Workplace as a Service

Joe Du Bey: The Experience Era - Sweeping Major Industries in the US

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Joe Du Bey, CEO of Eden helps navigate The Experience Era and how the nature of experiences are transforming industries across the US. This talk showcases how different demographics of people value experiences and how that value is fundamentally shifting the business of entire industries. With real estate taking center stage, Du Bey brings forth examples from industries such as fitness, music, retail, coffee, enterprise offices & more.


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Joe Du Bey, CEO, Eden

WEBSITE | TWITTER | LINKEDIN

 

VIDEO TRANSCRIPT:

Hey my name is Joe Du Bey and I'm going to talk today about the experience era and how it's affecting commercial real estate. So what is the experience era? The main thing to take away is that the world is changing. It went from before being where it was something that you know you served any one industry and maybe sold a specific product and service. Today we're all actually in the experience business to think about commercial real estate today versus what's going to happen. It's a largely offline world. And that's it's something that is focused on the space and less on the people and the experience of them.

And that's something that's about to dramatically change. So what is causing the experience era in one word millennials today. Millennials are the biggest cohort of any population. This is a really substantial shift. And this is something that is affecting the preferences of the workforce itself. And the reason why that's so is because millennials are different. They actually value experiences over products. And this is a critical thing to understand once this is grasped. It all starts to make sense.

But the majority of one else would rather spend money on an experience than a thing. They're wired differently even when it comes to work. The majority of millennials would take less money. If they're able to have a better experience at the office if they felt the experience reflected themselves. In contrast in case you don't think that's different. Only 9 percent of baby boomers would do the same. They are wired a bit differently and we need to adjust to their preferences. So what makes something fit the experience area we've discovered there are six hallmarks to this new time.

Specifically you can see involves enabling technology. It's at least made more efficient through technology. Any one of the major experiences that consumers in enterprises are going through in the experience area users are empowered they have voice they're able to customize their experience. This is critical. It shows up in amenities. It shows up in services inexperience error people care about community and they're building community around these experiences that were previously about a service or product. It's really the community that wrap around it. Things have meaning. It's not just about the coffee for instance it's about why it's ethical inexperience era quality matters a lot especially because these millennials are investing in the experience so it makes sense that their since they're shifting money to that they'll care more about the quality of it.

And the last thing is design inexperience error. You'll notice that if it starts to feel to you like more and more things look like the inside of an Apple store it's because more more things do look like the inside of an Apple store. Millennials care a lot about design and it's showing up everywhere. So let's talk about a few industries and how they've been transformed already in the US. There's the music scene if you remember from 20 years ago when you show up to a concert there were a few people playing music and that's what a concert was. Now when you go to a music event it's really much more about the experience. You walk in and it's a crowd of people who are seeking like minded folks.

It's immersive. There are lights there's artisanal food. Yes someone's playing music somewhere but that's not actually the primary thing. You might take away from being at a music event these days and is popping up across the US. Now let's talk about retail. When you used to go to a mattress store it was a roomful of bunch of mattresses. Now you go in and it's actually limited minority might be a mattress. We're walking into is a place that's beautifully designed full of narrative really speaks to millennials. When you used to walk to a gym it was a place full of heavy weights. Now it's if you walk just like Soul Cycle what Barry's Bootcamp.

It's a group of people who are building community. They might feel even you might send something almost religious around the dedication to this specific group. This room and it's beautifully designed. If you think about consumer coffee it's again something where you know it's the kind of thing where people use to go and literally just get coffee from a diner. Now it's a beautifully designed room. Starbucks even calls itself your third place. Recognizing that there is a different kind of feeling that comes in to a coffee shop today and now you can start to see it in commercial real estate just that just starting to.

And that's something because in the past it was really a place where you got work done. If you look at this market leaders Historical Office now with Google there's a climbing wall. They care about customization choice services and they know this is critical for them to actually hire the very best talent. And what is an overheated talent war. The thing to keep in mind is that 99 percent of commercial real estate is offline. This is just starting to happen. And over the next couple of years you'll feel this in a really big way. This beginning it's experience matters because in the first couple of years whenever there's a tectonic shift those who adapt early those are the ones who get to have outsized influence and kind of pain in the future whereas we fast forward or in five years.

The folks who haven't become the laggards they're the ones who threaten the actual performance of whatever their underlying asset is. How will this change commercial real estate. What tactically do you need to do to enter the experience era. Well specifically think about your building across a bunch different dimensions. A big primary one is how do you think about lease terms. It's something where in the future people want to have duration of lease that reflects their actual needs which isn't decreasingly two to 10 years and much more let's say nimble outside of that space controls today it's something where people have almost no control almost no voice that is changing rapidly through technology email to enter from from accessing the building itself to requesting services.

