Over the past decade or so, seemingly every industry has been disrupted. Entrepreneurs and investors have taken big risks by investing in ventures in exchange for big rewards. Some have won; some have lost. However, one particular area of investment has traditionally and consistently remained well-branded as a safe, long-term investment that’s free from disruption: commercial real estate.
Traditionally, the “three golden rules” of real estate are location, location, location.
Staying true to the disruptor I am, I’d like to challenge the status quo and flip these golden rules on their head by introducing a set of three new golden rules:
1. Community and convenience
To simplify my reasoning, I’m going to focus on a particular category of commercial real estate, for which I have personally invested and succeeded: commercial office space. My company decided to develop a coworking space, Cloud39, when around five years ago, ambitious real estate agents were unsuccessful in selling a piece of land. The land was at the end of a commercial/industrial cul-de-sac surrounded by a beautiful green reserve and completely hidden from the flow of traffic. It had no takers, but that same land today has been developed into a well-sought-after, in-demand commercial property with multiple seven-figure returns.
By applying the three new golden rules of community and convenience, productivity and well-being, I was able to create a value proposition for which demand exceeded supply. What I learned from this experience is if you build a product that customers seek, the location isn’t necessarily the most critical element.
In fact, search engines’ online maps and street views have helped lessen the need to build in areas find through natural discovery. Instead, people are now able to discover new areas online. This is an important point because it’s the premise behind why I believe my three new rules overtake “location, location, location” for anyone who is interested in investing in commercial office spaces.
1. Community And Convenience
There will always be a strong business case for convenience, so much so that if you’re an entrepreneur who is struggling to come up with a fresh idea, you might find that focusing on providing greater convenience to specific users will help steer you in the right direction.
When it comes to commercial office real estate, what I’ve found is that addressing specific pain points is critical. Consider the coworking space I described above: It’s located in suburbia, not the heart of the city. It stands alone, albeit overlooking beautiful greens and reserves, with ample on-site parking. Applying a traditional real estate approach, this land had preferred zoning for light industrial activity, not commercial office real estate.
So why did it succeed as commercial office space? The answer is community and convenience. I found that people in our community craved to work closer to their homes and families so they could avoid spending hours in traffic while saving money on fuel and reducing their carbon footprint. This type of convenience almost automatically lead us to golden rule No. 2.
In terms of commercial office space, productivity is essential. Building a space that is not only pleasant to the eye but also able to provide easy and affordable access, comfort, peace and calmness is exactly what I’ve found helps create excitement for people to show up every day and perform at their best. In contrast, investing in a space in a congested area, for example, could create higher stress levels for commuters.
For those who are interesting in investing in commercial office real estate, my advice for creating a space that encourages productivity is to first understand interior design and accessibility. Explore modern workplace furniture setups as well as the combination of collaborative environments with quiet spaces, private offices and meeting rooms. A productive environment can also be achieved by curating regular community events that bring people together so that they don’t feel isolated in their day-to-day work life.
Finally, when your focus shifts from return on investment based on location, to return on investment based on people’s needs, the result is an overall improvement in well-being. From an investor and valuation standpoint, the two most important metrics are percentage yield and tenancy term. When an office space is filled with coworkers with higher well-being, this can lead to longer-term attendance rates, overall loyalty and, most importantly, happiness and fullfillment.
If you are a commercial office real estate investor looking for a longer-term tenancy in order to secure higher rental and property value, I would highly recommend building a strong workplace well-being culture as a part of your tenancy offering. This could be in the form of fully managed services, such as curated community activities and events, on-site catering and barista-style coffee for meetings, receptionist services and visitor support services.
Putting It All Together
Ultimately, when my company conducted an internal survey of our coworking space, we consistently and constantly found that when it comes to workplace options, people prioritize their well-being and happiness. We also found that happiness means something different for everyone. Location relating to the convenience of a coworker’s home and family (e.g., near their children’s school) was of utmost importance.
Under the current model, real estate investors will almost always get higher returns from prime, central-business-district investments. However, my challenge to this industry is to consider investing outside the status quo and focusing on greater value for the people by providing commercial office real estate in regions, suburbs and rural areas that target a happier, more fulfilling, productive and convenient lifestyle, surrounded by their local community.
With these three new golden rules in mind, I believe many untapped opportunities can be created for anyone interested in investing in commercial office space.
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