October 24, 2018

The traditional brick and mortar real estate industry is undergoing profound change, brought on by changes in technology, tenant experience and coworking trends. At our recent roundtable in Singapore, we asked government bodies, occupiers and investors how they are adapting. 

Putting Tenants First

Real estate is being increasingly viewed as a service rather than just a physical product. No longer is it just about fitting out spaces with fancy interiors and a decent pantry; it is about the experience.

This scenario is increasingly becoming a reality for many office workers: the convenience of pre-ordering coffee from their favourite café, getting dry cleaning delivered, or remotely checking which seats in the office are available. Service delivery is available nowadays at the touch of a button on mobile devices.

This rise in expectations has led landlords and occupiers to rethink how they engage with tenants and employees in order to enhance satisfaction and retain talent.

Landlords have also adopted other technologies – from investing in facial recognition software and tenant engagement apps to installing energy-efficient sun shades when the building gets too hot. These added services have provided innovative touchpoints for landlords to interact with occupiers, and to offer new experiences and efficiency within their buildings.

Occupiers are not left behind either, as they similarly adopt a user-centric approach by offering employees flexible working arrangements and wellness initiatives. For instance, tie-ups with healthcare providers and childcare centres have become common place.

 

Coworking: the new normal?

The notion of coworking has been all the rage these days. As some participants remarked, one of the main draws of coworking spaces is the community it creates and curates. One participant cited examples of how small foreign companies entering Singapore often seek out coworking spaces first, to get close to the start-up community and potential customers alike. 

It’s easy to see why this hospitality-driven approach resonates with occupiers, especially with the emphasis on user experience.

Yet, some investors sounded a note of caution about the long-term profit of coworking operators and the sustainability of their current expansion rates.

Ultimately, participants all agreed that investment decisions are capital driven and still about the bottom line. Their investment decisions, they say, will still be predicated on returns, while the benefits of coworking and user experience are simply “nice to haves”.

Lease structuring: profit sharing to be the new norm?

Another point of discussion revolved around whether lease structuring arrangements would be less traditional in the future. Participants agreed that this would mainly depend on the motivation of the owner. For instance, a profit-sharing model might make sense for certain landlords, while others might prefer to stick with a traditional lessee-lessor arrangement.

There is also the difficulty of measuring profit-sharing concepts, especially for international coworking operators. Imagine that a member signs his contract in New York but uses facilities in Singapore. If you’re a building owner working on a GTO model, how do you quantify this usage? And who gets the portion that was paid in New York?

At the end of the day, there is no one size-fits-all solution. Technological disruption has led to a corresponding mindset shift for all real estate players. Both investors and occupiers are now realising that they need to develop a more collaborative relationship to navigate this fast-evolving landscape.

As tenant experience becomes ever more important, investors and landlords will need to re-evaluate their strategies – whether it’s by arranging more flexible lease terms with tenants or enhancing amenities. Regardless of your role in the real estate industry, it’s abundantly clear that those who are nimble and willing to adapt quickly are the most likely to thrive.

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