Real estate is the embodiment of the tangible. Its substance gives us a sense of security and durability, and this applies to both private residential and commercial real estate. Yet the real estate industry is ultimately based on services – more specifically, the temporary provision of space for a fee. Real estate as a product is, therefore, only a means to an end for the creation of value or consumption made possible on the space available. In the past, it used to be sufficient to perceive real estate as a tangible good if the requirements of the users were very similar and remained stable over a relatively long period. But there is much to suggest that this perspective will no longer adequately meet the challenges facing the real estate industry (especially the commercial sector) in the decades ahead. Many commercial real estate users currently find themselves in a market environment that is uncertain, changing rapidly, demanding a fast shift in focus. While cost discipline will continue to be a necessary condition for the business success of real estate users, it will no longer be sufficient if cost savings have to be made at the expense of flexibility.
In the past, the main service delivered by the real estate industry was adequately summed up by the tangible product: “area in square meters”. But it has become apparent in recent years that customers have new requirements: risk assumption, flexibility, support in the core business by taking on tasks and perhaps also consumer benefits. This trend is unlikely to be reversed and maybe even amplified by the corona-crisis. The trend towards co-formats reflects nothing more than a need for maturity transformation and risk assumption. The real estate company will then evolve into a “space” bank, and just as a bank conducts thorough customer analysis as its risk management, so too must real estate companies learn to do the same.
Data vanishes into thin air unused
Therefore, the real estate sector must shift from thinking in terms of product to focusing on services. The elementary defining characteristic of most services is that the customer is directly involved in the creation of goods. Self-referencing, dedicated real estate conferences do not help to realise this integration.
This change of perspective will allow the real estate sector to learn from both the automotive industry and the IT sector. In recent decades, automotive companies have not only realised the concept of mass individualisation, but have also developed the financing and maintenance of vehicles into their own business segments. The car itself often appears affordable, the services do not. The information and communication companies have perfected this to the point where they offer customers a core product, the “smartphone”, with all its great apps, but have ultimately developed new business models based on the data that is supposedly collected in passing. Data is not the new oil; it is much better than that because it cannot be consumed, but rather gains in value through intensive use. There is an incredible volume of data generated in buildings, which, like most of the sun’s rays, simply vanishes into thin air unused.
A crowded marketplace, but it won’t last long
At first glance, it is reasonable to assume that the large number of possible services will also generate many new niche providers. The lively buzz among prop-tech companies is indicative of this. This is possible in the short term, but is unlikely is to be sustained a game for niche players. Both the banking sector (maturity transformation and risk assumption) and the IT sector (data as a business model) and the automotive industry (mass individualisation) have seen the emergence of massive economies of scale that have led to high sector concentration. A few large corporations retain a host of small, dependent suppliers. This development is also likely to be linked to the notion of “real estate as a service”. This does not have to go as far as in the sectors mentioned, but the direction should be similar.
But with all this recommended learning, we should not ignore the fact that the factors outlined above probably only apply to one segment in the residential sector. In most of the housing market, customer understanding means recognising that housing is perceived as too expensive for many households. Perhaps this would mean learning less from Google or Apple and more from Aldi or Lidl. Or could housing be subsidised by the provision of data?
