Deidre Woollard: Welcome back, real estate investing Fools. I'm Deidre Woollard, Editor at millionacres.com. Today we have a spotlight on the future of offices, this is just a topic I'm obsessed with right now. We keep calling it the wildcard in real estate. I'm really excited today to talk to Brian Chen who's the CEO of ROOM, company that makes type of office furniture that I think maybe we were most interested in right now, which is private phone booths and meeting rooms. Thank you for joining me.
Brian Chen: Thanks for having me.
Deidre Woollard: It seems the new office is something everyone's thinking about. Looks like people are going to start going back. Some people have gone back already. A lot of offices are holding out till the fall. We're all thinking about what the new office looks like. I'm assuming demand for your products right now is probably pretty crazy, is that right?
Brian Chen: Absolutely. People are eager to get back to offices and they're using our products to figure out how to reconfigure their floor plans for the best possible experience, knowing that how we work is about to change pretty dramatically.
Deidre Woollard: Even before the pandemic, I think there was an acknowledgment that may be the open floor plan, it has its drawbacks. The fact that your product existed before the pandemic shows that you were already working on solving that. What are you seeing now when it comes to the open floor plan idea?
Brian Chen: I would say before the pandemic, we all defaulted to this idea that if you worked at a company with an office that you were intended to be there from 9:00-5:00, and that was just the default assumption. When people were planning offices and real estate, I think that there were just as overwhelming drive to try to fit more people into less square footage and that's what led ultimately to the open floor plan. You're able to actually, in these workbenches, put a lot of people side-by-side and really densify offices. That led to a lot of problems with lack of privacy and too much noise. It's over 50 percent of employees in the US before the pandemic had complained about noise to their bosses. Now, as we think about returning to offices after a year-and-a-half of working remotely, the idea of returning to that level of density, I would say is truly gone. We're now thinking about hybrid workforces where you have a portion of the workforce that is remote, a portion that is in person, and ultimately, companies need to design their spaces to accommodate hybrid workforces. That means that density is no longer the overwhelming driving force. Ultimately, I think what the challenge companies have today is they need to find a way to inspire people to return to the office. They need to create these great workplace environments that actually make people want to return rather than stay at home and just work remotely.
Deidre Woollard: I think that's something that I'm seeing a lot is that this is what a lot of offices are thinking about, what will drive people back. Because we've all developed these habits when we're working from home. I think for me one of them is sometimes I talked to myself, not a thing I could do at the office. With privacy and soundproofing, how does room address that issue particularly? Are the rooms soundproofed?
Brian Chen: They are. We take great pride in the acoustic properties of our products. Essentially, there's soundproofing so that you don't really hear colleagues who are outside in conversation and you have this sense of private conversation. I'm actually in one of our products speaking to you right now and you can see, I don't have a microphone or a headset on, and I feel very comfortable speaking to you without any disruption or distraction from outside. What I think we all know is that even after we start returning to offices, the era of tons of phone calls, tons of video conferencing, that is here to stay. That's not going anywhere. If anything, hybrid is only going to increase the amount of video conferencing that is part of our daily lives. What you realize when you're back in the office is that you actually need dedicated types of space for video conferencing. Imagine if you return to your old workstation and you're on a video conference call, what you need from a headset perspective also to eliminate the background visual noise. Those are things that the previous iteration of open floor plans just simply didn't take into consideration. That's why as we enter this new work environment, where it's lower density there more environments in a floor plan and there's heightened demand specifically for this video conferencing and hybrid collaboration, you need dedicated spaces to accommodate that use case. That's very much what we provide.
Deidre Woollard: I think that is just so important because one of the things that we've been talking about at the Motley Fool is this idea of if we've got a hybrid workforce, we don't want to have the situation that we had before the pandemic. Which was maybe you had a bunch of people in a meeting room and then you had some people remote on zoom. It wasn't really fair to the people that were remote because they couldn't necessarily hear all of the activity that was going on in the room. There were always sound issues and it just wasn't an equal type of experience. It seems to me products like ROOM are going to be essential to have in the office for getting back to that equal feeling.
