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To soften blow of disruption, embrace it

If real estate companies' operations have remained generally healthy despite significant changes in space demand that have accompanied disruption from new technology, it may be because they are doing more to embrace and incorporate disruption.

"No one in this room knows what's going to happen three years from now," Glenn Rufrano, VEREIT Inc.'s CEO and director, said at the NYU Schack Institute of Real Estate's 2018 REIT Symposium this week.

Office-landlord executives' remarks, in particular, conveyed a new commitment to flexibility. Early panels addressed the dramatic expansion of co-working space startups, which some have deemed a threat to the traditional office business and the underlying landlord-tenant relationship. However, Boston Properties Inc. CEO Owen Thomas described the rise of WeWork Cos. as "very positive" for the traditional office business insofar as the startup and others like it aggregate demand from smaller bodies into a workable contract. Shared workspace startups have been responsible for 30 million square feet of net absorption since 2010, he said, citing estimates from the real estate investment management firm Jones Lang LaSalle Inc.

The shared workspace and traditional office business models are symbiotic, Thomas said.

"We still feel that the business we do with major corporations that is, creating great space, creating great brand and image is not going away."

Empire State Realty Trust Inc. Chairman and CEO Anthony Malkin, by contrast, called the so-called WeWork phenomenon "much more chilling." He argued that the shared workspace model compromises traditional office security measures and accelerates wear and tear on the space. But Malkin applauded WeWork's improvements in the areas of tenant relations and amenities — in short, the dressing down of formal workspaces and the jettisoning of private offices for shared areas — innovations, he said, which traditional office landlords and tenants themselves are incorporating into their own businesses in order to improve "the quality of human contact" at their own properties.

"We did it ourselves," Malkin said of the co-working model, "although we do not do kegs and skee-ball and ping-pong."

Malkin said new tech has facilitated more sophisticated monitoring of two of Empire State Realty's chief portfolio priorities: air quality and energy efficiency. The Empire State Building, the crown jewel of the company's portfolio, is, despite its age, the world's largest wireless network system in a single building.

"The energy efficiency lessons that we learned there we've deployed throughout our portfolio," he said.

Boston Properties' Thomas said tenant services are a new focus for the company and will likely be a dynamic new arena industry-wide. A plethora of new mobile applications an "app for everything" are transforming high-friction processes and communication channels. Gaining entry, ordering food, organizing floor space will all be streamlined.

"I think you're going to see a lot more sophistication and a lot more community built, particularly in office complexes, but also in specific buildings," he said.