By Karen Hollinger, Senior Vice President of Strategic Initiatives at AvalonBay Communities and chair of the NMHC Innovation Committee.
Everything we know about the multifamily business will be challenged in this digital age. Who wins or loses in this era will be determined by their innovation mindset.
There are multifamily executives today that will argue that multifamily housing is a commodity. They say a building is a building, location is all that matters and renter demand has a tail so long we need not worry. They say that, at the end of the day, everyone needs a place to sleep and not everyone can afford to buy a home. They say we’re not the Yellow Pages or Blockbuster.
About the only truth in that viewpoint is that apartment demand does stretch well out into the future. Just to meet demand over the next 10 years, we will need to be building at an average pace of 328,000 new apartments per year. That’s been a pace tough to beat even in the industry’s best years.
But that demand isn’t monochromatic. There’s not one box we can build that can serve all the different kinds of demand that exist today much less that of tomorrow. That’s because not only are customer needs changing but so are their expectations. Other industries have taught our customers about the digital age and the convenience, flexibility, personalization and frictionless transactions that come out of it. And they are carrying those experiences forward into ours.
The genie is out of the bottle, or shall we say box?
We’re Probably Doing It Wrong
What this means for those of us in the multifamily industry is that everything we know about developing communities, building buildings, serving our customers and, ultimately, making money will probably be challenged. In fact, there’s a great quote from Charles Kettering, a brilliant inventor who revolutionized the automobile industry in the early 1900s, that goes, “If you have always done it that way, it is probably wrong.”
That pretty much sums up where we are.
Think about it. How is what we know about location going to work if more people can remote work from anywhere? How is our approach to investment and valuation going to still hold when technology redefines mobility? How are we going to keep developing in the same way when construction costs continually outpace inflation? How are we going to remain competitive in an experience-based world we still start by talking about physical square footage?
We are being disrupted. Just like retail. Just like hospitality. Just like the automotive industry. Just like insert just about any industry out there. Our traditional excuses for why we’re different no longer hold water. Our industry is evolving to look and feel more like a financial institution married to a consumer brand than a collection of places to sleep. We’ve got to change, adapt, innovate. And it’s not a choice, I’m afraid to say. That mantra about evolution and survival has never been more prescient.
So, What Are We Going to Do About It
Real estate companies stuck in the past will lose, plain and simple. That’s why I’m glad to work for a company that recognizes the strategic business value of tech and innovation. Because those that are not technically advanced will attract poorer quality talent, price and market ineffectively, select the wrong geographies to scale and base design and service on gut decisions from someone twice the age of our younger demographic. How many 27-year-olds value fresh flowers in the lobby over coffee? Or a custom chandelier over package storage? Our priorities are not theirs.
But just moving to a customer-centric model isn’t enough. There’s a great comic strip that I recently ran across that shows some sort of consultant or facilitator instructing management to focus on the customer—as well as a data strategy, digital strategy, mobile strategy and, of course, employees. All this basically fills a whiteboard completely, leaving no room for attention to revenue, expenses and all the normal metrics of a well-performing organization. In our industry, we’d also add in market research, jurisdictional hurdles, financing and construction risk, right?
What this cartoon says to me is all of this evolution demands innovation. It requires technology and petabytes of data and skills in digital marketing. It harnesses the power of VC investment to transform our product and our processes, while tempering its exuberance with real estate acumen and regulatory respect. It embraces new and emerging technologies, like artificial intelligence, not as a shiny new toy, but as a more efficient means to an end. And it is truly diverse and adaptable, helping us meet the changing needs and wants of not only our vibrant customer base but also our employees.
Success in this industry in the future is predicated on our ability to innovate—and that begins with change. Changing our perspectives. Our focus. Our expectations. Our way of doing things. That’s no small feat for an industry that historically has had a hard-enough time handling even the smallest incremental changes. But without innovation, that long trail of demand and the rewards that go along with meeting it will pass us by.