The real estate industry is a sector known for its reliability, consistency, low volatility and as being an inflation hedge. Those who may take a more negative view on the traditions of real estate may say that the last great initiative in the sector was the invention of the brick.
But almost every legacy industry is now facing disruption. The taxi industry, media and retail are among those facing significant challenges to their well-established and proven business models.
To suggest the real estate industry will not be subject to disruption is ignoring reality.
As Australia’s oldest REIT, GPT has for several years been considering how disruption may occur and the most appropriate way it should respond.
More than four years ago, we were the first Australian REIT to start using an Activity Based Workplace (ABW) in our head office in Sydney’s MLC Centre.
Our Victorian office in Melbourne Central Tower moved to an ABW format in 2013, and started sharing space with other occupants in the building and the general public in a café that was opened on the floor it occupies.
All the while we have remained focused on driving the performance of our real estate.
GPT conducted research with the CSIRO in 2012 on the key megatrends that would impact the property sector in the future. One trend we identified was the forecast growth in demand for co-working or shared workspaces. We saw the growing influence of digital and online technologies and how they have been changing how offices are being used as workers have greater ability to work remotely and flexibly. The growth of the freelance economy is also helping drive the growth in flexible office and co-working spaces.
We have tested our theories against third party research. Examples include a recent Committee for Economic Development (CEDA) report that has predicted technological changes could result in 40 per cent of existing Australian jobs being obsolete within the next 10 to 15 years. Changes that will see the emergence of a more flexible labour market – with full-time jobs being replaced by more freelancing and contracting roles.
It is likely a larger segment of the white-collar workforce will work part-time for several companies at the same time or do a series of short full-time assignments for different companies each year.
All these trends will support the growth of co-working.
In response to our Megatrends work with CSIRO, GPT also identified the importance of innovation in our business.
Over the past two years, GPT has focused on ensuring our customers, shoppers and occupants are digitally connected within our assets. These foundations have included new mobile enabled websites, databases, social media and the implementation of a high quality free Wi-Fi network. These foundations will allow us to leverage on the new sensory devices, new gadgets and new software of the future. There has also been a significant focus on the use of data to make more informed decisions for the business.
The growth of co-working
Since the industrial revolution, workplaces have been where the tools required for work have been located. Up until recently, a major reason for the existence of offices has been because our ‘tools’, such as IT systems and files, were located there. The shift that is now taking place is that workplaces no longer need to be the location of our ‘tools’ and instead are increasingly viewed as places of personal interaction and collaboration.
The initial growth in co-working was aided by technologies such as Cloud computing, mobile devices and Wi-Fi that enabled people to work away from their office or home. Co-working evolved on the back of the trend for people to start working on their laptops or mobile devices in public places (or Third Spaces as they are known) such as cafés, the lobbies of an office building or train stations.
Then as an increasing number of industries themselves were disrupted by the advent of digital technology, which was then accelerated by the global financial crisis, the growth in co-working (particularly in the US and Europe) was fueled by the large numbers of people leaving full-time employment to become independent contractors.
In 2013, there were 2500 co-working facilities worldwide with 200,000 members. It is forecast this will grow to 12,000 co-working spaces and more than a million members by 2018.
Since launching Space&Co 16 months ago, some of the trends we identified in our Megatrends report have been already been confirmed, such as the strong demand we are experiencing in Melbourne Central from freelancers and start-ups for deskspace.
But we have also seen strong demand from our existing office tenants in Melbourne Central Tower, such as the NBN and Greenland, who have needed extra space as their businesses have evolved. More than half of the co-working space is actually rented out by long-term tenants in the building.
We are also seeing opportunities such as our recently opened Space&Co here in Brisbane being a result of one of our major tenants in One One Eagle Street, the law-firm Gadens, approaching us.
Space & Co. provides a flexible solution for Gadens to monetise underutilised space.
So, rather than just being a product of freelancers not wanting to work from home, there are signs co-working can offer companies flexibility in how they use office space in line with the flexibilities they require from their workforces.
There is potential for co-working to provide companies comfort by allowing them to contract or expand with the economic cycles when they take out long-term leases on prime CBD office space.
It also offers short-term solutions when companies need to flex up their workforces on a temporary basis.
The continued emergence of tech-savvy freelancers and existing customers seeking flexible workspace options is leading this growth.
As the oldest AREIT, GPT faces the challenge of being an incumbent in a traditional, legacy industry. The likelihood of disruption is high and we are taking a proactive approach in ensuring that when the disruption occurs we are best placed to adapt and embrace this disruption to GPT’s advantage.
Our investment in initiatives such as Space & Co is a clear examples of this.
GPT Head of Asset Management and LiquidSpace board member Matt Faddy. Presentation to CCRE Breakfast, Brisbane, September 15, 2015.