised in 2010. Once
a sector largely overlooked by investors, two out of the three
most valuable private companies in the United States, WeWork
& Airbnb, are products of a booming CRE tech space. To
understand how technology is affecting the CRE world today, it
is first prudent to understand how we got here.
Despite being a $15 trillion asset class, the CRE space has historically been looked
upon as a tough market for technology and disruption. The incumbents in the space –
landlords, developers, and brokers – can be tough customers, and in a market with
unstable demand - where proprietary
information is viewed as an
advantage - startups have struggled
to get traction. Despite this, a few
CRE technology companies, since
the late 1990s, have managed to find
success. These companies and the
subsequent ”phases” are summed up
effectively in David Snider & Matt
Harris’ Forbes piece:
The Complimentary Phase (Late 90s & 2000s): The power of data, marketplace software, and
asset management software made an early impact on the CRE tech space. These early winners
primarily supplemented or complimented the work of big CRE firms. Data powerhouse, CoStar,
went public in 1998, as did the marketplace company, HomeStore, one year later. In the mid-
2000s, Altus Group’s “Argus” building management software went public, and that paved the
way for the post-recession-residential-growth winners: Trulia & Zillow.
How Technology Is Transforming CRE Office Space 3
The Challenger Phase (Last 6 or so years): This next phase gave rise to two new major
categories in CRE tech: tech enabled services & space arbitrage. Redfin, a tech-enabled
real estate brokerage, was the first true real estate tech-enabled services company to go
public in 2017. The space arbitrage players, WeWork & Airbnb, create customer value by
repurposing existing space and creating incredible customer experiences. By winning the
customer experience, these businesses have reached valuations in the 10s of billions
without owning a single apartment or office building (until recently – WeWork purchased the
Lord & Taylor Building in New York City this past October).
The Synthesis Phase: Still in its early stages
By 2025, Millennials will today, this third phase of CRE tech looks more
make up like the first phase than the second in that tech
75%
companies are looking to enable and support the
incumbent CRE players. As technology becomes
more and more integral to the day-to-day lives of
tenants (75% of which be millennials by 2025),
of the demand for commercial office space technology
Workforce and improved office experiences is booming.
In this eBook, we’ve identified four of the largest
technology trends in CRE office space today, and
cover some of the major players within each:
1. IoT & Smart Buildings
• As buildings and sensors have become smarter, complex networks of motion, light, and
temperature in buildings can now be controlled in commercial buildings.
2. Co-working & Space Arbitrage
• Smart building tech helps offices by both improving utilization of existing spaces and
informing choices for future space management.
3. Data & Personalization
• Thanks to advances like connected lighting & cloud-enabled apps, tenants can now
communicate directly with the building itself – telling it exactly what they want and when
they want it. In some cases, the building even learns on its own over time.
4. Digital Concierge & Amenities
• Empowered by smart building tech, leaders in CRE are taking on the “second shift” for
their tenants. Using digital concierge services & amenities, these leaders are championing
the idea that a building is actually a dynamic system that can, and must, adapt.
How Technology Is Transforming CRE Office Space 4
Internet of Things (IoT)
IoT is a suite of technologies and applications that equip devices
and locations to generate all kinds of information—and
to connect those devices and locations for instant data analysis
and, ideally, “smart” actions.
In CRE, IoT enabled physical space has the potential to improve margins and cost savings, and
further evolutions of the technology could potentially play a huge role in topline growth through
service innovation to tenants
Many CRE companies are currently adapting IoT technology – mostly to cover what could be called
the low hanging fruit: cost savings and operational efficiency through improved energy management
and reduced personnel costs. The longer tail opportunity for CRE firms within IoT space center
around the tenants themselves. Footpath technologies, temperature sensor technologies, as well as
shopper tracking/transaction data can all play pivotal roles in creating personalized (and efficient)
space for tenants.
Deloitte’s Trend Overview
When considering the future value of a building, CRE owners must realize acknowledge the
possibility that tenants may soon come to expect IoT features, implying that buildings lacking
them may trade at a discount. At the moment, IoT technology – for those willing to invest –
presents CRE firms with massive opportunity for differentiation with respect to tenant engagement
and happiness.
5 How Technology Is Transforming CRE Office Space 5
Co-working & Space Arbitrage
Co-working and space arbitrage have changed the way we think
about the utilization of existing spaces.
While co-working space still only makes up a small percentage of the total available commercial
office space in the US, no segment of the market has demonstrated more overall growth than the
co-working industry. WeWork has been expanding at a rate in excess of 1 million square feet per
year. Given the massive amount of venture capital that’s being poured into the sector, this
aggressive growth rate shows no signs of slowing.
Technology & demographics are largely responsible for why co-working has grown so rapidly. By
the mid-2000s, the idea of telecommuting became a legitimate alternative to
going into the office. This change
64%
was largely due to the increased
presence of laptop computers,
broadband internet, Wi-Fi, cell By 2020,
phones, remote file access, and
the increased efficiency of email.
of multinational
With respect to demographics, the corporations plan on
first wave of millennials entered
the workforce at this same time.
using some form of co-
As the very complexion of the working or shared office
workforce changed in tandem with
technology, there was a shift in the space
very concept of “work”.
As a result, co-working and space arbitrage opportunities have
caught the eye of larger corporations as a means to increase
employee happiness and decrease real estate costs. According to
Recode, enterprise companies — which the co-working company
defines as companies with 1,000 or more workers — now make up
20 percent of WeWork’s membership and 30 percent of its monthly
revenue. And the number of seats, or workers enterprise
companies had working at WeWork grew nearly five times, or 360
percent, meaning that existing corporate clients are taking more
real estate.
