Here's the full transcript of David's presentation. If you'd like, you can also download a PDF version here.
"Thank you for inviting us here to speak today, it's a real privilege to be representation Australian Prop Tech and to speak with everyone here. We are in a really interesting time in real estate. The fact that we have been talking about drones, AI, blockchain and big data in relation to application in real estate - that's pretty exciting for anyone that's been in real estate for a long time. The fact that everyone here thinks that is normal now, that is the status quo, that tells me that we've come a long way as an industry.
Our friend in the US, Michael Beckermen who runs cretech.com, he's been following Proptech or commercial real estate for a long time. He said that the difference between 2018 and previous years was momentum. There's growing and measurable momentum in our industry and I couldn't agree more. I feel like we are hitting an inflexion point. A natural convergence of real estate and technology. Much like FinTech had three or four years ago, we're about to go in a massive growth spurt. It's going to be a great sight to see. You can see it now with the sheer amount of companies, the fact that we have a Proptech summit in Australia, the number of investors, the amount of investment, but to us most importantly, the actual adoption of technology by landlords is now increasing. It's only going to increase more and more.
Before I get into my content, I just want to do a two-minute background about Equiem. For everyone here that might not know who we are. I'm David Chiapoco, Head of Marketing and previously Head of Product Strategy at Equiem. At Equiem we deal with the human side of Proptech. If you think about property technology, most of the applications, whether within drones, asset control or AI, the ultimate purpose of technology in our minds, is to enhance the human experience of the people in the building. So that's where Equiem sits, we are the interface between landlords and occupants. We provide landlords with a platform, for them to create an exceptional human experience for their occupants in the building. The end goal of that is to increase tenant satisfaction ultimately.
What does that actually mean? Well, we provide three things. Number one, technology. We build custom applications for landlords. We call them portals. Branded to the landlord or the building, and in that portal the occupants can access services. Everything from ordering coffee, managing dry cleaning, booking lockers, booking meeting spaces, you can sign up to wellness classes, you name it. We also manage the staff for landlords. The concierge, front of house team, providing customer service. Lastly, we also manage the engagement, which is essentially, we employ community managers who run events, activations and programs to create a sense of community and buzz in buildings.
I've been lucky enough to join Equiem seven years ago in the very beginning. There was only two of us back then and one client. We've since grown rapidly over the last seven years. We have 230 staff globally, about 125 buildings use our platform now, over 5 million square meters of space and we have about 110,000 users across Australia, US and UK. Equiem has changed significantly over the last seven years as a company but the actual industry that we are operate in, especially commercial real estate has changed quite significantly. Especially in the relationship between landlords and tenants. That's what I'm going to talk to you guys today.
Now at Equiem, it is not a pejorative to be at the actual forefront of what occupiers want from landlords. That it actually where our key value is at, is leverage this database of occupants because we deal with them everyday. We mine this data, we test theories and then we use that to improve and modify our engagement strategies so our tenants for our clients are happier. That's what I'm talking about to you guys today. I'm going to present to you our latest thinking in terms of what occupants want from their landlords, and I'm going to do that in three ways.
Number one, I'm going to talk about the market forces. So how did we get here in the first place? What's happened in CRE in the last five or ten years? Then number two, I'm going to talk about the impact of those forces. This new game that I like to call real estate 3.0, just a small set of expectations that occupants want from their buildings and landlords. Lastly, I'm going to go through a case study, an example of landlords here, right here in Australia, that really adopted this philosophy and are running away with it and leading the global space.
So let's talk about the market forces. This is a great quote from Knight Frank, recent report. They said that 'be in no doubt, we're in the midst of a global revolution, driven by demographic technological and economic factors that will see the manner in which office space is constructed, leased, managed and occupied and our users changed forever'. So what are those forces? At Equiem we think it's four main forces.
Number one, is technology. The sheer explosion of user-focused application in both mobile and web across different channels have permanently increased and elevated our combined expectations of what a great user experience is. Everything is more connected, automated, so everything's faster. You can order a car Uber to pick you up, you can book into a stranger's houses and meeting rooms and that's now normal. Even advertising is becoming way more personalized, scarily.
It's a random story but I was on the couch with my girlfriend and we have a pet bird and I just talking about bird toys to her and I kid you not within five to ten minutes, I had targeted ads on my Facebook and my Instagram about bird toys. So that's just the world we live in now and that's the status quo.
We expect things to be on demand, we expect things to be personalized and we expect a great experience from our applications and that carries through to real estate. Number two is a flexible workforce. There's been an increase in the number of flexible workers globally. In the US specifically, 50% of the workforce is going to flexible or on part-time contracts, which means in turn number three, there's been a huge demand in flexible office space. That's why you've heard this term, space as a service.
What that actually just means, is that office space itself is now being commoditized. Office space being on demand, space that you need, when you need it, rather than timing to five or ten-year leases, that's becoming more prevalent. The amount of flex provided to run and grow has been growing tremendously in the last five or ten years.
