The 2018 ULI Belgium Conference gathered over 200 top real estate professionals in Brussels to explore the topic of new urban economies. The following is a summary of the day’s discussions.
Today’s world is rapidly evolving, and it is becoming increasingly challenging to keep pace with the economic and development changes before us.
The 2018 ULI Belgium Annual Conference provided a platform for real estate, business, and public sector professionals, together with visionary experts, to imagine how our cities will function in the future. The conference, “New Urban Economies: Making Innovation Work for Our Cities,” also closely examined the implications of new urban economies on cities and on real estate specifically.
In his opening remarks, Greg Clark, a ULI Europe Senior Fellow, highlighted the re-urbanization of ftoday’s economies: “For a long time, cities planned strategies for business but now businesses have strategies for cities.”
This is exemplified by the emergence of the four new “urban economies” – the sharing, experience, innovation, and circular economies. These economies are today viewed as the primary drivers of urbanisation’s enterprise development, job growth, and real estate development.
Clark also raised a critical question regarding the use of space within cities:“How do people decompress?” The new economies are flexible, complementary, and intent on waste reduction, and, by their very nature, concentrate space for living and working. According to Clark, there is a need for more public space in response to this urban densification.
“These changes result in a much more intensive use of space, providing, of course, the possibility of profitable and productive real estate activity. At the same time, however, real estate developers need to become innovators, creators, designers, and curators of space in a way they have never had to before.”
The Innovation Economy: Tel Aviv and Extreme Customer Centricity
At this year’s World Economic Forum in Davos, Switzerland, the City of Tel Aviv was recognized as the third-most innovative city in the world. Sharon Landes-Fischer, Director of Strategy and Operations at Tel Aviv Global, was on hand at the ULI Belgium Annual Conference to share her thoughts on how a city can operate in an innovation economy and, more than that, also actively nurture further innovation.
At the City’s founding, Tel Aviv embraced a strategy of showcasing its youth, daring culture, and creativity. With one-third of Tel Aviv’s population falling between 18 and 35 years old, an easily accessible and walkable city centre, and a ratio of one business start-up for 290 residents, the City recognized an opportunity to differentiate itself in the global city market.
The City’s collective mindset is to act as facilitators of existing initiatives and enable the growth of an organic community. According to Landes-Fischer, “The creative class values talent, technologies, and tolerance. We have 44% of our workforce in creative occupations. Once we acknowledged that, we decide to nurture that environment and cherish talent.”
Technology incentives are another strategy tool the City is using. “As our residents expect to have running water and electricity, within five years they will also expect access to free Wi-Fi,” said Landes-Fischer. “Before WeWork was everywhere, Tel Aviv also realized that our population sought flexibility and accessible working spaces.” Other policy leverages include a 50% tax break for all entrepreneurs and access to open data.
To help nurture and grow new businesses, Tel-Aviv Global has developed committee of innovation community enablers, which act like a start-up committee. Innovators present their projects to the committee and enjoy the benefits of the connections and communication. The City also provides social events and Digitel, an online-platform, for entrepreneurs to connect and build business relationships.
For Landes-Fischer, sustaining an innovation economy is “all about technological communications, public and private partnerships, and taking care of our residents.”
Nancy Rademaker, Partner at Nexxworks and Annual Conference speaker, was interested in Landes-Fischer’s description of Tel Aviv’s innovation economy and made the following comment in her opening remarks, “The City’s approach could be read as a customer-centric marketing strategy since what is the most important for accelerating innovation is ‘answering the demands and the needs of Tel-Avivians.’”
In her closing keynote presentation on Customer Centricity, Rademaker shared her insights into human history with the advent of recent technologies.
“Technology has created a permanent evolution – what does it mean for businesses strategies? In 1993, the internet became mainstream. In 2007, the smartphone offered us the world in our hands. In this fast-evolving new world, how can a business anticipate what’s going to be there in 10 years? It is not likely that we are going to sell the same product and services in 2047. We need a strategy for the new world. You cannot innovate with old linear business models. If you want to survive, your mind must think about the day after tomorrow and not tomorrow.”
Rademaker poses a business strategy that can spark the necessary shift in our thinking. A strategy of “extreme customer centricity” connects the business with as many customers as possible while at the same time providing each customer with the sense that he or she is being addressed on an individual basis.
What are the implication of extreme customer centricity on the real estate market? According to Rademaker, buildings need to be collaborative in order to succeed. The day-after-tomorrow concept builds in flexibility and adapts to permanent evolution. Buildings must “know” who enters the space and be able to listen to the users’ needs.
“Being in a building must bring you a beautiful experience as customers will always remember how you make them feel.”
