How technology is changing the real estate industry

Apr 4, 2016

Part of the Oculus structure of the World Trade Center Transportation Hub is pictured next to the One World Trade Center tower in the Manhattan borough of New York City, March 1, 2016.

Image: REUTERS/Mike Segar

Saeid Garebaglow

Vice President - Corporate Real Estate, Faithful+Gould, WS Atkins

Technology continues to be a catalyst for change in all areas of business and industry, and the real estate market is no exception. Today’s worker is more mobile and more connected than ever before, which means that businesses can operate anywhere. Especially in mature urban centres, the pushback against escalating real estate leasing and ownership costs is escalating.

While telecommuting may not be a viable option for all companies, or even all employees within a company, many organizations have utilized remote work models with great success. This is reducing the amount of office space needed to accommodate employees, and it is changing the dynamics of what constitutes an ideal - read expensive - location.

The distributed work model itself is not new. Health insurer Aetna has used remote work as an employee retention tool for more than 20 years, and more than 31% of the company’s employees telework. Through telecommuting, the company has reduced its office space by more than 2 million square feet, resulting in an approximate annual savings of $78 million. The company also closed and demolished its 1.3 million square foot building in Middletown, Connecticut, which was praised as the “office park of the future” when it was built in the 1980s.

So why all the buzz now? These are just a few ways technology-focused factors:

Innovations in cloud-based information storage security
Improved functionality of enterprise software such as Microsoft SharePoint and OneDrive
Rising reliability of communications applications such as Skype and GoToMeeting
Greater coverage and relative decreases in the costs of wifi, cellular, and high-speed internet access
Online marketplaces such as Behance, Fiverr, Upwork, and hundreds of others facilitating connections between workers and employers around the world

Working in concert with one another, the convergence of these factors and the ever-present pressure for companies to streamline costs, is making remote work viable for a wider array of knowledge workers than ever before. According to FlexJobs.com, 2014 saw a 26% increase in remote job postings over 2013. This directly translates to smaller footprints of traditional office space that companies need to lease, purchase, or build.

While companies like Aetna have made telecommuting a part of the company culture, other companies, like Yahoo! have shifted away from home-based work, bringing their employees back together. In 2013, when the company announced it would be ending work-at-home opportunities, then head of Human Resources, Jackie Reses said, “Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings.”

Therefore, companies are looking to innovative, flexible, and adaptable office designs to help inspire and facilitate these impromptu team meetings. Instead of floors full of cubicles, which often sit empty while meeting spaces are overbooked, shared workspaces, meeting spaces, social areas abound - often enabled with video conferencing, smartboards, and other virtual collaboration technologies. When GlaxoSmithKline relocated from their former location in a leased office space in downtown Philadelphia to the historic Navy Yard, the company used the principles of communities to create an open, vibrant and collaborative work experience. As a result, it was able to relocate the entire population of 1,300 employees from their former location in downtown Philadelphia while reducing their office space by 600,000 square feet. While the services provided have had numerous benefits for GlaxoSmithKline’s bottom line, the move also spiked the percentage of unleased space in the Philadelphia urban core.

Collaborative workplace organizations, such as WeWork and Workspring, are also knocking down the literal and figurative “walls” and changing commercial real estate dynamics. These shared office spaces provide various options for companies that either lack the capital or want to divest themselves of the real estate, furniture, services, etc. that were previously non-negotiable. These shared spaces are ideal for hosting meetings, as well as for both on-demand and long-term space for satellite employees, mobile workers, and independent professionals.

In addition to reducing the amount of office space a company needs, and re-imagining how that space is used, technology is also bringing down barriers between potential tenants and real estate owners. Developments in cloud computing combined with mobile and social media are resulting in cost-effective and real-time property information, which means many leasing activities are happening online.

As technology continues to develop and these trends gain more traction in the market, I foresee the following developments:

In the most mature real estate markets, such as New York or London, rents may have peaked. Landlords are already reducing rates to attract tenants to Midtown Manhattan, for instance, in reaction to migrations prompted by untenable real estate costs.
Co-location and space sharing will increase for smaller companies, and shared services across companies could become the norm.
“Location, location, location” will remain a key factor for several sectors that rely on talent, transportation, and ease of access to other companies. Businesses with distributed real estate models will reduce their assets to token Sales Office presences in the metropolitan areas.
Because technology is ever-changing, the challenge for traditional commercial office environments - to keep pace with cabling, power, and other infrastructure requirements - will continue.
With further consolidation of real estate data on the web and the rise of smart buildings, the role of broker will change to advisor. More and more owners will embrace online services for engaging tenants, sidestepping brokerage fees - similar to the way Airbnb is transforming the hospitality market. This only stands to increase transparency and serve the tenant’s interests, both by exposing them to a wider array of properties and by making it easier to cost-compare.
Social amenities of urban center will continue to draw young talent willing to sacrifice living space - even opting for dormitory-style apartment sharing. The live/work space in the Brooklyn Navy Yards is just one example. As millennials establish families or desire more space, less congestion, and different community features, retreat to suburban and exurban homes will not limit professional options as greatly as in the past - I predict that companies that telework will outpace those who are reining it in.
The work-life divide has been blurred for at least a generation. Ease of communication and access has distorted what were once “normal business hours” to the point that employers are recognizing the counterintuitively negative effect on productivity. In response, forward-thinking companies are instituting “Work Free” hours and mandating that employees switch off work devices at home. Once the “Work-Life Merger” cultural phenomenon finds its equilibrium, the need for separate social spaces vs. office spaces will increase.

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