You can now actually have control over almost anything. Tenant feedback historically ignored with a landlord or building and you're really thinking of it places us as a space as opposed to thinking of the people inside of it as customers in the future and experience first building. It actually solicits feedback. It cares how its customers are doing outside of that the brand of the building itself. This is something that's critical in the past people might not even know really what kind of building they're in who the owner is who's managing it. The future is a much more white labeled experience where the building itself has a brand that people care about outside of that something that's really critical is what do you provide in terms of services.

In the past nothing going forward amenity rich people should be able to get any kind of service they want from food to any sort of wellness and like yoga or whatever they might want they need to be able to access through their building. And the final one community. Right now buildings are a missed opportunity everyone in it could feel something. It could build loyalty. Instead today it's mostly a box that has no connectivity the experience era has arrived and there's no turning back at this point.

Over the next couple of years everything will change. Commercial real estate and it will no longer be about the space it's providing an experience with space attached. Eden is ushering that in for all of the commercial key stakeholders from the occupiers and the companies to the landlords and the property managers and we're enabling you to provide an experience first building for your tenants

 


Jamie Hodari: A Better Way to Workplace as a Service (WaaS)

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Jamie Hodari, CEO of workplace provider Industrious, describes the latest office strategy: Workplace as a Service (Waas).


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Jamie Hodari, CEO & Co-Founder, Industrious

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VIDEO TRANSCRIPT:

My name is Jamie Hodari, I run a company called Industrious. We're the largest premium workplace provider in the country so we're in about 35 cities and launching three or four units a month. Within that context I wanted to talk a little bit about what our industry actually is and then to talk about risk in our business. So when we started our business, in those initial sort of pitch meetings, all anybody wanted to talk about is coworking the real deal and how long is it going to be around for or is it just a trend? And I think at this point that's really receded but people do want to know. Okay I believe it's here to stay.

I know that adoption is growing really quickly but how risky is it? And so I wanted to focus a little bit on that and then in particular what landlords can do to take advantage of the rapid rise in adoption of this product category and in a way that mitigates risk. So what is our business? Here's the truth about workplace as a service, it is in large sense an outsourcing business. So when we started the business the premise at the time was that the white space in the coworking industry was for a more professional, more elegant product and that was true and I think that remains true to this day.

About a year in we had a customer, a large Silicon Valley firm that was growing out of one of our spaces and they approached us and said, hey we actually really need your help. Would you be willing to build out our headquarters in Chicago for us, we think that you'll deliver a better product than if we did it ourselves.

And in that moment I think my Co-Founder and I had sort of a light bulb moment where he said this is an outsourcing industry. This is basically where a large sophisticated company is taking a major cost line non-core complex out of their business and handing it off to a third party. And the observation is that in a lot of outsourcing industries, they kind of exist as niches for decades. So if you think about manufacturing outsourcing that was around in the 70s and the 80s as 1% of the market, your factories are overloaded so you use an outsourced manufacturer in data storage. You've run out of server space, so you outsource some portion of your data storage. Until someday when you see this rapid rise in adoption, and in a lot of outsourcing industries it goes from 1% to 5% to 50% in data storage. 95% adoption, and the question is what causes that rise in adoption?

For us it's clear that in most outsourcing industries it's the moment when someone can walk in your door and say I can do this better than if you did it yourself. So I can manufacture the iPhone more efficiently, more effectively, with less errors than if Apple did it. I can store your data more effectively with less downtime, fewer service interruptions than when you hosted on your own servers and we've basically spent five years trying to cross that exact threshold to be able to walk into Johnson & Johnson's Head of Workplace's office or Pinterest or Twitter or Spotify or Bank of America and say we are going to deliver a better workplace experience to your employees. You're going to have happier, more engaged, more productive employees if you let us deliver your workplace experience for you rather than if you do it yourself.

I think about a year and a half ago Industrious and a few other providers were actually able to start crossing that threshold. And that's why when you look at our business and you say what's going on here? Why is this cropping up everywhere? Why are large enterprise customers starting to really crank up their adoption? It's because like a lot of outsourcing industries it's also addictive once you started doing it and you see that you get a better outcome. It's really hard to go back to doing it yourself. So that would be kind of my framework for where we are today.

I don't want to oversell it. I think for small businesses and teams of 20 and below that ship has sailed. You're going to be in some sort of outsource setting. For larger teams from big businesses, I think we're in the experimental phase. If you look at most big Fortune 500 hundreds they're doing one or two major experiments with putting a team of 200, 300, 400 people in an outsourced setting and they're testing, how happy are my employees? How many people quit in an 18 month period. They're taking stock and a lot of those companies are coming to the end of that experimental period and I think, look I'm biased here but I think most of them are coming to the conclusion that they actually did get a better outcome and they're now starting the wave of really pushing adoption, at least outside of their headquarters, moving a lot of their workforce portfolio to a third party setting. So the question I think at hand is what does that mean for landlords?

