Will The Rush To Telework Lead To The Irreversible Rise Of Branded Real Estate?
Branded real estate, at least in its current iteration, is a new phenomenon that provides options to today’s ever-more-mobile workforce. With the current Coronavirus Covid-19 pandemic, there is a rush to telework, that likely hopefully won’t be reversed once the contagion is checked.
What is Branded Real Estate? I caught up with the country’s leading expert on the phenomenon: principal of the Luft research consultancy Luke Bujarski to discuss its impact, better understand what exactly it is, and to analyze its potential short and long term impact on the way work is done and life is lived.
Loren Moss: Luke, right now we are seeing the most rapid move to telework enablement in business history. This year’s pandemic is happening against a longer-term backdrop of the rise in a “digital nomad” culture and broader flexible work arrangements. How does branded real estate fit in this rapidly evolving ecosystem?
Luke Bujarski: Real estate has lagged behind rapidly evolving consumer trends in terms of what we look for in modern accommodations. Technology has also untethered the modern office worker from the traditional office at a rapid pace. The Coronavirus pandemic has expedited the mass corporate adoption of telework. This demand gap has opened up an opportunity for developers and operators to deliver a unique full-service product that caters to the needs of modern mobile professionals. Branded offerings come in various forms e.g. single-family homes, office space, and serviced apartments. Product is just one part of the equation. Digital marketing and distribution, property management tech, pricing and revenue management, loyalty programs and strategy, secondary revenue streams – and other elements play into today’s real estate transformation.
Loren Moss: Brands like Regus have been around for decades, but then we have seen the meteoric rise and near collapse of WeWork. Is there a fundamental difference between their two models, or is it just a difference in marketing, branding, and go-to-market strategy?
“Branded Real Estate is the recognition that technology is fundamentally reworking our relationship with space,”
Luke Bujarski: WeWork took on too much risk, grew too fast, and failed to bring on the kind of leadership necessary to make good on its full vision. WeWork used a lot of cultural marketing and branding, but it also leveraged product design and location in terms of top real estate in key markets to sell the world on the idea that office space can be more than just four walls and a desk. Another big difference was the massive amount of venture capital that went into scaling WeWork prior to its collapse. This gave leadership a lot of (perhaps too much) latitude to get creative – let’s say – with its marketing message, product offering, and overall mainstream appeal to a millennial generation of office workers with high expectations when it came to office environment. Credit where credit is due, WeWork was both the product and catalyst in how the flexible office industry competes in the modern age.
Loren Moss: Let’s talk about residential. Residential branded real estate is still a fairly new thing. On the other hand, most large urban areas have well known developers that own and market rental properties, so before we go on, help me to understand more specifically: what IS and what IS NOT branded real estate? Do traditional apartments fit? Hotels? How do you define the sector?
Luke Bujarski: Defining any sector in clear terms is a challenge these days. Think about banking and what cloud and mobile computing has done to that industry. Think about what Über and online marketplaces have done to the restaurant industry. I talk a lot about it and consider branded real estate as a useful strategic paradigm, rather than a defined industry category. Branded Real Estate is the recognition that technology is fundamentally reworking our relationship with space, but also how investors and operators need to adapt to the needs of the modern renter. Direct-to-consumer full-service apartments and flexible leases is one example of this innovation here operators are finding new ways to work with multifamily developers to fulfill a niche. There are many layers to this evolution.
Loren Moss: You have a lot of international experience. I am talking to you today from Colombia. As populations become more mobile, does branded real estate become an enabler? Japan for example is a notoriously hard place for non-Japanese to rent, no matter their financial standing. I was contacted by a US banking executive here in Colombia the other day who is having trouble finding anyone to rent to him without having four local cosigners.
Luke Bujarski: You point to a couple of excellent examples where there is a clear market need. Here you might ask, when will renting an apartment in Tokyo become as easy as booking a hotel? There are limitations. The technology has not quite caught up to this in terms of liability, risk, cost of operations as well as matching demand with supply. The recent wave of new branded offerings helps the real estate mainstream think differently about the range of customer demand beyond the standard 12-month lease. I’m not sure that we will ever get there.
Loren Moss: You and I had a conversation last year. I predict that the real competitors to coworking spaces like WeWork will come from hotels. They seem to be ideally situated, especially business hotels, to provide those services and workspaces, with the additional benefit of lodging when necessary, and loyalty programs. Was that just my ignorance of the sector, or are we seeing any actors in the hospitality sector adopting that strategy?
Luke Bujarski: The big difference here is scale and ability to accommodate the small, medium, and corporate enterprise with flexible office space as a service beyond just a handful of desks. I think that a lot of the new hotel projects going up now are thinking more holistically in terms of delivering a product and experience that fits with the needs of modern mobile professionals. The challenge with existing hotel stock is justifying the investment to repurpose and to enter an already competitive market i.e. the flexible office operators like WeWork, Knotel, Regus, and independent local coworking brands. I would also say that a lot of this is a moving target. Nobody has it figured out. What seems to make sense now could very well fall out in 5 to 10 years. Herein lies the risk of operating in today’s uncertain world.
“My sense is that this crisis will push developers to innovate in terms of mixed use and universal building design…”
Loren Moss: The recession is not a good thing for business, and this is certainly not the best time to raise capital. However, do you see the current situations as an accelerant or retardant to the nascent branded real estate industry?
Luke Bujarski: The situation is still unfolding. If this drags out for months and into the summer, which it looks like it could, then I think that investors will be looking at the hospitality space in a very different light. Time and again, the traditional hotel industry has proved vulnerable during hard economic times. First 9/11 and then the global economic recession, and now Coronavirus.
My sense is that this crisis will push developers to innovate in terms of mixed use and universal building design that can serve short and longer-term residents, instead of single-purpose uses that can be very profitable operations during good times, but risky real estate assets during the hard times. Whether this translates into an opportunity for branded real estate operators and multifamily owners/managers is still yet to be seen. Coronavirus changes everything. We will likely see a redrawing of attitudes towards alternative accommodations, what it means to be a resident and visitor, and how investors capitalize on the future visitor economy. Here is a lengthy article I wrote on short-term rentals and the economic development of cities.
Loren Moss: You have an event. Tell me about it, and how interested participants and sponsors can learn more?
Luke Bujarski: The Branded Real Estate Forum is a real estate innovation conference that looks at the intersections of established emerging property types in the context of modern trends and technology, and our ever-changing relationship between people property and place. The inaugural event took place in New York in November 2019 and we’re super excited to get things going for 2020. Visit breforum.com For more details and to register for updates.
Luke Bujarski is the founder and principal at Luft Research & Advisory, a boutique consultancy helping brands, leaders, and communities navigate change in today’s modern visitor economy. Luke’s 15-year career in research and consulting spans the travel & hospitality sector, digital marketing & consumer tech, global enterprise sourcing, economic development, and urban planning. His research & advisory practice now focuses on the ever-changing relationship between people connection to real property and place, and how individuals, businesses, and communities can find strategic advantage by understanding the core drivers shaping today’s modern tech-enabled society. Luke is a University of Illinois at Urbana-Champaign alum. He obtained his Master’s in urban & regional planning and a double Bachelor’s in Spanish linguistics & Government.