Sharing and Experience Economies Driven by Human Eco-systems
For François Samyn, Co-founder and CFO of Cohabs, customer centricity in business is key. “We leverage customer experience to create value in our co-living homes,” said Samyn. Founded in 2016, Cohabs was designed to meet the needs of the millennial generation by creating a better cohabiting experience.
According to Samyn, the business model based on property ownership is over. Freedom, sharing, work-life balance, transparency, and harmony are all values commonly held by millennials. From those values, Cohabs has identified three major trends that inform its business strategy: 1) the use of an asset prevails over ownership; 2) a network or community social organisation facilitated by mobile or web platforms is important; and 3) a smooth experience matters more than anything.
“The experience economy consists of paying attention to the journey of a customer’s life spectrum. It’s an outside-in business model,” stated Samyn.
As cities densify, there is a tremendous market opportunity. Fifteen million Europeans live in shared homes and the trend is growing. Cohabs is targeting the development of 2,000 co-living spaces by the year 2022.
As Greg Clark noted, “A Cohabs member experiences the value of ease while the owner experiences the value of working together.” Indeed, Samyn estimates a 14% increase in rental revenues for landlords by using Cohabs as an operator platform.
In order to be attractive, Cohabs locations must be in vibrant neighborhoods and provide easy access to restaurants, concert halls, supermarkets, and public transportation for residents. Samyn said, “We are one function of an eco-system.”
Marc Jongerius, co-founder and managing director of Zoku, sees it differently. “I believe in Zoku’s ability to make the place. Besides connectivity, what matters most to us is the life we create inside the building.”
It is hard to characterize Zoku today. As an innovator in the hospitality industry, Zoku is a hybrid form of hotel – somewhere between a home and an office – catering to global nomad workers traveling between creative cities.
Zoku identified a market in Amsterdam where the demand for hotels with options for a longer stay is outpacing supply by 18%. “At Zoku we are making the competition irrelevant, which means creating your own market space by innovating,” said Jongerius.
Zoku’s business model, focusing on satisfying landlords and residents, was developed by listening to the needs and frustrations of potential customers through the course of 150 interviews. Loneliness stood out as a major factor. “We found that people want their own home and lively social spaces – both private and public spaces,” Jongerius said. Zoku’s architects were challenged to combine the comfort of small, private, 4-start hotel spaces with lively social spaces.
“Our concept marks the end of the traditional hotel room as we know it. In our lofts, the focal point is not the bed, but is instead a kitchen table that can be used for a variety of purposes,” said Jongerius.
The building’s social spaces create a lively experience and are accessible to Zoku’s resident and non-resident members alike.
“Zoku’s ambition is to create the most desired home base for nomads where ideas can connect and grow. The factors that provoking interactions are music, food and beverages, healthy lifestyle, and personal development.” said Jongerius. And together with real estates owners as community members, Zoku is setting business models on top of each other: every square meters is used a few times in order to curate an eco-system.
From ULI’s delegates questions to the speakers, the compatibility between those two new urban economies – the sharing and the experience- was enlightened. Zoku, for instance, is co-tenant with a co-working operator: Wework.
Matt Brown, vice-president of Wework and director of European acquisitions, was pleased when an attendee, in response to the question to “What is Wework?” answered: “a community driver”. Wework and its flexible office space, as Brown taught ULI, is the most visible business line of the We platform that is gathering 250,000 members across 75 cities in 266 locations. “The idea behind ‘we’ the business is to create the world’s largest physical community, the same way that Facebook is the world’s largest online community.”
“Why do offices spaces needed innovating?” Brown asked. Following the trends of densification and urbanization, Brown acknowledged: “people are being all squeezed together and they are feeling more lonely and disconnected than ever. Everything that we do as a business is designed to enable that feeling of a community.”
There are two levels in Wework business lines: the first is a flexibility offer that other brands of coworkers are providing. The second level is that, the We platform is connecting people together and enables trust and energy through the experience economy: “50% of our members are doing business with each other. We leverage benefits”.
Beyond a better design aesthetics and greater facilities managing, Brown recognized that “people began to form communities in the We platform and wanted to be part of a mission and take control of their own lives.” More and more people felt confident to create companies because “business moves at the speed of trust.” From several forms of social events: Wework is managing frequent interactions with people.
From Wework knowledge as an operating platform since 2010, Brown is experiencing changes: “when you innovate, you are learning as you go.” One finding is that more and more larger companies, IBM for instance, are joining the We platform. That evolution is coming from the leverage and the value that the We platform is bringing on human happiness. Clark summed up another shift: “the sharing economy is reversing the psychology of having a temporary lease and is getting into the psychology of being a member of a community and the use of experience.” And it is working: after one year as member of the We platform, only 1% leaves, Brown said. The traditional dream of a business owner to own an office and scale up is over.