This is, I think, very clearly becoming the most important amenity in a building. Meaning, Ernst and Young comes with a 300,000 square foot lease in a building and they're trying to decide if they're going to be in you know Columbus Circle or the building three blocks south of here. And it matters if the gym is nice, and it matters if there's a roof deck, but really if you can say look, I have four floors of the building that are dedicated to highly serviced flexible space that you can grow your team into, that really is an amenity that moves the needle on how corporate occupiers are deciding where to go. We're in the building already having whisky tasting classes and lectures and a highly serviced sort of amenity base and we're able to deliver that to the entire tenant base of the building not just to the flexible workplace customers and you find that increasingly are saying I really want this in my building but this feels risky.

What I will say is the knock on our business, which is that it is a mismatch of long-term liabilities and short-term asset, and I think if you talk to any coworking skeptic that's the first thing they will point to is a very valid criticism of our business. I think people bend over backwards in our business to try to say it's not true and here's why it's not true and you don't have to worry about that. The reality is, it is true. I think as our business becomes an increasingly large part of the commercial real estate industry more broadly, that's a problem because you're amassing a lot of risk and we think there's a better way to do this. So this would be an exhaustive sort of you know revenue of a coworking operator over various ups and downs, various cycles and it probably looks a lot like other revenue management businesses which is to say you know if you look at lodging over the last eight recessions there tends to be a 15% swing in revenue. If you look at Regus, which is comparable to the different businesses in the last recession in North America where they have twelve hundred units they saw about an 11% reduction in revenue at the unit level. That's not that risky of a business within the framework of most industries. I think that's a relatively reasonable risk profile.

The problem is when you put a lease underneath that, it's basically like putting leverage on our business. It's like if you put debt on your house and you get all of the upside from appreciation and you're underwater immediately if you go below the loan amount. What it does is creates these wild swings in profitability for coworking providers where in good years they're printing money and in bad years they're in the red. And the problem for landlords is if you look at a WeWork, Industrious or any other coworking provider and this is brutally honest, they will put money into a unit for 3-7 months perhaps if it's losing money in a recession but they're not going to forever. It means the landlord is bearing a lot of the downside risk and participating in none of the upside risk.

We believe very strongly that it's time for our industry to start shifting over to the model of the hotel industry where coworking providers and workplace service providers partner with landlords. They program the whole building, they have coworking floors of essentially custom suites for teams of 20 to 400, and you do that in a profit sharing arrangement rather than on top of a fixed lease. This is something that doesn't sound that cutting edge but it's at the very forefront of the industry right now.

This Reuters article from I think four days ago is the first time I've seen a major publication talk about the fact that providers like us are starting to move to management contracts. It's happening very quickly. So for Industrious for example, a year ago 95% of our pipeline was arm's length leases and 5% were partnerships with landlords. It's now about 75% partnerships with landlords and I really think this is not just about Industrious. This is something that's going to turn our industry into a more sustainable, safer business. That large occupiers can really use with peace of mind that it's not going anywhere and that landlords can take advantage of without taking on undue risk.

This for example is a project we just announced with Blackstone in Los Angeles to manage an entire campus of buildings for them under a profit sharing arrangement where we're managing coworking or managing custom suites and also all of the building common amenities. So let's say your the landlord and you decide, this makes sense, I do think I want to partner up with a provider under a sort of management or partnership arrangement. And then you've got to really dig in on who you're going to partner with because more so than an arm's length lease scenario, you're really shoulder to shoulder with that operator.

I'll go very quickly through some of the ways in which a landlord should approach this question.

So first what is the quality of the provider to go back to the earlier point. The name of the game in this business is to walk in the door of Pandora's Head of Workplace and say, we can deliver as good or better of a workplace experience than when you do it yourself. That's a high bar to cross and it's very important when you're working with your workplace-as-a-service provider, to be working with a quality provider that can actually make that pitch. Here's some images of industrial cities across the country. Increasingly it's a relationship business where the coworking provider, whether it's WeWork or Industrious, is working directly with the occupier. So it's important to be working with one that already has a series of existing relationships with those occupiers to start to deploy more and more of their workplace portfolio across the country.

The next is what is the profile of the actual people to walk into work everyday? Some buildings want a very young engineering-heavy sort of workplace, some want more mature, broad national businesses and there's no wrong answer to it but it's worth thinking for your building about matching the type of workplace provider you're bringing in, with the general brand tone of the building.

The next is, and I do think this is quite important, you need a national provider. So this is true for a Johnson & Johnson, they're looking for one or two providers to do 7, 8 markets with and it becomes increasingly hard for single point local providers to compete. So that's part of why you're seeing a lot of consolidation in the business.