Lastly, generation M, millennials. Everyone knows the story pretty well, but the one thing that I will point out about millennials is that they love their preferred experiences. There's a study that basically found that millennials rate their experience with a company, in terms of the vibe and the perks and the community that they have. They prefer that over the actual salary, which is quite a profound change. The result of all these forces is essentially what employees demand out of their companies, their employers, has changed dramatically. In this new war for talent, companies are competing on these characteristics.
Such as number one, employees expect that companies are tech-enabled. If you're not digital, they don't want to work for you. You need to have an app, you need to have the latest productivity tools, you need to have Slack, Google Drive, if you're still using Excel offline then that's kind of a “no-no”.
Number two, you need to have flexible ways of working, working remotely. You need to have stand-up desks, sit down desks, you have shared desks, different ways of working within an office space. Employees also demand or also expect experiences. You must have some type of wellness initiative, take care of your actual employees. They expect services, like food and beverage, you might have massage parlours or quiet rooms in your office. Also community, this sense of belonging is paramount to millennials and in the workforce they want to feel like they belong in a bigger organization with a vision. Lastly, you still need that really slick fit out, the ping-pong tables, the beer taps, that's still really important.
The result of all these demands is that big companies, as you guys know in the last ten years have been competing on these. The likes of Google, the likes of Facebook, they're throwing everything at these perks and these services to attract the best talent in the world. The problem is, the most of the world can't afford to do that themselves. Not yet, when business in Australia turnover less than two million. 80% are staffed by less than 20 people. If you're an actual SME or medium-sized business, you can't do all these perks. What you are actually going to do, is find buildings that can help you with this attraction of talent.
This is a rather great quote from the Global Head of Research at Knight Frank. He said that 'Occupiers are located in buildings that support them in attracting talent'. He calls them talent-pockets, locations that have buzz, vibrancy and cohesion. The problem is about three or four or five years ago, is that the actual supply did not meet demand. The traditional supplier of office space, as recent as three or four years ago was this, basically an empty floor and a landlord who isn't expected to provide much more than maintenance and security and operational efficiency. What tenents want now is a whole lot more from the building managers. They want experience and services and everything I just mentioned, because they want to attract those staff into the companies.
The result of this mismatch with supply and demand in the market is in the last three or four years or more, basically new players, new types of landlords have entered the market. Everyone here probably knows about the first one [WeWork], there's also Industrious and Knotel. These new flex space providers have delivered on the actual needs of this new workforce and are growing rapidly. As you know, WeWork has been growing tremendously in the last eight years. By the way, all three of these companies and their compatriots, their largest growing customer segment is large enterprises. For WeWork, it's 20% of the customers now, for Industrious it's 48% and number three is Notell in the US, they only target large companies. In short, these flex space providers, even though they started off just attracting small business and start-ups, they're actually now gravitating to attracting large enterprises and competing directly with landlords. It's only going to increase as well, flex space providers are growing rapidly, projected to have 30,000 of them globally up from 400 by 2022.
These flex space providers, they've been marketed for quite a long time actually. There's players such as Servcorp and Regus that have been in the market for a long time. That early phase had this growth or effect to WeWork. So what does the likes of WeWork and Industrious have that helps them? It's this, it's experiences. The difference is WeWork and some patriots have a strategic mindset and philosophy in which the curation of experiences is their actual workspaces they provide is paramount. They care about the members' experiences. They provide everything from Monday breakfast, they have conferences, they have lunch, they bring in speakers that actively curate a community and that results in a really strong consumer-facing brand. A brand instils a sense of advocacy and loyalty, people at WeWork are proud to be at WeWork. They talk about it, they brag about it to other people that they talk to or work with, that causes a lot of advocacy for them. It’s this marketing for WeWork that older more established flex space providers just don't have. The actual risk for landlords in our mind is much more profound than that.
It's these three things. If landlords don't adopt this philosophy they're going to lose control of their data. Equiem was in a WeWork office for about two or three years actually, we only recently moved out a year ago, so we are well aware of the faults of their model and their pros and cons of their model. One thing they do really well is they collect data.
Everyone in WeWork is signed up through their application and it's part of a process which means WeWork now has 200,000 numbers in their database. They know everyone in their spaces. A typical landlord speaks to one contact per company, give or take. That's less than 5%. WeWork can cover to 100%, what that means is they can greatly influence the members in the spaces given a better chance of retaining them and understanding their needs and that's one thing that landlords miss out. Number two, because they have a front-facing brand, WeWork is in the faces of these occupants whereas the landlord is basically in the shadows. What that means is even though the landlord owns the building, the actual customer relationship, the actual customer advocacy and loyalty will belong to WeWork or their compatriots.
And lastly, the one thing that all these flex space providers do really well, is once you're in their space, they cross-sell services to you. Which elevates and increases their multiple per square meter in terms of revenue, much more than your typical office space where we just take our rent. That's a valuable uplift that landlords will miss out on if they don't do this.
