October 9, 2015
Disruption by Design: What Landlords Can Learn from Designers
The culture of service and sharing economies have yet to infiltrate real estate businesses. What will get them there?
A strategic vision for a mixed use building, similar to the examples set forth by The Hippodrome in New York, or 1 O’Connell Street in Sydney, Australia.
Sketch by Stephen Joyce
The commercial real estate industry is falling behind. The Thomson Reuters’ Top 100 most innovative companies has representation from the U.S. government, agriculture and forestry industries, and primary metals who are not typically visionary companies, yet not a single real estate firm made the list.
In the current service and sharing economy of on-demand cars (Uber), shared homes (AirBnB), flexible work space (WeWork), and just-in-time conferencing (Convene), it is not surprising that most office tenants believe landlords are not doing enough– a big claim to make in a time of $300 per sf office rents. For me, it was CBRE’s and Genesis’ Fast Forward 2030 report on the future of work that convinced me of this innovation lag:
“88% of interviewees believe that landlords must re-think their offer and find new solutions.”
The Hippodrome building is indicative of this new demand; with its “Very Hipp” tagline, pre-built suites, outdoor space, event space, and conferencing facilities, it is clearly marketing to a younger audience with a desire for a new real estate experience. Gensler captured this new dynamic with a new amenity strategy for 1 O’Connell Street in Sydney, Australia, creating an in-building club akin to Manhattan’s NeueHouse, called The Porter, for tenants and their guests. In addition to work and meeting space, The Porter is serviced by an adjacent farm-to-table dining concept, Bowery Lane, and a traditional men’s barber shop on the lower ground floor. The repositioning has been a huge success with the leased space rising from 18% to 98%. The success of projects like The Porter relies on an uncommon level of trust and collaboration between landlord and design team. Unfortunately, these examples are outliers, for many owners and landlords it is business as usual, despite the signs of changing demand.
I think this falling behind is down to one thing: Real estate is an inherently risky business. Risks are perpetually evaluated, avoided, and accepted. Without this the industry would not be nearly as lucrative. And it would be easy to assume that innovation is a typical by-product. However, the industry paradox is: it measures everything on previous success stories which stifles new ideas. Because there is no way to evaluate potential success, it is common to fall back on tried, tested, and old methods of creating value.
I believe, the solution to this problem is design strategy. Innovation is not born from copying the last best thing that was done; it needs creativity and insight. Design strategists are perfectly poised to help transition real estate into the new economy. It is this big idea that is driving an ongoing research project drawing on thought-leadership from strategists, architects, building owners, brokers, developers and designers to rethink the role of the landlord in New York. We are taking a cross-disciplinary approach to answering questions like: What do tenants want from an office building? How do we prioritize service and experience? Who can deliver and operationalize new models of business?
We haven’t answered all the questions yet, and this post is the first in a series examining design strategy and real estate, but it is certainly exciting to stand on the uncertain edge of a new era of integrated real estate, design and strategy.