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Property’s digital skeleton key technological innovation, from blockchain to shared-economy start-ups, threatens to unlock value that has always been hidden in real estate markets. Steve Weikal and thomas Wiegelmann explain

eWork became the largest non-governmental office tenant in central London and the second largest in Manhattan in just eight years. Airbnb, launched in 2008,W now has more room inventory than the world’s largest five hotel companies combined, yet it does not own a building. What has allowed WeWork and Airbnb to become so ubiquitous so quickly? For one thing, they created new, innovative business models to unlock value left in overlooked or underused real estate. Airbnb was envisioned as a way for hosts to make extra money by temporarily renting out empty bedrooms. WeWork, and other similar co-working programmes, saw opportunity in divid- ing vacant office space into smaller, less expensive Steve Weikal thomas Wiegelmann units and renting them out to freelance workers and start-ups, benefiting from the lease arbitrage between their own lease terms and the much higher Co-working ventures are beginning to special- tenant. BetterSpaces provides pop-up amenities for per-square-foot fees paid by its customers. ise in a market segment or interest group. Impact office tenants, such as yoga classes, meeting space This fractional use of office real estate mirrors Hub is a global network of 101 co-working locations and educational programmes, and which can be that of vacation time-shares and private jets, allow- for entrepreneurs, activists, and creative people, moved as needed within the building as required. ing customers to use and pay for only what they focused specifically on innovation for social and These examples all share flexibility, on-demand need when they need it, and owners to maximise environmental change. Similarly, La Ruche focuses availability via an easy-to-use app, short-term use, revenue. But a broader industry trend is emerging, on social entrepreneurship. and monetise unused office space. as technology allows the use of real estate in all In science and technology, Biolabs is co-work- A separate category of start-ups gathers data product types to get broken up into smaller pieces ing laboratory space for biotech start-ups; Founders and optimises space that is seemingly at full occu- and reconfigured in higher value combinations. House is a shared invitation-only workspace for pancy. Using technology, they are increasingly Co-working is certainly not new. IWG (formerly technology startups and experienced tech entrepre- effective at gathering data on user behaviour to Regus), the world’s largest provider of shared, neurs, and Cybertech offers co-working for compa- provide a better understanding of real estate needs. serviced office space, was founded in 1989. But the nies involved primarily in cybersecurity. Common questions include: what is the workspace explosive growth of WeWork’s modern interpreta- There are co-working spaces exclusively for used by employees and could we make do with less tion of shared office space, and hundreds of other women, including Hera Hub and The Wing, whereas by hotelling or hot-desking? What size groups are co-working ventures like it, is remarkable. The Paragon provides space for start-ups in the canna- using conference rooms and when; do we need number of co-working venues worldwide grew bis industry. While most co-working venues still more or fewer; should they be larger or smaller? Do exponentially from 1,130 in 2013 to 13,800 in 2017. accept many types of company, this trend of indus- we really know how much parking is necessary for According to the DeskMag Global Co-working try or affinity-focused groups is likely to continue. the tenants in our building; can we optimise the Survey, several co-working spaces worldwide is garage to accommodate more cars or charge surge projected to increase to 18,900 by end of this year. Beyond co-working pricing, perhaps allocating more spaces for higher- Notably, co-working is evolving. Between 2010 Hundreds of real estate tech start-ups are using value public parking? and 2017, the number of co-working users identi- technology in innovative ways to unlock real estate Methods of addressing these questions vary by fied as freelance or independent workers dropped value in all product types. One category monetises start-up. Rifiniti, for example, monitors Wi-Fi traf- by nearly half, while the percentage of workers different or under-used areas in office buildings. fic from mobile devices to better understand how from companies with more than 100 employees LiquidSpace is Airbnb for empty conference rooms, employees use space. Beco relies primarily on tiny, increased nearly six-fold. This is evidence that allowing them to be booked by groups such as sales solar-powered beacons that communicate with co-working has moved out of the domain of the teams and non-profit boards via mobile apps. mobile devices to analyse use of space and activity. freelance economy and into that of larger firms that PivotDesk is the Airbnb of office cubicles left Humanyze, based on research from the MIT Media use co-working to more flexibly manage their short vacant due to company downsizing – it was recently Lab, analyses corporate communication data via and long-term real estate needs. The trend is acquired by co-working provider Industrious. the Humanyze Badge (a type of employee ID card) supported IBM’s decision to occupy a single-tenant Groups can book empty desks for flexible lengths of and enterprise channels such as Microsoft Office WeWork building in New York City. time, providing additional income to the principal Exchange, Google Suite and Skype, to identify work