The solution is actually quite simple in our minds, but it's dramatic. If you look at the evolution of tenant and landlord relationships, you look at it this way.
Real estate 1.0, which is about ten years ago. The relationship was fairly contractual. Landlords were essentially rent collectors and their actual expectations from tenants was basic maintenance, you might security guard in the lobby.
Then about seven-plus years ago, give or take, maybe five plus years ago, we were in the state of real estate 2.0 where the relationship had evolved to something a little bit sophisticated, a little bit more operationally efficient. Sustainability was a key trend, that was very important for all tenants. You might have a concierge in your premium buildings, amenities like end-of-trip facilities, you might have a cafe and basic services but that was it and everyone's happy, that's all they were expecting.
Where we're at now is actually what we call 3.0 which is a more sophisticated market. Tenants today expect that they're landlords are actually invested in community engagement and customer experience managers. Which means curating a whole list of services from technology, to wellness, to a community which has come a really long way from just a security guard in the lobby.
If I went back in time and told a landlord ten years ago here in Australia that this is what your tenants are going to expect, they would say 'no way! That is not what we deliver, that is not our responsibility, it's the companies responsibility, it's the tenant's responsibility to deliver those things'. You know what, ten years ago they would be correct because that was the market. It's now evolved greatly and in fact, this revolution of mindset and philosophy in property management has taken root right here in Australia. Australia is beating the world in adopting this philosophy. Almost every [major commercial] real estate landlord in Australia has adopted this philosophy and are executing on it.
I only have five minutes left so I'm going to go through one case study. This is Dexus, we work with Dexus, they are a commercial landlord. Dexus has transformed dramatically in the last 30 years into a consumer, customer-focused experience led style of property management. We work with them on their customer-facing branch which they launched, two or three years ago, Workspace Dexus. This platform is an application, online and offline, where their occupants get access to a whole host of services, everything from food and beverage delivery, flexible parking, childcare and dry cleaning.
They just launched their own Wellplace program, again this is the landlord doing this. Available to all occupants, where they can sign up to yoga classes, marketing executed those yoga classes on empty floors of the building, utilizing vacant space. They had experiences regularly such as community speakers and I believe they got ideas from different occupants. They launched flexible office products, like Dexus Place and Suite X.
The end result of all this, this value from the platform, is that 40,000 of their occupants to signed up with the platform. Again the end goal and the greatest result of that is the data. Dexus isn't alone in this, like I said, Australia is leading the way globally but almost every Australian REIT is now adopting this philosophy to different degrees. Investa, for example, has launched “Insite by Investa” which is their customer experience platform, offering a whole host of services and value to occupants that you wouldn’t traditionally expect from a landlord. In the UK and the US they are lagging behind a little bit but it's picking up. We've got Knight Frank, Lendlease and M&G in the UK now adopting this philosophy. In the US, it's just started but the bottom line is that this adoption is accelerating globally.
The actual tangible advantage of having this platform is quite a large brain shift. As I alluded to along the line if you have a database, you can actually communicate to everyone in your portfolio, rather than one person at the company. Which means you can actually better influence everyone from C-suites [CEO, CTO etc.] to EAs and PAs to everyday workers, with your messages in order to understand what the problems are in the building, react on them and fix them. You have a better chance of retaining your tenants in your buildings which is the ultimate goal of real estate.
Number two, communication is amplified because you're talking to everyone in your building. You have some clients that are cut-through, 90% of their whole building is on one platform, that makes it more efficient. There are still some landlords today that use snail mail and letters to send messages. Now that it's all digital, on one platform making it more efficient. Obviously increasing brand awareness, not only as a landlord but also the products and services you can cross-sell which allows you to create revenue again, multiply your revenue per square meter.
Lastly, customer satisfaction is increased because you’re addressing the problems and issues in the building more effectively. For example, back to Dexus' example, they actually used the data from the database to understand that our occupants really want health and wellness, and that's why they launched the Wellplace. They are able to mitigate the risks that traditionally, you wouldn't have data to mitigate the risks of these huge investments in programs.
Lastly, the actual workplace experience is vastly improved, from the first day they move in, because everything digital, it's all in one pack. Then their ongoing engagement is now refined, they're interacting with the brand every day.
That's a crash course guys, in conclusion, there's been a massive change in real estate, in terms of what tenants expect from their landlords. If you're a Proptech service provider here in the room today, and you can improve any of these characteristics then you're going to be in good stead because you're going to be needed. Landlords are going to be customer focused, they need to be tech-enabled, they need to have vision, experiences and services, they need to be community creators and coordinate strategy, they need to offer different flexible space options and they need to have a brand and a data driven platform.
It's going to be a fascinating ride but in the next five to ten years, we're going to see landlords evolve from B2B brands to B2C brands competing with each other on experience and service much like airlines to win customer advocacy and loyalty. I just wanted to close on this quote, it kind of summarizes everything I've just talked about. “The real estate business as we know it, has changed significantly and is no longer just about real estate.”.
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