State of CRE Innovation: Q1 2019

The Bureau team surveyed landlords and brokers to find out how technology is changing the game in commercial real estate. Here's what we learned.

Commercial real estate is changing fast. Until about a decade ago, this wasn’t true. Startups had made tremendous inroads into all kinds of industries, but they left commercial real estate alone—daunted by an industry defined by large and complex transactions, long sales cycles and relationship-driven customer acquisition.

Then WeWork came along in 2010. Since then, startups have arrived to address nearly every aspect of the landlord, broker and tenant experience—from flexible office space providers, deal management and tech-powered brokerage services, to virtual reality, project management and design. Incumbents are getting into the game too: landlords and brokers are investing in startups and launching new ventures of their own.

The Bureau State of CRE Innovation Report: Q1 2019

Here’s what is clear in 2019: we’re in the early innings of a new era in commercial real estate. But we’re missing data that quantifies technology’s impact on commercial real estate. How do startup competitors impact landlords and brokers? To what extent do changing expectations around flexibility and user experience affect tenant preferences and decisions?

That’s why we’re launching the Bureau State of CRE Innovation report. Every three months, we’ll survey landlords and brokers to understand how technology is changing the game in commercial real estate. Take a look at what we asked, and what we learned.

Data

To generate our inaugural report, we surveyed twenty-five landlords and brokers across major North American metros on the eastern seaboard. A few notes on our sample:

• 60% of respondents were brokers, and 40% were landlords
• 80% of our landlord sample managed more than 2M square feet of space
• 70% of our broker sample represented more than 200K square feet of leases in 2018
• 55% of our broker sample represented landlord transactions, and all of our brokers represented tenant transactions

We sourced our sample through social media outreach and our networks in commercial real estate, which means our respondents likely skew younger than average for the industry. In future iterations of this survey, we plan to reach out more broadly to brokers and landlords beyond our networks and the east coast.

Key Takeaways

Our key takeaways from the survey are summarized in the graphic below:

Landlords

In general, the landlords we surveyed remain confident about their role in the current CRE landscape, although they’ve observed with interest as tenant preferences change fast around flexibility:

• Landlords rated the role real estate technology plays in day-to-day operations a 6.8/10, indicating the rapid penetration of tech in this industry over the past few years.
• 80% of the landlords we surveyed experienced an increased dependence on real estate technology in the past year.
• When asked how large of a threat flexible work companies are to the office landlord business over the next five years, landlords averaged 3.8 on a scale from 1-10.
• They’re not too concerned about WeWork and co, perhaps because 20% of the landlords in our sample have plans to roll out a flexible work platform of their own.
• Landlords noted that smaller clients (under 10K sq ft) care a lot (6.6/10) whether their space can come pre-furnished, but enterprise clients (>50K sq ft) don’t care (0.8/10) much at all.
• 80% of landlords said tenants were requesting more or significantly more flexibility in the past year, from shorter terms to pre-furnishing.

Brokers

The brokers we surveyed don’t think technology matters quite as much in the day-to-day as landlords, but are more worried about the overall impact of flexible space providers on their business:

• Brokers rated the role real estate technology plays in day-to-day operations a 5.8/10, less than landlords.
• 77% of the landlords we surveyed experienced an increased dependence on real estate technology in the past year.
• When asked how large of a threat flexible work companies are to the broker business over the next five years, brokers averaged 6.2 on a scale from 1-10, demonstrating significantly more concern than landlords.
• Brokers concurred with landlords that smaller clients (<10K sq ft) care (6.2/10) whether their space can come pre-furnished, and they agree that enterprise clients (>50K sq ft) don’t care (1.2/10) much at all.
• 100% of brokers said tenants were requesting more or significantly more flexibility in the past year, from shorter terms to pre-furnishing.

Conclusion: The Party's Just Getting Started

Learning about the importance of turn-key availability for smaller tenants confirms an intuition we've had for a while: after all, WeWork, Knotel, Spacious and co-working alternatives provide growing companies with plenty of choice when it comes to finding convenient office space.

But we were more surprised by the near-complete consensus (92%) that tenants of all kinds are expressing a desire for more or significantly more flexibility in their lease tems when compared to the year before, as well as the fact that brokers are more concerned about WeWork and flexible work businesses than landlords.

In any case, this survey shows that while landlords and brokers are deeply considering the role of technology in the future of their businesses, the real party is just getting started. We'll be especially interested to see whether more brokers and landlords decide to pre-furnish spaces or launch their own flexible platforms over the next year. Stay tuned for those results in our next survey, as well as a longer publication on technology and the future of commercial real estate that's coming soon.