The Time Is Now To Empower Companies With Their Own Technology For Market Analysis And Site Selection
Jeff Goldman, COO and Co-Founder
Commercial real estate (CRE) is a 100-plus year-old industry that has largely remained unchanged in many aspects of its operation. There may even be a lack of alignment to create and provide CRE clients with tools and technology so that they may self-serve some of their needs. For far too long, the real estate industry has relied on manual processes, spreadsheets with static data, and outsourced (and expensive) expertise, which all adds up to an unnecessarily expensive, inefficient, uncollaborative, and slow process. Those in charge know it is broken, and unfortunately, there are few, if any, alternatives to the old way of doing business.
Quite simply, the systems people use today for real estate recommendations do not and cannot support the rapid and seemingly constant changes of today’s companies. With their unique requirements, and the need to evolve and transact in a digital world where decisions are made based on real-time, reliable, vetted and unique data, companies must demand this intelligence to make strategic decisions. The time is NOW to disrupt the industry and break the inertia.
But I’m getting ahead of myself. Before we delve into the challenges, let’s take a step back and look at how workplace planning and commercial real estate work together. First and foremost, a company that wishes to lease office space requires a broker to have a legally protected and enforceable contract. This transaction results in the brokers receiving a 6% commission — a windfall of tremendous amounts of money when the lease includes tens or even hundreds of thousands of square feet with term lengths that can exceed 10 to 15 years.
Therefore, it is no secret that the commission-based system that is at the heart of commercial real estate transactions can lend itself to an immediate bias — the larger the office space and the longer the lease term, the more money the brokers and brokerages make. Note: I know this firsthand. Before co-founding BeyondHQ, I was on the client-side of the CRE broker-client relationship, leading real estate and workplace operations at companies such as Segment, DocuSign, and User Testing. Although the potential conflict of interest was not present in the vast majority of the relationships I had with my CRE brokers and the many lease deals that were made, it had shown itself in a few.
Additionally, with so much money in play for the taking in the multi-trillion dollar CRE industry (companies expand, contract, distribute, relocate, etc. which involves architecture, construction, furniture procurement, moving, project management, etc.), many brokerages now offer consulting services, including site selection and market analysis. They are doing this for two key reasons:
- While many organizations looking to open offices in new markets don’t know where to start, typically, the key drivers behind site selection and market analysis are lowering costs and finding talent.
- With no user-driven technology or other tools to help those within an organization tasked to find new markets, they most often look to their CRE broker for help.
Again, I know this firsthand as the Head of Global Real Estate and Workplace for a number of organizations. In this role, I needed to identify new markets that could reduce our real estate costs and had the right and best candidates for the positions we required. For help, I would go to my broker who would refer me to his brokerage’s consultant specializing in site selection. However, I would have preferred to drive this analysis internally. Why? Because who would know best what we needed, when we needed it, and how much emphasis to put on any one factor. How you scale can make or break the momentum of a fast-growing company that is constantly changing and evolving, and in this area, I needed help with insights that I could not get internally.
What happens if the criteria changes? What if an internal decision-maker changes their mind on some of the criteria and wants to rerun the same report or craft a new one? What if the CFO wants to introduce new markets into consideration?
Location Planning and Commercial Real Estate — the “Old Way”
Let’s use the following example: a tech company with headquarters in San Francisco can no longer compete with other companies that offer higher salaries, greater equity, and better perks when hiring the best local talent. Yet, they still need to hire 50 engineers with a specific skillset over the next three years. This scenario often results in this tech company looking to find a new market where they can successfully hire for these open roles…that means they need to go to a new market. They go through a brokerage that brings in their internal consulting group to evaluate what the company is looking for. After two to three meetings, the brokerage submits a hard copy report that can take up to four months to pull together. In the report, they typically present the top 10 to 15 markets that match the company’s needs, and from there, the consultant helps cut down the potential markets to the top five. The average cost for this single report and service is roughly $75,000 (depending on the number and complexity of factors involved in the analysis).
So, not only is the old way expensive, but it also lacks collaboration and real-time analytics. For instance, what happens if the criteria changes? What if an internal decision-maker changes their mind on some of the criteria and wants to rerun the same report or craft a new one? What if the CFO wants to introduce new markets into consideration? In the old way of doing business, you would have to wait an additional amount of time and possibly pay an additional fee for this report to be completed.
The Need to Digitally Disrupt Commercial Real Estate
It’s time for this aspect of commercial real estate to be digitally disrupted. Virtually every industry has created and leveraged technology that allows the user to have a primary role in accomplishing whatever goal or objective they have defined. Whether it is researching stocks or legal opinions, evaluating the best interest rate for a loan or the best features for a new car, the user has been given technology to see and interact with data. Therefore, with regard to this aspect of CRE, it is not only essential, but fundamental to provide companies with a digitized tool that offers data transparency, real-time insights, the ability to collaborate, the opportunity to evaluate and compare an unlimited number of scenarios, and most importantly the right to drive this analysis and decision-making themselves.
This is particularly important in today’s workplace, where we see the walls between Real Estate & Workplace, HR, and Talent breaking down. Collaboration between these departments is essential now more than ever because of how much they complement one another and how deeply they are intertwined. “People & Places” is often the name of this business unit in many organizations today, yet there is no technology that allows these teams to effectively and successfully evaluate, collaborate and execute.
“We see the walls between Real Estate & Workplace, HR, and Talent breaking down.”
Additionally, over a year from the onset of Covid-19, companies and their employees are still adapting to the new way of working, and what we’re finding is that the hybrid work model is a continuing reality and not just a pandemic talking point. However, companies now have a chance to graduate away from the past year-long reactive approach. They now have a chance to be proactive and apply the lessons learned from their positive and negative experiences during the shelter-in-place directives. For instance, what did they learn about employee preferences, productivity, and efficiency, to name a few? What practical observations did they make regarding the best uses of their office space? There is an opportunity for the real estate function to not just be a cost or expense to the company, but possibly a profit driver.
With the recent insights we have gained on employee preferences and productivity, I believe that both hybrid work options as to how and when employees work and distributed workplace approaches as to where the work is being done, like the Hub-Spoke-Node model, will be adopted by more and more companies, even after the pandemic. For instance, we worked with one of the most well-known household services marketplace startups to help them with their future workplace planning. With our on-demand comparisons, the company’s key decision-makers were able to discover those markets that had the talent they are looking for, and run multiple scenarios involving different internal groups’ preferences. They now know what regions to target if they transition into a company where their employees do not need to come into the office every day. What’s even better, they know that they are now equipped with a decision-support platform for any subsequent changes in strategy and/or ongoing discussions on their footprint, for both their physical offices and their remote workforce.
Transparency, Real-Time Results, and Collaboration
With this new way of working, Real Estate, HR and Talent (and increasingly, Finance) need real-time, data-driven analysis and flexible “what if’’ planning scenarios. Our solution enables companies to do just that by digitizing the workforce AND location planning process. The BeyondHQ platform provides a transparent, collaborative, user-driven experience to:
- Create an inclusive, cross-organizational process that helps achieve consensus in a fast and well-informed way
- Provide unified decisions across talent, real estate, and location
- Return control over the decision-making process to those in-house, with the power to invite external parties as needed
- Provide independence from third-party black-box processes and those who may have a conflict of interest
Covid-19 has changed how CRE is seen and valued, and as a result, the “old way” of doing business needs to change. The industry must adapt, and to do that, they need to digitize.