Brian Chen: Exactly. For the most part, if we think about cross-functional communication or team communication, tools are either designed for 100 percent in-person, where you're all gathered together in the conference room, or they're really designed for 100 percent remote. Now, in this hybrid world, you're going to have people in the office in a group having colleagues dial-in, and you really need purpose-built spaces to make that work well. The meeting room that we've launched in the fall of last year, is a really good example of that. It's designed to see between 2-4 people. The audio-visual equipment is built-in and integrated into the product. The camera that we use that's part of the product is actually a 180-degree camera, which means that it stitches together every part of the ROOM into a flat-screen. Everybody has equal visual access to the monitor and everybody can be seen. Really, these nuances are so important to create a level playing field, whether it is your visual representation or the ability to have your voice heard clearly and cleanly through a microphone or even the lighting that you received when you are on the video conferencing call. These are all details that really need to be paid attention to, to create that equivalently great experience whether you are remote or in-person. I think actually one thing that becomes really important in this hybrid world is thinking about equity and inclusion and it's going to force us to have conversations around culture in ways that we have never had before. Because different types of people want to work remotely, different types of people want to work in the office, so that level playing field becomes that much more important.
Deidre Woollard: Especially when you're talking about issues like childcare and there has been that concern that some women have been left out of the workforce because of that during the pandemic, so I think that is a really good point. Speaking of that, I noticed that ROOM is also starting to develop some work-from-home products, desks, accessories. Looks like you're embracing both sides of that hybrid office trend. What does that look like? Are people actually ordering room products for home use?
Brian Chen: Our whole belief is that employees will do their best work when they're given choice. Instead of defaulting to that 9:00-5:00 and coming into the office and then commute every single day, when you give choice to employees, they will make decisions that will maximize their happiness, productivity, creativity, and ultimately their happiness with the company for which they work. Now what that means is that if you want to create and thinking about a great workplace environment, you have to think about the network of places from which you're employees can do work. One of those nodes in that network is going to be your home office. Creating a great workplace environment in your home is incredibly important. What we have done is we've taken our focus room, which is a true private office replacement that's modular, shifts flat, symbols on-site in the office. We've taken the furniture bundle there and made it into a basically a one-click work from home solution that companies offer to their employees. It has an assistant desk, it's got integrated electrical. It takes into account all of those things that you need to think about in creating a great, comfortable workplace environment at home and it makes it accessible via one click of a button.
Deidre Woollard: Interesting. I like what you said about nodes. Those other nodes are they co-working spaces, maybe? Or smaller offices? One of the things that I'm following as a trend is the movement away from the large corporate campus and into smaller office spaces. Are there places that are in that node network?
Brian Chen: Our belief is that the future of work is this easily accessible network of great purpose-built spaces. Part of the reason why we're seeing our products and the demand for our products really accelerate is this idea of distributed hub and spoke work environments. We've always had strong business in central business districts. We continue to see that. But what's really interesting is we're also seeing a lot of demand now coming from flexible office providers that are opening up locations in suburban, formerly retail real estate spaces. They're converting those spaces to this new network of workplaces. What that means is if you live in New York, for example, instead of being required to commute by subway one hour every day, each way, you're able to actually go to the nearby mall and access a great work environment there. We're seeing this also in multi-family residential real estate. There is a strong push from multi-family real estate developers to make sure that they're competing on their work-from-home amenities. Which oftentimes is, well, if you're building a residential building the business center that you had previously had in mind, you probably need to reconceptualize to be competitive. They're flexible office providers of co-working spaces. They've really mastered what it takes to build great workplace environment and a piece of that is the products that we provide. That means that our phone booths, meeting rooms, focus rooms, are finding increasing presence in multi-family real estate, not just the central business district.
Deidre Woollard: That is so smart. It's been interesting to me to watch that type of space is now absolutely a multi-family amenity. Let's talk a little bit about sustainability. How does ROOM think about sustainability when it comes to design and also to recycling or refurbishing?
