The world of commercial real estate has seen significant change over the past few years in how organizations use office space. Commercial real estate expert Nick Millican says as the business world—and society as a whole—has evolved, so has what it means to be successful as a commercial real estate provider. Here are his thoughts.
Nick Millican notes that change—even extreme change—is something that commercial real estate professionals are well used to. In fact, the sector is one that, over the past century, has seen incredible modifications every few years. To be profitable in commercial real estate is to be nimble in the short term and adaptable over the mid-term, always with a view to the long term.
"Real estate goes through cycles," said Nick Millican, explaining that for much of the 19th century, it was a sector that operated in an environment extremely light on regulation. Landlords weren't obligated to provide much beyond simply the buildings their tenants occupied, and they concentrated on keeping costs to a bare minimum.
Nick Millican: Adapting to Change Is the Secret to Success
Regulatory risk increased dramatically during the 20th century. Building codes placed greater emphasis on quality building materials. Health and safety measures increased the duty of care real estate providers owed their tenants. From the 1960s onward, environmental factors regarding the space landlords offered became more important.
All the while, the thriving commercial real estate practitioner needed to weather the economic cycles of the time. In the 1930s, it was the Great Depression, when demand for commercial real estate hit a contemporary all-time low. Next came the postwar boom of the 1950s, when commercial real estate demand was at another contemporary all-time high. The fuel crisis of the 1970s severely impacted energy prices, forcing commercial real estate providers to innovate how they provided and monitored energy consumption in their buildings. This was followed by an extended period of economic growth in the 1980s and 1990s, leading up to the dot-com bubble of the late 1990s.
And the first quarter of the 21st century has brought its own challenges to commercial real estate providers, noted Millican. Recovery from the dot-com bubble brought another economic growth spurt for the first few years, followed by the 2008-2009 global financial crisis, after which an upturn continued until the 2020 global COVID pandemic.
Along with the evolution of regulatory risk and the ups and downs of economic cycles, so do have client and societal expectations changed over the years, Nick Millican explains. Tenant expectations changed remarkably in the 20th century, he points out.
Real Estate Providers Have Had to Adapt to Societal Needs
During the latter half of the 20th century, businesses were increasingly focused on maximizing the capacity of their office spaces, while workers increasingly became aware—and demanding—of the quality of the space in which they worked. Environmental factors came to the fore, especially in the 1960s through the early 1990s. Yet, following the economic upturn after the 2008-2009 global financial crisis, the emphasis returned to efficiency.
"In the years leading up to the 2020 global pandemic, for a long time, office space was seen by a lot of mainstream corporate clients as a cost center, where their real estate team's job was to lower the cost per desk and drive efficiency out of it," explains Nick Millican. "And so you ended up with office workers being crammed into very dense open-plan space—typically, not great-quality offices."
But with society's experiences of the global pandemic came a severe swing in priorities, says Millican. Workers were forced out of their offices by government-imposed lockdowns. Employees and employers alike quickly needed to pivot to remote work models of engagement. But by the time lockdowns were finally lifted, and workers could return to the office, their opinions on office space had shifted. Understanding that they could be productive from home, they were more discerning of the quality of their workplace. More attuned to the health risks of people coming together in one physical location, they became more demanding of health and safety considerations. To commute for hours each day was no longer a necessity, so workers needed to be induced back to the office.
Against this backdrop, Millican says what it means to be successful in commercial real estate has once more taken a seismic shift.
Commercial Real Estate Providers Need to Adapt
Faced with the changing demands of their workforce, companies no longer want rows of cubicles jammed together for maximum capacity. A greater emphasis has been placed on health and safety considerations like air quality, and people flow throughout the building. Commercial real estate providers have had to adapt to these requirements to stay successful, explains Millican.
"There's been a fairly vociferous reaction against many of the old office space criteria because it's hard enough to get people to come back to the office," says Nick Millican. "I don't think we will ever get back to exactly the way things were in 2019. One of the things that the pandemic has made employers do is think, 'If we are going to drag our staff 45 minutes away from their house to come and work, then we have to do a better job of making that place somewhere they'd actually like to be.'"
In some ways, Millican thinks that to be successful in commercial real estate will take no more in the future than it has done in the past. As he says, providers will always need to be nimble in the short term, adaptable over the mid-term, and always thinking long term about the changing needs of their tenants. That's what Nick Millican was doing before, during, and after the global pandemic. And that's what he intends to continue doing as society, business, and economic conditions evolve.
