Earlier this week, Mike and I sat down after a meeting with a large shopping centre landlord who will pilot Qualifyr across one of their centres in the coming months. We got to talking about our shared vision for the future of CRE and ended up reflecting on the first months of working on our business and forming the basis for our partnership and the product we’re now building. We wanted to share that with you here, so you can understand where we come from and, more importantly, where we’re going.
Mike and I met whilst working at Make Shift, a pioneering property developer and operator that grew from a single project in Brixton into a multi-site operator that has helped hundreds of local entrepreneurs access the space they need to thrive. Check them out if you haven’t already – they’re great!
We learned a lot at Make Shift about the CRE industry and how difficult it is for smaller, less well-established, independent businesses to access commercial space for the first time. Like many other industries, CRE is riddled with jargon and there’s not much support out there. The gatekeepers to space, meanwhile, (predominantly Agents and Brokers) are under tremendous pressure to keep occupancy rates high, often at the expense of tenant “fit”. To put this another way, it’s often easier for agents to look to the ‘usual suspect’ corporate occupiers than to qualify smaller businesses who seem like less of a sure thing.
This is why, over the past 30 years, we’ve seen a devastating overstocking of corporate retail in the UK’s towns and high streets. And it’s our belief that the “death of the high street” that’s been much reported has more to do with this overstocking than it does to the rise of internet shopping. As high streets have become more bland and same-y, the crowds have dissipated. As huge retail chains pushed out smaller businesses, experience- and service-led offerings, people have stopped having reason to go to their local town centre. And so the system began to collapse, with an excess of supply (of corporate retail) driving down consumer demand.
This trend also needs to be seen in the light of a broader consumer trend away from corporate retail and towards smaller, local independent shops. Campaigns like American Express’s “Shop Small” are indicative of broader consumer sentiment – increasingly we live in the age of conscious consumerism. This means that people are more aware of where they spend their money, preferring to support smaller retailers than put money in the pockets of faceless corporations.
When you found a business you make a lot of assumptions. Many of them turn out to be wrong. One of the biggest assumptions we made when we founded our business was that agents didn’t care – that they were part of the problem, and had no role to play in the solution of better curation in our towns and high streets. We were very pleased to be wrong. The agents we’ve spoken to over the past couple of years, and those who are using Qualifyr in their agencies today, are people who care deeply about the industry, about their landlord clients and the occupiers who take on spaces through them.
What we came to realise, instead, is that the system is very much stacked against these agents, and the incentive structure of their role is perversely wrong. Agents are personally incentivised (financially, through their commission and bonus structures) to complete deals efficiently and quickly. This often means shoehorning tenants into spaces that are ‘best fit’ rather than ‘perfect fit’, because the time/efficiency coefficient of finding the latter over the former makes it difficult for them to deliver. These personal agent incentives, though, are actually at odds with the interests of landlords, for whom long-term tenant fit is a major priority. The lower the turnover of tenants in a space, the more revenue a landlord receives from their asset. And so it’s in the interests of the landlord for all tenants to be perfectly suited for a chosen space, to maximise the chance of them succeeding and seeing out their lease.
It should be obvious that, for occupiers, being matched with a space that truly meets your needs is a vitally important aspect of succeeding as a business.
Agents are experts in their field, and occupiers are right to trust them in recommending spaces. But with this skewed incentive dynamic in operation, it often doesn’t really work out for anyone.
This problem is complex, and entirely non-linear. It is a gordian knot and there is no single solution that will slice through it. Various solutions have been tugging at various loose strands for a few years now, but the knot just tightens and the problem deepens.
I don’t want to play too much into the stereotype of the tech founder painting their solution as a panacea for a complicated problem. But with Qualifyr we believe we’ve found a way of making commercial real estate that works for everyone.
We call it data-driven curation and, while we’re solving a very real problem in the day-to-day transactional process for agents, our long-game is much grander and more ambitious still.
The concept is simple – we want to use comprehensive data and machine learning to equip agents and other CRE professionals with the information they need to make the right decisions about who occupies commercial space.
Why? Because the future health of our towns and high streets depends on how these decisions are made and, without the application of proper data, decisions will continue to be made subjectively, entrenching biases and stifling innovation.
Through Qualifyr’s enquiry management system we are building the UK’s largest demand-side data set. There are many platforms who aggregate data on what’s being built, what’s being transacted and the changes on this side of the market, but nobody other than us has a true picture of exactly what tenants are looking for from commercial property.
We’re early doors yet, but already we have built amazing insight into how independent businesses think about their search for space, what their stumbling blocks are, and how agents can work with them to help them access space on a level playing field with corporate businesses. We’re also tracking the trends in corporate demand, particularly the way that larger businesses are focussing their expansion plans outside of city centres and into more regional hubs as the commuting habits of office workers shifts post-COVID.
At the moment, as the data set continues to build, we’re manually drawing insights and sharing them openly with our users. We’ve built a beta of a data dashboard that will allow users to compare live, cross-market occupier demand with their availability schedules, giving real insight into how their instructions sit in the market. This first-of-its-kind data service is just the beginning, though – we have bigger plans in the works.
Looking to the future
As much as we love working on the day-to-day of Qualifyr, we’re particularly excited about what the future holds. As our data set continues to grow, we see wide applications for the demand-side data and have plans to build machine learning and predictive analytics into our matching algorithm.
What will this look like? Well, imagine if Qualifyr was able to display location-specific analytics for each unit or commercial property that an agency or landlord has to let. The factors that are most important in assuring tenants fit – factors like local business composition, residential and commercial demographics, transportation and servicing – will be applied to our algorithm and determine which businesses we recommend for occupancy in a given space.
Business analytics data on individual occupiers, meanwhile, including information gleaned from open banking application, Companies House and traditional credit referencing agencies will allow agents to instantly perform high level due diligence throughout the lettings process, rather than at the very end.
The final layer we’re working on is an alternative business analytics dashboard that seeks to disrupt and supplant the current, outdated ‘covenant strength’ checks that are industry standard at present. I’ll write more about the need for this alternative method of business viability checking in a future post. But its mechanics are pretty clever, and rely on our proprietary data set being blended with the other information sources I’ve referenced above. By looking at historical data about how similar businesses have fared in different types of spaces, we hope to build a predictive model that will anticipate the likelihood of business failure, or success, in a given space. There are lots of technical challenges to building such a system but we’re on the case and hope to launch a version sometime in 2022.
By marrying a wide variety of data sets and building a sophisticated, data-driven understanding of the mechanics of the occupier-space relationship, Qualifyr is uniquely positioned to build a CRE market that is fairer, more accessible and truly works for everyone.
And this, from the day we set up the company in November 2019, has been our key motivation. We believe that the right occupier mix, across independents and corporates; blending services, retail, leisure and culture; incorporating sensitivity to locale, heritage and demographics, will safeguard our towns and high streets for the future.
If this is a vision you share with us, we’d love to hear from you. If you’re a landlord or agency that’s looking to put data at the centre of your professional practice, perhaps we can help! Sign up for a demo and free trial today.