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What ‘Space-As-A-Service’ Could Mean For The Future Of Real Estate

We’ve already seen how information, communication, goods, capital and transportation industries have been transformed by tech platforms — think Google, Facebook, Amazon, etc. The future of office and living space is being revolutionized by technology as well. Based on my work helping corporations innovate and reimagine their business for growth and scale, I expect the real estate industry’s transformation will be substantial.

I advise my clients that there are six technological developments that must change the way we conceptualize and monetize real estate.

1. The world is more connected. Private satellites are covering the earth, from SpaceX and OneWeb to Google, which is trying to connect over 4 billion people to the web by floating balloons 20-50 km off the ground. And 5G is being rolled out.

2. Intelligence is being democratized. Everything is becoming intelligent as a result of the cloud. It means that the average user now has access to all their data, anytime. They can experience unlimited computing power.

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3. The internet of things (IoT) is prevailing. Sensors can collect data about our physical space and use this to develop virtual reality and spatial planning tools for living and working spaces. We’ve seen examples of IoT applications for space with Nest (acquired by Google), eero, Sonos and Ring.

4. Our work/life distinctions are changing. The tech developments referenced above support a shift in the way we understand the traditional work/life distinction. Superior connection and computing power come hand-in-hand with the rise of the gig economy, freelancing and crowd-tasking. Workers no longer need to commute to offices to get the job done. As a result, employers have access to a geographically wider-reaching talent pool.

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5. Fewer brick-and-mortars are required. This as automation and artificial intelligence (AI) developments alter how we work and consume products and services.

6. The platform economy has emphasized a shift from products to services. And the way we understand ownership is changing. From ownership, we’re now seeing a shift to rentals. For example, you can catch an Uber instead of owning a car.

The Creation Of A New Business Model: Space As A Service

I predict these six tech developments are indicative of how the real estate business model will evolve. This new model will be founded on the notion of “space as a service.”

We’ve already seen space as a service play out with firms like Airbnb, Common, WeWork and Clutter. They decouple the services you expect from real estate asset ownership but still monetize the physical space.

For example, Clutter collects, moves and stores people’s belongings as a service. Its storage facilities are located in remote areas, which means they can store items at a far lower rate than traditional storage facilities based in inner-city locations. And because they rent the buildings in which they store, they do not own any physical assets. They are a real estate platform with a service, but they don’t own any real estate.

WeWork is another example. WeWork doesn’t own any office space. They sign leases, then pack their spaces with more customers (since a space as small as a single desk can be rented, this negates redundant spaces, which is commonly found with office spaces rented to a single client). And they can charge higher rates since they provide a unique service. The outcome? Massive profitability.

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Businesses that can reimagine real estate can prove to be highly profitable. Last year there was $267 billion of aggregate public and private enterprise value in real estate technology companies. Airbnb has been valued higher than all hotel companies at $30 billion. The largest public owner of office buildings in the U.S., Boston Properties, has been valued significantly lower than WeWork ($19 billion against $30 billion).

Real estate companies can learn from this model and reimagine opportunities ahead. The future of space lies in the clever servicing of it — not, it would seem, its ownership. To thrive in the future, I believe companies would be wise to learn to monetize space. Physical assets do not need to be purchased in these models, making them highly scalable and capital-efficient.

Source: Lital Marom

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