The beginning of each year is a time for reflection and inspiration. With budgets set for the new year and the last numbers from the prior year confirming past actions taken were productive, we often see momentum carrying the business behavior in commercial interiors year to year. It takes a few years to build a building, so overlapping projects often drive the daily agenda in commercial real estate and the service providers in support. For the most part, the economic cycles had been linear and predictable, and value accumulated over time. Corporate profits were constrained by relative output. No one believed that a billion-dollar company could be started and run by one person, and most still don’t.

The mass of an organization, reflected in data around square footage, headcount, chairs, beds, or foot traffic could be directly translated into predictable demand for interior finishes and associated services. Under these circumstances, success could be repeated, and the reward spreads were normalized across the market players. Unlike other industries, where profit leaders like Apple, Visa, and Nucor hold a massive profit advantage over their competitors, the commercial interiors industry demonstrates a normalized reward spread between the best companies and mediocre operators.

Champions or Declining Dynasties

We are now in an era where business is non-linear and unpredictable, where value suddenly appears with a viral TikTok. Profits scale exponentially to top companies. Top talent is drawn to those companies that can support outsized rewards. In this environment, it is becoming more difficult to repeat success. We have never had to deal with these issues in our commercial flooring industry. However, this has been the norm for publishing, movies and television, music, college sports, professional sports, and, in some ways, the architectural and design community. In this environment, the immune system of successful companies will resist change. Creating professional discomfort by experimenting or meddling with a successful system is the very last thing that managers will attempt. Leaders are often forced to create a “Skunk Works” or hire a disruptive team to get the change needed to ensure an adaptable enterprise. If one tries to deploy a customer relationship management (CRM) into a successful veteran team, the immune system response will be strong, and individuals will exit rather than adapt.

Black Swan Strategy

What if the customers change? Is the negative reaction inside an organization just as strong? Normally it isn’t, because the WHY for change is stronger than the immune system. The customer becomes the rally point for the need for change, but the timing is off. Often it is too late, because successful organizations with incumbent status and the perception of a moat around their business are often the slowest to see the change in client needs. By the time they react, it is too late. Desperation is an amazing motivator, but successful companies rarely use this motivational tool at the right time. This sounds ominous, but understanding the implications intellectually allows leaders to assist their teams to adapt emotionally before a crisis. Unpredicted client change leads to desperation. We are recommending that the Starnet members keep a close eye on client trends and begin preparing their teams for business conditions that will appear as if everything is a ‘black swan event.’

Technology Impact on Client Workplaces

Advancements in technology are not only facilitating remote work but also changing the workplace's function. There's an increasing emphasis on technology integration, smart buildings, and flexible workspace solutions like coworking spaces. Technology drives productivity, collaboration, and efficiency, leading to a demand for office spaces that support these aspects. The future might see more buildings designed with technology that maximizes energy efficiency, connectivity, and user experience. Our members should be asking clients about these trends and anticipating the products and services that will be needed to support these environments. Flooring, fixtures, and furniture need to respond to these trends. If our members think this is solely the interior designer’s job, then they should always plan to be the lowest price. Good luck.

Geographic Service Deployment to Active Real Estate Markets

With the rise of remote work, workers have more freedom to choose where they live, often moving to areas with lower costs of living, higher quality of life, or better opportunities. This has led to increased demand for residential properties in suburban and smaller town areas, affecting both residential and commercial real estate markets. There's a shift towards properties that can accommodate remote work, like homes with dedicated office spaces or developments that combine living and working environments. Members with the flexibility to quickly deploy assets, secure reliable partnerships, and handle logistics across multiple markets may enjoy outsized returns. Manufacturers who can support multi-branch members at the branch level without the traditional sales commission structures limiting the experience will also benefit.

Future of Central Business District Areas

By 2030, central business district areas will likely see a transformation due to these shifts in work culture. While some predict a decline in traditional office use, others see an evolution into mixed-use spaces where living, working, and leisure coexist with dramatically improved interior finishes. Companies are trading in square footage and central locations for quality and flexibility. While they might need less capacity, they are investing in premium finishes to draw people back to the office. The reduction in space by individual companies could potentially lead to redesign of urban areas. New development will emerge to cater to a hybrid work model with a mix of indoor and outdoor spaces. Materials that traditionally have been used in hospitality may increasingly be deployed in office functions. Being over staffed in carpet tile and LVT crews without having the ability to execute pavers on pedestals, polished concrete, or acoustic treatments may limit opportunities.

Changing Concept of Work and Real Estate

Remote work has significantly altered the traditional office model. The shift towards flexibility in work locations has led to a decrease in demand for large, centralized office spaces. The titans of tech have deployed major offices nationally to have access to talent. The talent used to migrate to the employer, so you had large headquarters that scaled with market power. This multi-location trend is driven by the desires of associates to push the limits of work-life norms and economic pressures, leading companies to seek smaller, more flexible, and cheaper office spaces. The multiple-location effect now includes equipping home offices, satellite locations, and collaboration hubs. Our members might offer that as a subscription or menu service rather than waiting for the opportunity to bid and be low. The concept of telecommuting, first proposed in the 1970s, has become a widespread reality with digital technologies and will accelerate with the impact of connections like Starlink. This has implications for how commercial real estate is structured, focusing more on offering workspace leadership development solutions rather than just office spaces. Companies who are organized to manage a series of big projects during a year may struggle with a series of smaller projects at higher velocity.

Read the Signals

These topics should inform the business planning for our members and all specialty trade contractors. They suggest that the future of commercial real estate is tied closely to how work continues to evolve. We are at the mercy of technological advancements, changing demographics, and new central business district living preferences. No one has the future correctly mapped. Strategic decisions will be right or wrong, as measured by the long-term financial results. Planning is safer and results come project by project until there are no projects that match business capability. Predictive strategies can be developed by staying close to commercial real estate and consulting firms like CBRE, McKinsey, or Deloitte, which generously share insights from events, articles, panels, webinars, and client recommendations on these topics. These insights on the client condition are great tools to overcome the incrementalism of the immune system response to change by successful interior contractor incumbents.