Integrating Flexibility and Technology Key Drivers Leading Portfolio Success

In August 2018 Commercial Observer hosted an Industry Insights webinar discussing how the rise of proptech is changing the commercial real estate industry. Moderated by Robert Tanzmann, Senior Director, Brokerage Services, Cushman & Wakefield (CWK), the webinar featured Marcus Moufarrige, COO of Servcorp, and Seth Pinsky, Executive Vice President at RXR Realty.

Here’s an overview of the discussion.

Moufarrige emphasizes that office tenants today want more flexibility in lease terms and property amenities. He said AI and robotics will fundamentally change the future of work and what people need from their workspaces. This uncertainty makes flexible lease options more attractive.

Pinsky mentions that because of this atmosphere of rapid change and disruption, RXR recently launched a $50MM proptech fund. He notes that businesses used to choose locations based on where the CEO wanted to live. Today, with tough competition for qualified workers, it’s about where employees want to live, and this change has been good for New York City. Properties wishing to prosper in this environment need to be well suited to the innovation economy—meaning, amenity-rich properties equipped with the latest technology in desirable locations.

Moufarrige emphasizes that people are just beginning to realize that commercial real estate can be flexible. He said flexible workspaces currently make up about five percent of all commercial real estate and believes that number will soon rise to 20 percent, attributing this to the vast shift in the traditional power dynamic in recent years between landlords and tenants—tenants have more power and options now and therefore expect more for their money. Still, landlords are doing well, and even with changes in the business model, there will be opportunities for high yield per square foot.

Pinsky notes that this will require a change in how landlords think, and those that don’t adjust to the new reality could face harsh financial consequences. He thinks landlords will need to offer three types of flexibility: in the physical space (open plans, etc.), lease terms and the space’s technology—landlords must “futureproof” their space to ensure that outdated technology can easily be swapped out for the latest.

He believes that real estate needs to be more customer-oriented—a tenant is a customer. Just as other industries are being disrupted, so too will real estate. It must respond accordingly. Successful real estate professionals must be as flexible in their business model as in everything else. He has brought food trucks into one of his buildings through a freight elevator to better serve his tenants in one building; in another, he offered a rooftop farm. All part of his effort to offer unique, individualized amenities for tenants. Developers need to think of themselves as community builders.

Moufarrige adds that by offering this flexibility, especially where technology is concerned, his company has been able to receive a high yield per square foot. He also believes that smart landlords will start to build genuine brands around their customer service and innovation. Being a service-oriented landlord will be seen as smart business.