Business Models Inc.

The number of empty buildings and square metres in the commercial real estate is staggering. We see this in many European Countries. Just the KPMG building in The Netherlands accounts for nearly half of the vacancy in the Amsterdam region. It is also the largest vacant office in the Netherlands. The business model is dead, or so it seems in this economic climate. The time of development, construction and making considerable money is over. I believe the ‘burial of the real estate business model’ will start another crisis in Europe leaving a huge shock wave to businesses and consumers. Why? If the property is vacant at the moment, the companies need to account for their losses in their books, they need to reconsult banks to refinance their assets leaving investors like pension funds with bad investments. My question is: does everyone see this coming as well? Can we overlook the consequences? Are there any possible solutions? The latter perhaps but let’s start with the options to explore …

The world is changing… or should we say the world changed?

The game, the players the rules of the business game have changed. Same for the real estate sector. Here an overview of ‘the new rules’ if the commercial real estate game:

1) Buildings are left empty and remain empty. The buildings left by organizations such as KPMG, Sanoma, UWV, ABN AMRO, PricewaterhouseCoopers, will not find new tenants. Which organization now has a need for a new building of this size?

2) The size of organizations has changed. Many large organizations can work with fewer people because of efficiency and partly because the size of firms is decreasing. The era of big organizations with lots of staff seems to be over …

3) New players in the game: the self-employed people (demand) and the quasi landlords (supply). The number of self-starters and has increased substantially. These establish themselves in rather flexible ‘total’ concepts than regular office locations. On the supply side, companies try to rent out their overcapacity to third parties. For these companies rent is now an additional cost saving or revenue stream;

4) The office is not the only workplace more. Where we formerly came to the office to work, we do now to network. At home we have all the facilities available. Sometimes we are even more productive at home than at work. Alternative meeting-, work- and network sites are eg. the local Starbucks, hotel lobbies or e.g. Seats2Meet.com;

5) New ways of working … Where we used to design an office building with a reception, meeting places, workspaces, and an executive office, we now see completely different needs arise. We want a cool reception, or sometimes we want self-service, we want no more horrible coffee machines (otherwise the department buys a Nespresso machine themselves) but want areas where we feel at home and enjoy.

But what do these new rules for the commercial real estate market mean? Can we change the game? Can we find new solutions? Ultimately I think that there are solutions, but we must first explore the options together.

Think like an architect…

We should not think like a manager but think like an architect. That applies for this industry. Where in the past we thought that we could solve every problem with this 1 single solution, we now see that it is impossible to predict the correct solutions. It’s about understanding the different options. In exploring those options you need to have the guts to ask yourself crazy questions. ”What if we demolish the building?”, “What if we reduce the prices by 50%?” With the understanding that these options yields, we can gain insight into different solutions.

What can we do?

We can change the game if we would take the following steps:

1) Realizing that the golden days are over. It begins with the realization that these times will not come back. We must live with these vacancies and explore other solutions. Seeing this, then we can look at various options;

2) Fight fraud of “vacancy in the books” ourselves. Vacancy lies both in the property as in the books. We prefer to stay away from this pain. If we know we can not rent our facilities out anymore, we should reevaluate our property and take a loss;

3) Can we truly understand and serve the customer? The first step is to gain an insight into who your customer really is. Is it the corporate organization, the SME or the self-employed? Or are they the users, the payers or the investors? If you understand who your customer is, studying his behavior will ultimately lead to better value propositions;

4) Inventory of the options, not looking for a solution. Dare to ask yourself crazy questions. ”Suppose we start growing tomatoes in our offices” That would be an option. Do we have a better alternative?Parking garages? Cropland? ”Suppose we halve the rents.” What will we do differently? The purpose of this exercise is to learn. This gives you new insights and views on different solutions. In both Amsterdam ad Vienna for example, we see former office building successfully converted into a hotel;

5) Look at and learn from other industries and business models. We can just learn a whole lot more about new business model options if we look into other industries. Take CitizenM. What can we learn from this model when it comes to commercial real estate. CitizenM is a new business model in the hotel industry. Affordable luxury for the mobile citizen. They focus on what the customer really wants and translate that to each and every building block of their business model. No gym, no pay for wifi, no black hot water (coffee), no breakfast room. But comfort, self-service, top quality service, design and a good price. The rooms are built in the factory and shipped to the construction site. Fast and efficient.

The death of the commercial real estate business model is hard to turn around. It is a complex issue with many different parties, interests and demands. We must start with understanding the problem, go through the pain and encourage each other to explore various options.  Then we can gradually try different options in the market. Let’s start the conversation.