Guest blog by John Williams, The Instant Group

Breaking up is sometimes the hardest thing to do but sometimes it really is for the best.  Commercial real estate looks like it is undergoing a painful but ultimately very necessary break-up.  And it looks like not everyone is going to remain friends afterwards.

Thales Teixeira, Professor at Harvard Business School, has addressed the concept of “Uncoupling” in his book “Unlocking the Customer Value Chain.” Within this he sets out the lung-busting growth of Uber and Amazon, companies whose very business model has subverted established value chains by decoupling the selection of products from their purchase.

What this means on a practical level is that customers are no longer buying directly from the showroom in which they are shopping.  They are not ordering food from the restaurant from which they are buying or driving the car direct from the manufacturer.

This trend is being driven by the customer, seeking out better service or lower costs, and usually enabled via a digital platform of some sorts, which facilitates ease of comparison and engagement.  As Teixeira states, this is a trend that comes from the bottom up with the client pushing innovation and change.

For companies of all sectors and sizes, recognition of, and an innovative response to, this trend provides a significant opportunity.  Particularly from those companies that want to enter and subvert an established business model.  And commercial real estate is next.

For so long the industry has not recognised the “client” as being the end user in real estate.  The end user has been relegated to a “tenant” or “occupier,” the real client is the investor or landlord (in the minds of the businesses that serve commercial real estate).  This needs to change.

Companies in wider business such as Netflix have become billion-dollar enterprises by recognising a shift in consumer mindset and moving fast to service this new requirement.  Ocado, a British online supermarket, was widely derided at its time of listing and now looks like one of the few winners among the bloodbath of the retail shares as the High Street quavers.

These firms have not tried to take on the existing industry giants directly but recognised inefficiencies in the delivery process of the media and grocery market respectively. They then used technology and a healthy agnosticism to re-work those supply chains to undercut the costs and improve the experience of the industry incumbents.

Now commercial real estate is seeing its pivotal moment as the asset holder – the landlord or investor – being “de-coupled” from the management and delivery of workspace.  This started with 3rd party “operators” that drive the serviced office and co-working markets.  The flex market was quick to recognise that it could charge clients for a more flexible approach to workspace procurement and offer value-add services in a better way than conventional landlords.  This has proliferated with smart use of digital platforms and a real focus on excellent customer services.

The de-coupling process is now continuing with space as a service, a focus on improving the experience of sourcing and procuring office space.  In this model, third party operators work on a back-to-back basis with landlords and the client making the process of workplace planning, finding the space, designing, delivering and operating the space a seamless experience. Growth at Instant has been predicated on this model, tripling in size in just five years, and now managing more than 4 million square feet on a global basis.

Why are clients such as Barclays and IBM choosing the space-as-a-service of “Managed Office” option?  It offers, in simple terms, a better experience than the conventional method of procuring a space – the lease – the delivery of space – the fit-out industry – and also the operation of space – Facilities Management.  The conventional delivery method currently has so many moving parts and opaque costs that it is extremely difficult for customers to track value to their business and measure ongoing success.  They are now looking for other options such as the Managed Office from Instant or Powered by We, the WeWork option.

John Williams

New entrants to the workspace market are subverting the conventional model at pace because they are offering either lower costs or a better experience, sometimes both.  They are de-coupling a workplace supply chain that has been in place for decades and which, until recently, remained unchallenged.  This is all about unlocking value for the customer.  The simplicity of this market view belies the relative complexity of turning around entrenched market views in commercial real estate.  But then sometimes, you need to break-up to make-up for a better relationship in the future.