Chances are you work on a team whose offices have been fairly quiet or even empty for most of the past two years.
And, thanks to the double punch of the delta and omicron variants, a new recognition has emerged that many, if not most of us, expect to use desks very differently, if at all, over the next few months, if not years to come. It’s a scary thought for office building owners, who worry about surviving in a world where tenants are increasingly turning to remote or hybrid work. No need to go to the office when you have Zoom, Slack and other metaverse tools at work, right? Maybe so, but owners of large downtown offices aren’t ready to surrender just yet.
So what to do with all that overpriced real estate? For many landlords, the answer is to rethink how buildings will be used in the future and find innovative (read digital) ways to make spaces as valuable as possible to office tenants whose employees don’t have never been so far removed from the traditional workplace. Like many old industries, except perhaps with greater urgency, the real estate industry is immersing itself in technology to adapt to the new normal. Indeed, landlords are spending billions of dollars betting on flexible workspaces, office booking apps, coworking and other potential features of the new workplace.
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Countless companies’ back-to-office schedules have been turned upside down. A growing number of building owners are hunkering down for the long haul, expecting offices not to fill up for the foreseeable future. In their view, a giant swath of a once-high occupancy office market will be made up of companies that will be tapping into a hybrid or mostly remote workforce for years to come.
“This is the most seismic job change since the industrial revolution,” said Roelof Opperman, whose venture capital firm Fifth Wall is backed by real estate powerhouses such as CBRE, Hines and Cushman & Wakefield.
At a time when many companies are adopting long-term work-from-home policies, you can assume that office real estate professionals are dusting off their fallback plans for a second career or retirement. The threats posed by digital platforms such as video conferencing, Opperman says, appear comparable to the devastation of e-commerce on traditional retail. But venture capitalists are optimistic, and Opperman is banking on the idea that most employers will want to use offices at least some of the time to allow teams to come together for projects that require the unique benefits of in-person collaboration.
Companies have accepted employees working remotely for long periods of time. Most companies have done well either completely remotely or completely in the office, according to Opperman. But they have struggled with the gray areas between these two states. “Everyone is there,” he said.
Images in the news present different narratives of the changing landscape. On the one hand, we see transit stations and sidewalks in financial districts seem deserted during office hours. On the other hand, tech giants are still attached to office spaces and in many cases even expanding their footprint.
Take Google’s billion-dollar purchase of an office building in London, announced just days ago. According to Google, most of the company’s UK employees want to work on-site at least part of the time, with flexibility for working from home time as well.
Venture capitalists are pouring more capital into the global proptech market than ever before, totaling $20.5 billion across 974 deals last year, according to data from PitchBook. Some $7.5 billion of that amount came from seed rounds backed by real estate investors.
A growing class of startups addressing flexible working needs has captured much of this funding. WeWork, the shared office company, was a pioneer in a group that also includes New York-based Industrious, which raised $200 million from CBRE last February. Berlin-based Lendis, which just closed an 80 million euro (about $91 million) Series A on Friday, and London-based Hofy are among new startups specializing in tech equipment and software leasing. other office equipment for distributed work teams.
“I think the idea that we’re all going to stay apart forever is way oversold, and the idea that we’re going to stay the same is kind of like putting your head in the sand,” said Josh Raffaelli, managing partner of the global venture capital investment arm of real estate giant Brookfield.
The company’s parent company, which manages assets of more than $650 billion, created Brookfield Growth a few years ago. Today, the unit manages two funds with over $500 million in commitments from Brookfield and outside LPs investing directly in VC-backed startups related to real estate management or development. Raffaelli is looking for proptech partnerships that can add value to the tenant experience in the approximately 230 million square feet of floor space owned by Brookfield as well as in the broader real estate market.
His company’s portfolio now spans 14 companies, with the most recent addition coming earlier in January when Brookfield Growth led a $111 million Series C round for Envoy, a San Francisco-based mobile app. that companies use to track worker health and manage comings and goings. employees, visitors and deliveries. Brookfield also invested in Convene, a meeting booking and flexible workspace platform that has raised more than $276 million in total funding, according to data from PitchBook. Similar startups include Eden Workplace, backed by Fifth Wall, and OfficeSpace Software, which just secured a $150 million investment from Vista Equity Partners.
Apps like Envoy also collect data that can help businesses rethink their changing office needs and adapt accordingly, Raffaelli said. “They all ask the question, ‘Do I need the same space, how much space do I need? Less space? More space? Or different types, like more conference rooms?'”
For companies like Envoy, which was just valued at $1.4 billion in its Series C, an investor like Brookfield can be a critical partner in exposing their technology to their tenants.
“We are aggressively investing in every building in the world and in every office in the world, and we will get there,” said Envoy Founder and CEO Larry Gadea. “Right now the market is empty and we are targeting literally every office in the world.”
Most employees want to go to the office to some degree, according to a survey of 1,000 workers last year by Envoy and Wakefield Research. Gadea said the complexity of this hybrid recruiting formula creates both opportunities and logistical hurdles for companies.
“People will see so much more value in their workplace,” Gadea said. “These workplaces will still have to prove themselves if they want people to come back.”
Related Reading: Real Estate Tech Rebounds From Its Pandemic Slump
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