It’s time for the CRE Industry to Fibre-Up

Mikael Sandberg is Chairman at VX Fiber, and in this lastest feature, he writes about why it’s time to Fibre-Up the Corporate Real Estate Market.

Without a doubt, Covid-19 has brought about untold disruption across all sectors of the economy.  The commercial real estate (CRE) industry is not alone in having to amend its business practices and operations, but it has been a difficult year for this sector.

Office-based companies have switched to remote working, with some even making the permanent shift to keep overheads down.  A greater reliance on digital technology has also put pressure on the connectivity and power capabilities of office spaces.  Commercial landlords have even had to consider changing the entire layout of their properties to make sure their office spaces are safe and compliant.

Covid-19 has made many businesses permanently re-evaluate what they want and need from their offices. It has also brought existing trends to the forefront, such as the decline of the high street in retail, putting extra pressure on CRE.

The Future of Work: In the Home, At the Office or Hybrid Model?

The recent Top 10 Global CRE Trends Report from JLL suggests a shift towards a ‘hybrid future’ of work. According to the study, only a quarter (24%) of employees want to work exclusively inside an office. Half (50%) of those surveyed would prefer a balance of office and remote working, with an average of 2.4 days working from home. And the remaining 26% would like to work exclusively outside the office. There is no ‘one size fits all’ agreement when it comes to the return to the office – from both an organisational and employee point of view.

As a result, businesses are reviewing working policies and revaluating office space needs and expectations. A recent survey from the CBI and PWC revealed that within the Financial Services industry alone, over two-thirds of firms are looking at redefining or reconfiguring use of existing office space, with nearly 60% considering a reduction in square metres.

The new ‘work from anywhere’ model is also driving footprint dispersion and portfolio transformation in the CRE sector. Santander recently announced a decision to consolidate its office portfolio and move its headquarters to Milton Keynes. And the BBC followed suit, moving more operations to Glasgow, Birmingham, Cardiff, Leeds and Salford.

It’s clear the impact is being felt far and wide by the CRE market.  In Central London alone, lettings’ transactions from office space fell to £8.7 billion from £13.2 billion between March 2020 and February 2021, according to Colliers International.

Increased demand for better tech solutions – more specifically – connectivity matters

It’s not just the size of the office and the location that is influencing the choice of rentals and renewals.  CRE tenants are now looking for increased smart solutions within their office, leisure and retail properties.  There is a noticeable shift in the industry from simply providing physical space, to the provision of an array of digital services.

Amenities that were once considered added perks, like high bandwidth connectivity and IoT (Internet of Things) appliances, are now essentials that new tenants will expect to see.  Smart ways to manage appliances and energy use, such as apps that can control lighting, heating and air conditioning, are also set to grow in tenant popularity as office spaces are used more flexibly.

The rise of the gig economy and the new internet-enabled business models has increased expectation around connectivity.  Even the smallest start-ups expect a high bandwidth internet connection, making “Gigabit speed” connectivity essential.  This puts developers under pressure to offer the fastest broadband speeds and the most reliable and robust digital infrastructure, ensuring buildings are smartly connected.

However, a mere 5.1 million (18 percent) of UK premises (residential and commercial) have access to ‘full fibre’ (also called Fibre-to-the-Premises or Home FTTP/FTTH) connectivity.  The ‘superfast broadband’ currently accessed by over 95 percent of UK premises, has been mostly delivered by Fibre-to-the-Cabinet (FTTC) technology.  FTTC is part-fibre part-copper technology: fibre optic cables run to a street cabinet, and then existing copper telephone wires are used to connect the cabinet to individual premises.  The speed of the connection decreases the further away from the cabinet the premises is based, because the signal loses strength as it travels along the copper wire.  Other technologies are also capable of supporting superfast broadband, including cable broadband and fixed wireless connections.  It is widely recognised that legacy copper and coax hybrid networks can no longer support the growing needs of the industry.

Full fibre FTTP is the most future-proof technology and important for supporting high-capacity mobile networks such as 5G.  The CRE industry needs to embrace full fibre connectivity to improve the attractiveness of a property, add value to a development, and lay the foundations for evolving services.  Having use of full fibre infrastructure means that whatever the latest digital services, systems and sensors are, there is the basic “nervous system” around the development to support them.  In fact, Collier International has stated that infrastructure upgrades are helping the CRE sector to drive demand.

Taking ownership of its digital destiny

Historically, developers have left the expansion of this critical utility in the hands of telecoms companies who have owned the passive or physical cables, operated the networks, and provided services to end-user customers.  Developers are increasingly seeing fibre optic cables as part of their real-estate assets. But the truth is that it’s not just about committing to full fibre connectivity, there are also business models to consider that can provide a lucrative opportunity for developers to tap into new revenue streams – anyone can own fibre and make money from it.

CRE developers and landlords need to understand the economic advantages of investing in their own full fibre networks as part of their developments.

Open Access – the pioneering way …

Traditional monopolistic and vertically integrated networks entail one Service Provider owning and managing all layers of the network: the fibre in the ground, known as the “passive layer/network”; the network management systems which comprises the electronics and software – the “active layer/network”; and provision of services to the end-user customer – the “services layer”.

‘Open Access’ typically means the access granted to multiple Service Providers on a wholesale basis over one physical network infrastructure.  This enables different Service Providers to reach the subscriber without the need to deploy a new fibre access network themselves.  All products and services are made available to subscribers through a web portal via independent Service Provider partners, making it easy to sell, provision and maintain the network with minimal system administration.

An open access model disaggregates the different network layers described above.  There are a number of variants of the open access approach – the three-layer model which consists of the separation of physical infrastructure, from operations and service provisioning is the most complex but it provides the most flexibility and highest returns on investment.

This means that property developers and landlords can invest in, own and monetise fibre (the “passive layer” of the network) while the operation can be handled by third parties.  These fibre assets can then be leased to network operators and Service Providers to operate a healthy rate of return.  Services provided over the passive network need not be restricted to Internet Access, they can include services requiring internet connectivity such as CCTV, BMS or IoT applications.  Multiple services can be provided simultaneously on the same network to the same location, over the same fibre.

Open Access Neutral Operators, such as VX Fiber, ensure that the developer or landlord does not encounter diseconomies of scale or difficulty in onboarding Service Providers.  The result is a more competitive environment with lower barriers to entry for fibre and service owners, and greater choice for the end-user customer.

Adapting for the future – CRE Industry – it’s time to fibre-up!

The theme for the past year in the CRE world has been adaptation in the face of extreme challenges.  If property owners and agents want to make sure the future is bright, they’ll need to get on board with changing customer demands.  Failing to adjust their offering means they’re stuck with empty properties and struggling investments that soar from an asset to a burden.

There is a clear commercial opportunity for developers to provide a property portfolio that is kitted out with data connections based on full fibre FTTP that sits within an open access model.  Technology continues to drive the way that we use space, therefore enabling connectivity should be a priority to meet rising expectations around bandwidth.  The CRE industry needs to focus its efforts on the services and technologies that can enhance the occupier experience in a property.  Not only will this add value to a space, it will also drive those all-important revenue streams.

Quite simply, to remain competitive and stay ahead of the curve the CRE sector needs to fibre-up via open access.

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