by Matthew Lynch, Global Leader, Knowledge & Research, Woods Bagot
Likewise, we expect that by 2020 the landscape of asset management will have been completely transformed.
Transformed by a new demographic of tenants that doesn’t yet exist. And transformed by the new ways of working that are just starting to emerge.
Of the many variations that could eventuate, we most confidently anticipate that mobility will be the main driver of change – to the extent that tenants will be able to work from anywhere and at any time.
By 2020 – in just 6 years years – the savviest asset managers will have recognised this shift, and will be renting a host of spaces other than offices for the purpose of such mobile working. Office tower lobbies, university buildings, libraries, and development sites will soon be used by a generation of mobile workers that have no need for a permanent office.
Therein lies the opportunity for asset managers.
Trend: NLA ≠ NLA
From a landlord’s perspective, this is a silver bullet.
International Data Corporation (IDC) expects that the world’s mobile worker population will reach 1.3 billion by 2015. Some of the savviest and most bullish portfolio managers are already starting to recognise the opportunities becoming available from this fast growing league of nomadic workers.
In doing so, they are addressing one of the oldest problems associated with the property industry – the problem of excess capacity and unleased space that inevitably comes hand-in-hand with high-value assets under management. Currently, lobbies remain largely unleased, universities portfolios are becoming underutilised as students migrate their learning online, municipal library systems are becoming all but defunct, and development sites sit idle collecting weeds and tax.
There is a massive latent opportunity to lease spaces to mobile workers: spaces that would otherwise not derive revenue.
Take, for example, The GPT Group, one of Australia’s largest diversified property businesses.
GPT’s national portfolio across Australia had faced increasingly tight market conditions and increasing vacancy rates going into 2014. The threat was real: reduced occupancy equates to reduced efficiency, which ultimately means lower profits and market capitalisation vulnerability.
So GPT recently took a USD 6 million stake in the Silicon Valley-based startup firm LiquidSpace. The partnership between GPT and LiquidSpace has been jointly developing an online marketplace in Australia that will allow professionals to find workspaces and meeting rooms.
Sam Nickless, head of new revenue at GPT and board member of LiquidSpace, has initially seeded the platform with spaces within GPT’s own 83,600m² (9 million ft²) portfolio of office properties. Later, GPT plans to extend the network to other owners that want to rent out their own idle space for profit. It will also extend the LiquidSpace platform to the 1.1 million m² (271.8 acres) of retail space it holds across urban malls and suburban shopping centres.
LiquidSpace allows GPT to lease small chunks of corporate real estate for short periods of time. So, while head tenants still occupy the lion’s share of GPT’s office buildings, the LiquidSpace platform can be used to monetise space that would otherwise be dormant and unleased.
Like other asset managers, GPT is experiencing firsthand the effect of changes to corporate workplaces. To combat this, GPT is using LiquidSpace as its silver bullet.
Innovation: A workplace market for the mobile generation
Other sectors are also keen to profit from otherwise unleasable spaces.
Marriott International, the NYSE-listed international hospitality group, has also recently teamed up with LiquidSpace to test a new product called Workspace on Demand.
Starting with 30 existing Marriott hotels across San Francisco and Washington, Workspace on Demand is already providing flexible coworking hubs and meeting rooms in otherwise underutilised and unrentable ground floor hotel lobbies.
Marriott has effectively designed itself a new stream of revenue.
So, what’s next?
Well, consider an enterprising university that acknowledges the inevitability that its portfolios will soon become underutilised. As the, students are turning to a blended learning model where they spend as much time .
As this happens, we can reasonably expect that arts departments, humanities schools, and social sciences colleges will be left with an oversupply of property. Lecture theaters, computer rooms, libraries, laboratories, and class rooms will be left underutilised by students that prefer to learn elsewhere.
As large asset managers, universities are positioned to use platforms like LiquidSpace to great effect. Universities could reinvigorate the campus with spaces that are used by a mix of industry professionals and academics – a collaborative match that is mutually beneficial, while also driving the bottom line by leasing spaces to the private sector.
Or imagine the effect on RevPAR for an enterprising urban hotel that leases its rooms during the day for use as offices, and at night as hotel rooms. Or maybe a hotel that leases rooms during the slower months of summer as offices, but during the busier winter period as hotel rooms. With massive global portfolios, hotel corporations clearly have a lot to gain by driving space utilisation.
Even school systems – particularly large municipal authorities – are well positioned to leverage from this trend.
Take New York City as a case study. Of the city’s 626 public elementary schools considered in a 2010 study jointly conducted by Columbia University and the NYC Office of Management and Budget, nearly half are operating under capacity. The application of a LiquidSpace-type platform to the city’s underutilised school spaces could alleviate this fiscal burden to the taxpayer.
So while asset managers can use the model of coworking spaces as a silver bullet to face an uncertain future, tenants can be motivated by other incentives which may not be direct financial gain.
Google’s Campus London, for example, houses over 100 fledgling companies at no cost. Google hopes to recover the cost of providing this infrastructure through the commercial opportunities made available through proximity and increased innovation.
Meanwhile, the Arizona State University Venture Catalyst unit in coordination with the Scottsdale Public Library system has created the Alexandria Co-Working Network – an ambitious plan to convert library buildings into coworking spaces and incubation hubs for startups.
In a world where information is increasingly sourced online, libraries are struggling to maintain their relevance. Such an adaptation mitigates the risk of obsolescence, reduces the strain on taxpayers, and repositions social infrastructure without detriment to the social fabric.
The Alexandria Co-Working Network resolves these problems by leveraging from the growing legion of mobile workers – the same opportunity that is now available to other asset managers.
By 2020 this opportunity will have transformed the landscape of asset management.