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patterns. InnerSpace uses a combination of tech- real estate, by creating secure markets for peer-to- nologies to provide ‘indoor GPS’ and analytics. And Co-working space is evolving from the peer transactions of partial or whole ownership of Smarking, another MIT start-up, uses complex domain of individual freelancers to commercial and residential property. More scalable analytics and sophisticated algorithms to make include larger companies looking for than real estate crowdfunding and more flexible smarter pricing decisions and increase revenue for additional office space than REITs, ICOs could become a viable mecha- parking garages. Each of these examples help to nism for unlocking real estate value. analyse how real estate is used and inform decisions to optimise real estate needs and expenditure. 1. How co-working use has A shift in thinking In retail, Storefront, Appear Here and evolved, 2010-2017 These tech start-ups identified by the MIT Real Go-Popup offer a global platform for renting tempo- Estate Innovation Lab each work to optimise the rary pop-up shops, showrooms and event space that use of real estate, making it more efficient and might otherwise stand empty. And b8ta provides Freelance/ therefore more profitable. They view real estate as retail-as-a-service for small vendors, with curated independent worker more of a flexible service than a long-term asset. products and services that alternate regularly to Mark Grinis, the global head of real estate at provide an ever-changing experience for shoppers. Employee at a small firm business consultancy EY suggests that “commercial with less than 100 employees For warehouse and storage buildings, Flexe real estate is no longer a fixed asset – it is fluid” – and London-based Stowga are warehouse-as-a- quite a shift from long held assumptions about real Employee at a small firm with service platforms, while Darkstore provides more than 100 employees 2010 2017 estate as static and fixed. on-demand ‘micro fulfilment’ and distribution What drives this new thinking about real services from temporary, less desirable office or 0% 70% estate? During the recent economic collapse, work- retail space – and even parking garages – solving the Source: Emergent Research ers and work became more transient yet required a challenge of last-mile delivery. Storage Share makes place other than the local Starbucks for conducting vacant offices and retail space available to individu- business. Co-working provided a relatively inex- als on demand, for inexpensive, temporary storage. pensive community of gig workers, support Other business models are helping optimise 2. Real estate technology – resources, and a built-in social network. Moreover, multi-family housing and unlock value in different funding by quarter ($bn) the concurrent growth of the sharing economy ways. WhyHotel runs pop-up hotels in new apart- made people more comfortable not only with stay- ment buildings during lease-up, providing check-in 14 ing overnight in someone’s spare bedroom via and concierge services and electronic entry to the Airbnb or hitching a ride in a stranger’s car with 12 units. When the building reaches 90% occupancy, Uber, but also with using temporary space like the hotel ceases operations. Flip pre-qualifies rent- 10 board rooms and empty desks or working in a ers with a FICO-like score so that new renters can communal environment like WeWork. 8 seamlessly take over from former tenants, which A wave of new technology – ubiquitous connec- minimises vacancies, reduces non-payment, and 6 tivity and more powerful mobile devices, seamless makes subleasing profitable for landlords. 4 easy-to-use apps, secure frictionless Blockchain transactions – enables real estate to be used in Blockchain: bigger than bitcoin 2 myriad new ways, reinforcing the idea that real As with artificial intelligence, machine learning, 3D 0 estate is a service rather than a long-term commit- printing and virtual reality, blockchain is one of the 2011 2012 2013 2014 2015 2016 2017 ment. Further impetus for the rapid growth of real- most cited developments when it comes to digitisa- Q1 Q2 Q3 Q4 estate-focused technology has come from tion, or in general to future trends and technologies. Source: Venture Scanner substantial venture capital. The average funding Blockchain-based applications are in their early per proptech venture has experienced consistent days in the real estate industry, and are scarcely growth over the past few years. implemented in the form of concrete products. Larger behavioural trends are emerging, as However, it is clear that this technology possesses through an initial coin offering (ICO), a means of well. Worker accustomed to technology solutions in considerable potential for innovation, opening up crowdfunding by selling tokens to fund project all areas of their lives expect the real estate business new opportunities across the real estate industry. development. to be similarly equipped – yet this global industry Media coverage of digital currencies such as The challenge, says Joi Ito, director of the MIT still often runs on spreadsheets, a 40-year-old tech- bitcoin often focuses on its usefulness as an alterna- Media Lab, is that there are no “legal, technical, or nology. Former real-estate careerists are launching tive to traditional tender. However, other innova- normative controls yet, and many people are taking start-ups to solve problems they experienced in the tive uses are made possible by blockchain, the advantage of this”. However, the ICO concept, business, while technologists are eyeing a multi- underlying technology platform that enables the secured and verified by blockchain, has intriguing trillion-dollar asset class that is ripe for disruption. digital currency system. possibilities for unlocking value in real estate. The impact of technology and innovation on A blockchain is a distributed database that How does it work? Atlant and Meridio are two the real estate industry cannot be understated. maintains a growing list of ordered, permanent examples of a platform for tokenising commercial Many new business models cause a change in time records, called blocks. It uses cryptography to allow real estate. In this model, an attorney or other qual- horizon; in the case of co-working, a shift from each participant in a network to view and manipu- ified authority verifies that a given property has longer-term leases to shorter-term licenses. Even late the ledger in a secure way without the need for clean title, no debt or liens, and meets other param- with more traditional leases, occupiers are pressing a central, third-party authority. Importantly, a copy eters specified by the owner. A special purpose landlords for shorter tenure and more flexibility (or partial copy) of the shared ledger is saved on vehicle (SPV) is formed outlining a direct relation- based on space requirements over time, which has every computer connected to a blockchain network. ship between a declared number of tokens and the implications for allocating tenant improvement Thus, a blockchain is a permanent, transparent, total value of a property. When the tokens are sold costs, evaluating risk, underwriting, lending terms append-only, distributed record of an asset. in an ICO, owners gain liquidity from their assets, and even brokerage commissions. Importantly, some digital currencies do not while individuals and businesses worldwide can function as a unit of value like money, but rather acquire part ownership in the property, sharing in Steve Weikal is head of industry relations at the represent a unit of account or a means of exchange, the rental income or capital appreciation over time Center for Real Estate, MIT, and founder of MIT’s which could be well-suited to real estate. Instead of as provided for in the ICO agreement. Real Disruption. Thomas Wiegelmann is managing a digital ‘coin’, these are referred to as ‘tokens’, While real estate ICOs are new, it is an innova- director at Blue Asset Management and honorary which are created and distributed to the public tive way to provide liquidity and remove friction in adjunct professor of Bond University

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