The main message of Brown to ULI attendees is that doing business in today’s world is all about human experience.
“Real estate is a symptom of the real industry that you work in: we all work in people experience.” Brown.
Employees’ experience and thus, customers’ and by extension people’s experiences are the main topic in the boardroom. For Brown, if at the core of your business “you look after the uses and pay attention to create it around a community of like-minded people, scaling is inevitable.”
A lesson learned at ULI’s annual conference is that the experience economy comes along with the sharing economy: the trust that allows people to leverage and feel happiness is enabled by the uses of a shared space. Clark talked about compatibility. Brown, Samyn and Jongerius insisted on the importance of sustaining a physical community. Those new urban economies are about curating a human eco-system.
A New Soul for the Economy: From a Linear Model to Circularity
During the third session of ULI’s conference, Evelyn Johnkoff, senior advisor in sustainable strategy for the City of Amsterdam and Thomas Rau, entrepreneur, architect and innovator, shared with the attendees their knowledge about another new urban economy: the circular economy. After the complementarity of business models centred around people’s experiences, this session focused on the circularity of materials.
There is an urgent need of a new business economic model. And why is that? Rau developed two main reasons during his keynote speech. First, we are hosts on this planet and it is a close system. “Scarcity doesn’t exist because we have what we have and it is in limited editions. Perhaps a clever attitude would be to start keeping those limited editions.” But what do we have in infinitude? Rau explained that “such as the sun is an unlimited resource, data makes infinitude of materials in the circular economy: if something has data than it has an identity. In linear economy materials get wasted”. Secondly, we see emerging new business models where “you can be the biggest and have nothing”. For instance, power and responsibility are separate in the Uber business model: “they don’t even have taxis”, expressed Rau. A goal for now is to organize the unlimited resource of data with separation of power and accountability.
“The biggest challenge is not climate change but mind change and that is what the circular economy is about”, claimed Rau and Jonkhoff.
Jonkhoff took ULI the audience into the journey of Amsterdam’s city towards circularity by explaining the perspective of her local government. To meet this major economic and social transition, Amsterdam decided in 2015 to put in their agenda an integrated sustainability program. “We were the first city worldwide to analyse the circularity’s potential with one main question: what is our role as local government in accelerating the transition towards a circular economy? Based on economic and ecological indicators, we focused on two important value chains for our city: the construction and the food.”
The purpose of this strategy was to prove the potential of the circular economy which are the added-value, the jobs creation, the reduction of material use, and the reduction of CO2 emissions. Going circular must be a joint venture between private and public efforts. From internal research to market consultation, the city developed two programs in 2016: an innovation strategy and “a learning by doing program” which consists of four full strategies developed together with the private sector. For Jonkhoff, “we have to monitor the progress to learn from it and to adapt to new challenges and incorporate them in our transition.”
The results are significant: circularity is realistic and profitable; the city is the right scale to start and learning by taking action is a great strategy. But Jonkhoff put an emphasis on the importance of cross-sectoral cooperation and the sharing of knowledge. Jonkhoff’s main message to the private sector is that “it’s our common responsibility and leadership that can realize the circular city and a new sole for our economy.”
The “madaster” of Thomas Rau is a great example of accountability and responsibility in the private sector. “The madaster is the cadaster for the limited edition of the planet earth’s surface. Additionally, a waste is a material without an identity: if we give all materials a passport, we eliminate 100% of waste. Materials with an identity always keep its value.” Concretely, this cadaster leads to cities as material depots and buildings as material banks. The ambition of Rau is to make the madaster a global market standard: “Brussels could have its madaster platform. Identifying is giving value to materials and by that you can start to think the future ahead and be accountable now.”
Clark summed up the psychological mindset change evoked by Ronkhoff and Rau by the shift of “being a landlord to be a landguest”. Rau’s speech provokingly started with “everything on this planet is temporary but the consequences are permanent. Which means that real estate is mobile estate.” Ownership does not have its place in the new urban economies: “because we are guests on this planet, people are curators, managers of materials but they don’t dispose.” said Rau.
Both speakers of this session highlighted what is going to drive the mind change: financial incentives. “In our local government, we used the madaster to study the value of bridges, tunnels: by knowing their value, we can responsibly choose how we are going to manage our assets.” Ronkhoff is advising to developers to do the same to be in the forefront of change. Another financial incentive could be in tax policy according to Rau: “the work is taxed for instance, but it is an unlimited resource. Tax should be aimed at limited resource so we handle them.”
Knowing your building for Jonkhoff is a good start but “first we have to create new business models, then we can change the urban areas.” Demonstrations of the circular economy in real estate are possible but it is just one part of a complex system: “it’s also about the building in its connections with the context.”