Commercial Real Estate // 4 Great Change Contributors a Decade Later

Commercial Real Estate // 4 Change Contributors a Decade Later

From design to the way people interact with it, and the way landlords go about their business, fundamental change has come to the Commercial Real Estate sector over the last 10 years.

With the development of the lavish, flashy new apartment blocks that are still coming up daily in cities like Nairobi, apartments might have been the darling of the CRE buoyant market, but there’s no doubt that the office space has changed even more over the decade.

For the longest time office spaces were sterile places of business, dull, filled with desks and chairs, maybe a printer or two, full stop. Offices also existed solely as places of business.

Now the modern office encompasses much more expanding to emphasize worker collaboration, hospitality, technology to link the workplace with everyplace else, and an increase in creative amenities.

No sole factor is responsible for the change, instead of the shift to new ideas from the large new workforce about what work should be, and the significant advances in communications technology.

Interestingly there no single social or economic factor drove the change. Instead, it was the dynamic interplay of new ideas about what work should be, a large new generation of workers, and advancing communications technology.

And in the same decade, a new industry was gained more force, coworking, making it the permanent fixture in the office market. So, what has really driven the changes in the Commercial Real Estate space in the last decade?

Workplace Trends

Staying within the office markets, it’s apparent that the who, what, where, when, and how of working has evolved over the last 10 years.

Open floor plans became all the rage as employers wanted space efficiencies and employees wanted more flexibility in their workspaces.

Shared offices and short-term leasing became community-focused and collaboration-driven. Hoteling has also become popular as flexible work schedules and work-from-home opportunities have reduced the need for permanent workspaces.

As a result, the average Square Foot per worker has dropped 8.3% from 2009-2018 – reaching 194 square feet. Demand for this type of space in Africa and globally has also grown resulting in the growth of amenity offerings from landlords.

Growth of coworking spaces

The reinvention of office space also led way to explosive growth in the coworking sector and this has had a great impact on the Commercial Real Estate space in the last 10 or so years.

According to Global stats as of Q2 2020, the coworking footprint nearly doubled since 2017 to reach 86.0 million square feet (msf) and over a million people work from the coworking spaces.

Globally, the number of coworking spaces has grown exponentially in the last 10+ years and the major players have all shifted over time, with WeWork, Industrious, Spaces, and Knotel as major operators today. In Africa also the number of coworking spaces has grown thanks to the proliferation of startups.

In Africa, as of 2013, there were only 11 coworking spaces accounting for about 1% of the global market space however a decade later the numbers have grown to reach close to 500. Some leading coworking spaces in Africa include Workstation in Nigeria, Nairobi Garage in Kenya, and Impact Hub in Ghana.

While companies came to coworking for its flexibility, they are staying for the experiences it provides.

Coworking has essentially revolutionized the way people work, and the benefits of coworking have had a far-reaching impact on the future of work as employees began to expect a beautifully designed office, community, activities, and other benefits as the standard in their workplace.

Proptech comes to age

Proptech is an innovative approach to real estate in which technology optimizes the way people research, rent, buy, sell, and manage a property. with new tech introduced during the 2010s to do a lot of different things.

Traditionally, commercial real estate has been slow to adapt to change and technology. Property technology, or PropTech, has had a big impact on CRE in the decade.

From the micro-level (replacing a keycard with an app to access a building) to the macro (creating an entire blockchain to enable the viewing of properties and subsequent secure exchange of contracts), it’s had a truly disruptive effect on an industry that wasn’t known as an early adopter of smart tech. Such are the changes in CRE, however, that it wasn’t going to be long before technology caught up.

However, the industry has noticeably shifted in recent years and now the market has more proptech companies than ever looking to improve, advance, and move the commercial real estate industry into a new era – focusing on data, listings, financing, the built world, etc.

For instance, Robotic process automation is doing CRE’s repetitive tasks and blockchain has a number of applications in real estate. Apartment buildings are embedding smart technologies, exemplified by Amazon’s move to insert itself into residential spaces by teaming up with Realogy in 2019.

PropTech is changing how office tenants experience their workspaces, even down to HVAC systems control and replacing security badges with less cumbersome, smartphone-oriented entry systems.

PropTech companies also had away from going from zero to disrupting parts of CRE during the decade. For instance, Kenyan prop-tech startup Obodo launched a pilot product that is a property management tool for real estate agents and individual landlords to help them easily and affordably manage their rental units.

The platform – which is called Kijiji and was founded by James Muriuki, Skitah Wambui, and Mark Muita – will also allow Obodo to better understand tenants, their needs, behaviors, and expectations, as it prepares for future launches.

Another company disrupting the space is 14 Trees, which is also our member at Nairobi Garage Karen, who recently pioneered a 3D printing technology in Africa for affordable housing and schools with its pioneering project being in Malawi.

Investment in PropTech also ballooned: During the second half of 2019, venture capital funding into PropTech firms totaled $12.9B, more than the entire year of 2017, when the total was $12.7B, according to CREtech data. Back in 2011, the total investment in PropTech was $320M.

As the proptech world continues to evolve, we will likely see some consolidation in the marketplace. But overall, technology is here to stay.

Shifting Demographics

This theme is one of the most important drivers of many key trends that occurred in CRE during the last 10 years. The aging Baby Boomer population is the “demographic cliff” that will impact the working-age population base and ultimately the demand for commercial real estate.

On the other end of the spectrum, Millennials are the generation we can’t stop talking about. Discussions around millennials and their wants and needs have become ubiquitous in the real estate industry over the last 10 years.

They now comprise the largest generation in the workplace globally and are influencing housing, work-life balance, workplace trends, etc. It’s safe to say that the rise of the Millennials has been one of the most impactful events of the last decade.

The last 10 years in commercial real estate have proved to be among the most transformative the industry has ever seen.

And as the biggest real-estate prediction in the 2020s – that of flex space – shows no signs of slowing down anytime soon, we can expect to see technology deal with even more “pain points” suffered by the industry. Just like the Fourth Industrial Revolution that has revolutionized work culture, PropTech has revolutionized the industry that supports it too.

The growth in the commercial real estate market is set to continue to evolve as we move through the next decade as we will likely see another recession (or two), several political leadership changes, and continued advancements in technology.