Brian Chen: We really want to take a very holistic view of sustainability and the impact of our products on the environment. We approach it through a few different angles. The first angle is the materials that we use. Our phone booth as an example, uses a little bit over a thousand recycled plastic bottles in every single product. We use their material for the sound absorption properties that go into the product. The second aspect beyond materials is your entire supply chain. The products that we manufacture, that we design, they're large, but we design to ship flat and to assemble on-site, which helps save on carbon emissions. We actually have programs in place with our logistics partners to offset carbon emissions along the freight and logistics aspects of our business. The final piece, which is probably the most important, is when you look at the build environment and the waste fullness of it, it really comes in the cycles of tear-down buildup. That is where the carbon emissions are truly coming from. The most sustainable chair you can have, for example, is the one that you don't throw away. But it's the one that you use for very long time. Our products are designed with 10-15-year life-cycles in mind. Because of the modularity and the movability and adaptability of the products themselves, they can be used across multiple cycles of leases. There's great demand for shorter-term leases, for more flexible leases, and instead of having to have your offices and buildings go through the cycles of tear-down, demolition, white-box, buildup, leaseback by using room modular architecture, you are able to eliminate that and really re-purpose your floorplan in a way that still remains truly purpose-built in optimized for your specific use case, but without requiring new products in the waste that comes along with that.
Deidre Woollard: I love that you mentioned the word modular because I feel the interesting thing about Room is it modules within a larger open space, which I think it's just really smart because I think a lot of times we think of modules, sort of individual things that are then stacked together, but you can actually have modules within a larger space.
Brian Chen: I think when people are looking at returning their employees to offices, there's still this big question of who really want to go back and why are they going back? If the workplace strategies we talked to, the facilities managers, real estate directors, real estate at various companies that we work with, they all have this question of what is the density that the office is going to need to accommodate and what types of work will it need to accommodate? Will it mostly be focused work? Or will it mostly be collaboration? That's a very challenging set of questions to answer until people are back. Now when you take and adopt this modular strategy to the work environment, you can take the guesswork out a little bit. You don't have to commit yourself to a completely new design and construction that you're going to be stuck with for the next 10 years. You can instead take this pilot experimental approach with modularity and you can see whether the focus room is being used more or less than the meeting room. Then you have this opportunity to adapt to the needs of your employees over time. That's really what makes for a great environment. It's the environment that can adapt and really co-evolve with your team and culture. That's really going to be where the magic happens, the recipe for a great workplace environment.
Deidre Woollard: Fantastic. Last question for you. I would like to ask product creators how they're thinking about their own real estate usage, what's that like for you've storage, manufacturing, how are you expanding?
Brian Chen: We've kept our office throughout the pandemic and we've let our employees know that really choice is theirs. The office is one node as we were talking about and the network of places where they can work. We try to really make it in an inviting environment where people can come and be inspired to do great work. What that has meant is people are probably coming in 2-3 days a week, the density is a little bit lower than before but the energy and the positivity and the intentionality of this space, I would say is higher and more inviting. As a company that provides what we ultimately want to sell is a great workplace environment. Obviously, we need to be living what we preach and so our office is very much a manifestation of that.
Deidre Woollard: How about storing your products and manufacturing them?
Brian Chen: I think as with everybody right now, we're experiencing crazy supply-chain disruptions in the world. A lot of that has led to, is a shift in manufacturing and supply chain strategy. From thinking purely about outsourced supply chain models to really thinking about onshoring. We have seen a lot of our supply chain move onshore, get reassured. We work with domestic suppliers. Our products are manufactured in Indiana, that has a sustainability impact as well as just reconfiguring the space that we end up occupying. I think that trend is going to continue and probably accelerate. For us, we also have a significant operation in Europe. We have offices in London and Berlin and really what we're moving towards is a regional manufacturing strategy so that our products can be as closely as co-located as they can be with our customers.
Deidre Woollard: That is so smart. Well, thank you so much, Brian. This was fascinating. So much food for thought in this one. Remind our listeners you can learn more at room.com, which is just a great URL. Stay well and stay invested.