Operational Real Estate: Evolution or Revolution?
19 May 2021

An idea whose time has come

Speakers at the first of two SPR webinars on operational real estate agreed that the COVID pandemic has accentuated its potential importance relative to traditional property sectors.

Caleb Parker of ‘Space as a Service’ provider Bold, argued that since March 2020 there has been a revolution in the office sector, with companies realising that their staff no longer need to be there.  Office providers will need to shift from a B2B to a B2C mentality – in effect ‘selling superpowers to people’.

Ollie Saunders, JLL, differed somewhat in emphasis, seeing this change as an acceleration of the evolution that had already started pre-pandemic.  But as a valuer, he agreed with Parker that those in his field need to ‘up their game’. Operational real estate requires new approaches including greater use of cash-flow analysis combined with an appreciation of capital market realities.

In his opening presentation, Matthew Soffair of Legal & General had given a wide-ranging introduction to the concept of operational property, which he defined as a real estate investment where the return is directly and deliberately linked to the revenues and profits from the business conducted in the building.  He noted three major trends contributing to its rise:  shortening leases in the traditional sectors, investors’ growing demand for ‘alternative’ assets and the rise of ‘on demand’ space providers like WeWork and Airbnb.

As in the case of the valuer, increasing investment in operational real estate means the property researcher will need a stronger understanding of the business taking place in each asset.  Asked by moderator Joanna Turner of Canada Life if researchers are likely to possess the right skills to do this, Bill Page of Legal & General was positive, suggesting that the main requirements are to analyse markets, data sources such as accounts, and risk.

Parker proposed that researchers would benefit if different types of real estate operator followed the example of hotels by providing transparent and consistent data.  This could have helped identify the problems at WeWork before they became critical, he suggested.

In closing remarks, Page stressed that change would be coming, whether or not organisations were ready for it, and that researchers should try to be prepared.  Soffair agreed, noting that the needs and desires of the end-user were becoming increasingly key, while Parker thought that brand will grow in importance as a way for providers to summarise the specific experience they are offering.  Meanwhile Saunders proposed that those analysing this increasingly fast-changing environment would need to ‘know their onions’.