Demand for flexible workspace offerings continues apace and if JLL’s prediction that 30% of all office space will be flexible by 2030, traditional landlords will need to continue to adapt.
Tim Devitt of GCUC caught up with Justin Harley, Regional Director at Yardi for his thoughts on Traditional Landlords response to growing demand for greater flexible workspace offerings and the importance of adopting the right technology.
Tim: Are the traditional real estate landlords ready for the growth in demand for flexible workspace?
Justin: Traditional real estate has always seen Flex as a viable product and they’ve always known it’s something that they would need to consider, but they now realise that it is going to play a much larger role and more quickly than they had first thought.
Although 2019 analysis by Instant Offices suggested that only 7% of all commercial real estate was Flex, in reality this is still a relatively small number. However, it’s a number that’s growing and something that landlords can’t ignore, and neither will the pension funds and investment funds.
When you combine this with added pressure on corporates trying to balance their existing commercial real estate footprint with the new needs of their workforce, who want increased flexibility through a combination of home working at a rural location or having three or four places where they can work in London, rather than always going to the same office all the time, the landlords don’t have a choice.
So this combination of changing corporate customer needs, and more importantly investors in commercial real estate, Flex is a big consideration and at Yardi we are already seeing greater engagement with the landlords as a result.
Tim: With Flex currently only accounting for 7%, albeit growing, surely they don’t need to make a dramatic shift?
Justin: That’s a valid point and by the way, their existing model hasn’t completely disappeared overnight. Historically, if you can get someone to lease a property for 25 years, on a repairing lease, the good news is there’s a lot less property management you have to do. It’s lower risk and still providing a return, however, how many clients will there be like that in the future. It could be argued that it’s lower risk to not diversify your portfolio and accommodate flexible offerings.
Tim: Do you think the shift towards Flex will benefit traditional landlords?
Justin: Yes, definitely. With an improved property offering, there will be an improved property value, and I think benefits can also be gained by occupiers through cost savings and operators with increased market share, assuming the landlord makes the right decision when creating the flexspace.
Naturally as a supplier of technology, I believe the right technology is of vital importance and I’m sure we will cover that later. Interestingly, landlords now have more options as the flexible workspace sector has matured and there are many business models to deliver a flexible offering, be it as their own brand like British Land with Storey or Landsec with Myo or bring in an experienced operator (e.g. TOG or OSiT) who live and breathe flexible office space and service, or alternatively the more traditional route and go to a broker.
There are other models too, where investors have thought, hold on, why wouldn’t we just invest directly in the platform. For example, Brockton capital invested in Fora as the platform, and they bought the building and got Fora to run the operation.
Tim: I read recently that technology needs to be at the backbone of excellent property service, and as a leading technology supplier in the flexible workspace sector, how important is the technology decision for traditional landlords?
Justin: It’s one of many important elements because ultimately technology is an enabler that works with people and processes, so it goes hand in hand with a carefully selected workforce. Technology is the tool that will allow you to automate processes. If you look at real estate holistically, they’ve been very good at focusing on the accounting and understanding internal rates of return for example but haven’t made significant investment in the service and high touch elements. So, I think it’s a combination of both, you need strong accounting capabilities to understand the fundamentals, but you need to combine that with a robust platform that can support a high touch, high service environment.
To date traditional workspaces haven’t invested in technology, and that’s changing, they also recognise the importance of Wi-Fi bandwidth. I don’t know whether you know, but if you use teams or zoom, and you have your camera turned on, and you have multiple participants, it takes up nearly 20 times more bandwidth than just a standard call without cameras. Even at the Yardi head office, we have an internal telephone system and a phone on each desk and that will now be obsolete because this has been replaced by teams, and where we all use the camera and the subsequent heavy usage of bandwidth. So, the infrastructure that landlords put in 10 years ago, will not support the new demand.
Tim: Is speed of implementation important?
Justin: Yes and no, as there are different approaches that can be implemented more quickly than others and different approaches to risk, but with the current change in the market comes a tremendous opportunity for landlords and the flexible space providers.
There is definitely a need and opportunity for change and different business models are now available to landlords as Flex has become more mainstream and each has their merits. It may be that a business takes a few years to establish an operation from the ground up or through management agreements and joint ventures that can be set up much quicker.
Tim: When meeting with potential customers who are looking at flexible space options are you telling them what they need, or are they telling you what they need?
Justin: It’s a combination of both. It is often about seeing what’s possible and understanding what’s possible. Customers generally get in contact with us, and I’m sure they get in contact with other technology providers, and they then get an understanding of what is possible and what is available. From there, they work out what they really need. It’s like any kind of buying process, they start with assessing the problem they’re trying to solve, how do technology providers today go about solving that problem, and does it actually solve their problem? Then you can go from there into the granular detail of a bespoke solution.
Tim: Do landlords understand the importance of future proofing the technology in their buildings and the importance of seamless connectivity between applications?
Justin: Yes, and in my experience, they understand the need for digital transformation and generic technology has created this vision that an Application Programming Interface (API) can connect between every system. However, the reality of the situation is that you need to have the right systems in place to support multiple integrations and it comes at a cost. Interestingly that cost is not with your technology set up, but it’s the cost of you having the right staff to support it and maintain the systems. So, if you’ve got a disparate technology system and infrastructure that may be connected through multiple API’s, you will need a much larger technology team in house to be able to support and manage the constant upgrades in software from each software platform. So, it’s not quite the dream that people might have you believe as you have to keep up with all the various upgrades.
This is why at Yardi we believe it is vital to have one single connected base platform and this has been our strength over the years. We start from the base property, the units, the entity structure, so everything starts there, and then you build your applications from there. But with Yardi solutions, it is only one database that will connect up with access control, visitor management systems, Wi-Fi, your website, and payment systems. Your members and your staff can all operate from the same database, offering complete visibility and transactional ease. Although the initial technology investment may be more, there is no costly API to maintain, the total cost of ownership is considerably less over a five-year period and it will cost you less to have a Yardi solution than it will do if you put in lots of different systems.
Tim: You mentioned the “Yardi base platform”, what is that?
Justin: The base platform is Yardi Voyager, the property management and accounting system and the beauty of this system is that we can add on whatever Yardi application is necessary depending on the client needs. So, if a client wants to add flexspace to their offering, they can put the Yardi Kube solution on top of Voyager. Another example would be Yardi Investment Accounting, which you can add to help automate investment management processes and provide full transparency from the investor to the asset.
Tim: Since the relaxing of lockdown restrictions, have you made it back to the London office yet?
Justin: Yes, and it was great to be back! However, just as landlords will need to be flexible and make changes in their business, so will many companies as their staff return to the office, and on my return, I realised that the Yardi internal phone system is toast!!!
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