Sweeping changes to CRE are coming in 2023. This isn’t a prediction piece, but rather a collection of observations and discussions we’ve been having that are gaining momentum. Discussions that will ultimately lead to budget inclusion for the balance of the year.
Generally speaking - it boils down to proving the existence of the office. Nearly three years post Covid, the trend of remote work isn’t proving to be a trend at all. With commuting alone, people have gained back 10 hours of their weekly time - a resource few recognized as valuable until the collective ‘cheese’ was moved. Work is shifting from a place to an activity - an activity that doesn’t require a specialized court from which to play.
Post-Covid founders are far savvier than their pre-pandemic counterparts. They’ve traded salaried positions, rich with benefits, and lunchrooms full of food for sweatpants and dogs. There’s no guaranteed income - at least not yet - and risk is a completely new concept to contemplate. There is no 9-5, no central office, no research team, no bosses boss, and no reports. Financial insights are now simple (and interesting) and brain waves are spent automating tasks and generating workflows. Feedback loops are tight, most time is spent listening to customers and exploring new technology to integrate into the process. The ridiculous tech stack is non-existent, meaning the days of disparate data and shitty APIs is behind us. Blank canvas engineering took technical debt and threw it out the window. All focus is on listening to customers, building, and solving. Gone is the burden of maintaining some tangled mess of shit someone else handed you after decades of bad decisions to figure it out and report it up. Nope.
Funding has changed - just like that. Because the new founder understands lopsided deals, the way these new businesses are coming to market is completely different. Traditional PE and VC deals are down - way down. Bloomberg is reporting that Goldman Sachs is set to lay off 3,200 this week. In that article (which is intentionally NOT linked because it’s behind the sacred garden of greed called a paywall) it states that M&A volume is down 37% and global investment banking plunged to $77B from $132.2B. This news coming off a historical high of activity. It might be time to pack up the vests. …..in 2023, Family Office will enter the chat.
Innovators aren’t building to service pre-pandemic needs - they’re reimagining the way things are done. We don’t have to look far to realize that workflows, distributed ledger, blockchain, and metaverse are front and center. Flexible office agreements, space as a service, and smart contracts (the future of lease) are impacting the traditional distribution models. Vendor disruption is real. Procurement is aware. Things have to change.
Simply put, the office will now need to prove its ROI.
We can run all sorts of figures - base rate plus load factor over the term. The expense of renting too much space and being subject to design-driven construction expenses. We can sprinkle in lease servicing expenses like a pro-rata share of LL’s improvements, bloated insurance requirements, taxes, and inefficient property management decisions. We can figure out our internal OpEx like rented business machines, exorbitant ISP costs for MPLS, and the crazy expense of hardware deployment, edge devices, and support service delivery. Heck, even running a pantry and a supply closet is getting out of hand with inflation.
The future is here. Models work. What if we could build an office that modeled these costs and allowed us to inform business units and executive leadership BEFORE long-term commitments were made? An employee-first model that collects on-prem signals and informs Ux activity to make better decisions. Imagine if we built this once and had the ability to scale the model indefinitely. What if we had OfficeGPT that could generate smart answers to thoughtful questions - what if we had the ability to annunciate these smart questions?