6 How Technology Is Transforming CRE Office Space 6From a landlord’s perspective, co-working has decreased vacancy but raised concerns about
possible exposure to short term leases in an economic downturn. What perhaps matter most, is
that co-working has changed the way individuals, startups, and enterprises look at office space.
We now know that, to a tenant, the work environment is as important as the physical space.
Consumers and companies are migrating towards a positive office experience, just as
consumers migrated towards the positive customer experiences provided the Airbnb and Ubers
of the world.
Data & Personalization
In today’s hyper-connected world, the age of personalization is
revolutionizing consumer experiences across almost every
industry.
Examples of this are everywhere. On Amazon, Facebook, and Netflix, every page has been
built based on the user’s previous actions and data, and one would be hard pressed to find any
two pages that look the same to two different users. Some of the biggest technology firms in
the world have invested countless hours and massive amounts of money into personalization,
and it has rewarded them in one of the most meaningful ways: customer loyalty. Customer
loyalty, in the consumer technology world, is what allows you to charge $1,200 for a phone.
Why is it then, that so many of millennials said the
82%
office buildings – where quality of available
technology in the
employees spend a vast majority
workplace would
of their conscious hours —knows
influence whether they
almost nothing about them? would accept a job
Leaders in the
commercial real estate industry think this experience can be improved, and office building
owners and managers are facing a challenging reality; four walls and a roof will no longer cut it
for the tech-enabled millennials.
Millennials place a greater premium on workplace technology. Not only are they more apt to
quit a job over poor technology, 8 in 10 would be influence to take or decline a new position
because of it. Personalization in CRE can take shape in many forms, but there are few places
where it is better executed than Deloitte’s office in Amsterdam, The Edge
How Technology Is Transforming CRE Office Space 7The Edge personalizes tenants’ experiences from the moment their car parks in the garage,
and sets up their ever-changing workspace based on their preferences for light and
temperature. This allows Deloitte the ability to house 2,500 employees with less than
half as many desks. Deloitte is
collecting gigabytes of data on how
the Edge and its employees
interact. Central dashboards track
everything from energy use to
when the coffee machines need to
be refilled. On days when fewer
employees are expected, an entire
section might even be shut down,
cutting the costs of heating,
The Edge Building Dashboard & Data cooling, lighting, and cleaning.
Digital Concierge & Amenities
To compete for the best tenants, landlords must help tenants
compete for the best employees, and amenities are a major
recruiting tool.
CRE companies have been upping the amenity ante for years, and the most recent cycle
focused on physical amenities: basement gyms, bicycle racks, parking garages, and maybe
even a rooftop deck! Accordingly, the amount of expected physical amenity space has
quadrupled over the past decade.
However, forward thinking landlords are According to Colliers, owners
12%
leveraging technology and hospitality services to should allocate
focus on providing value without sacrificing so
much square footage.
Perhaps the most attractive of all amenities and of space for amenities to
attract highly sought-after
services center around helping employees with
tenants.
their “second shift”. The “second shift” refers to
How Technology Is Transforming CRE Office Space 8all the chores employees need to do when they leave their day jobs. Removing these annoyances
frees employees up to focus more on productivity on the task at hand. To keep up, savvy landlords
are now providing concierge and hospitality style amenities that have a significant impact on the
lives of employees.
While amenities provide a huge advantage for employers to recruit, property owners certainly benefit
too. Amenity benefits come in the form of increased rents, higher quality tenants, deal velocity,
improved tenant retention, and higher listening prices both in the leasing and investment sales
markets.
Meet HqO
HqO (Headquarters optimized) is a tenant engagement software
platform that helps commercial landlords provide offices that
tenants love to work in
ü Allow tenants to keep
their finger on the
pulse with mobile
information and
updates
ü Discover local perks
and experiences
ü Connect with other
tenant businesses and
individuals
Contact us at: hello@hqo.co
How Technology Is Transforming CRE Office Space 9References http://www.nreionline.com/office/what-new-technologies-mean-future-office-space https://www.comfyapp.com/blog/4-ways-smart-buildings-are-changing-the-face-of- commercial-real-estate/ https://www.weforum.org/agenda/2017/08/how-automation-and-connected-technology-will- change-the-buildings-we-live-in/ https://www.weforum.org/agenda/2016/04/how-technology-is-changing-the-real-estate- industry/ file:///Users/zach/Downloads/us-innovations-in-commercial-real-estate.pdf https://www.futureofwork.jll/en/hx/all/apac/link-workplace-design-business-strategy/ https://www.futureofwork.jll/en/fow/all/global/a-roadmap-to-navigate-the-future-of-work/ https://www.futureofwork.jll/en/ci/all/global/game-theory-secret-envisioning-workplace- success/ https://www.youtube.com/watch?v=YQun9G785UU https://www.forbes.com/sites/valleyvoices/2018/02/13/future-of-real-estate-tech/ https://venturescannerinsights.wordpress.com/2016/10/25/real-estate-technology-market- overview-q4-2016/ https://www.hfflp.com/blog/2016/july/co-working-what-does-it-mean-for-the-commercial-real- estate-landlord.html https://www.slideshare.net/carstenfoertsch/the-first-results-of-the-2017-global-coworking- survey http://www.us.jll.com/united-states/en-us/research/property/office/coworking-market-growth https://www.recode.net/2017/8/28/16214370/wework-coworking-fastest-growing-business- large-companies How Technology Is Transforming CRE Office Space 10
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