Why real estate needs agility to survive
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“Nothing in life is to be feared; it is only to be understood,” — Marie Curie
Agility is an organizational strategy most commonly used for rapidly changing business environments. Organizational agility is the ability to thrive in ambiguous environments, being able to adapt, have flexibility and drive balance over the long term. McKinsey & Company surveyed 2,500 business leaders about business agility and found that seventy-five (75%) percent have organizational agility as a top-priority; all needing to work in agile ways (this is a 50% percent increase from what companies currently do). Given the constant tension of technological change, agile, flexible ways of working are driving a secular shift in the office market that will not slow anytime soon.
“Agile, flexible ways of working are driving a secular shift in the office market that will not slow anytime soon.”
Real estate is a legacy industry that changes at glacial speed; and glaciers are melting faster today. Capital intensive industries like real estate (e.g. auto manufacturing, telecom, railways, airlines) have a lot of money tied up in facilities and infrastructure. These industries also have longer product development cycles that make change hard, slow and perceptively risky for every incumbent. This higher operating leverage (i.e. more fixed costs to variable costs) makes real estate and other capital intensive industries more vulnerable to economic slowdowns compared to digital, scalable businesses because we (real estate owners) still have high fixed costs (often leveraged) to pay, even when a local market taps the brakes or under a broader economic recession.
When faced with disruption, many incumbent leaders cling to legacy. Fear drives people to pursue what takes the least amount of energy to understand and particularly what’s worked before. And leaders who comprehend the bigger cultural trends and how technology is shifting demand, are most likely to see disruption as a positive force for change — not rejecting market adjustments but leading their companies into new business areas that increase financial performance.
