Big Office Occupiers Push Back On The New Clichés Of Real Estate
Offices are going through one of the most profound changes in how they are used in generations, and the real estate industry is telling itself everything is going to be all right.
That’s not surprising: After all, offices are the biggest subsector of real estate, and people that own offices only have to look at their retail assets to see how changes in the way people use a physical asset can destroy its value.
A new prevailing wisdom has taken hold. Fewer people will come into the office, but they’ll want more space, so demand will be about the same. People might not come into city centres, but they will still want to work outside the home, so suburban offices will boom. Good technology and flexibility in offices will stimulate demand.
While there is some truth in this, what do the ultimate consumers of real estate, the companies that lease space and their staff, think of the new world? The answers, provided by those making real estate decisions at some of the world’s biggest companies, speaking at Bisnow London’s Digital Office Summit last week, might not make comfortable reading for those who are long on offices, especially if those offices aren’t the best of the best.
“In terms of demand, I would be shocked if people as an average keep the same amount of space, looking at what we’ve seen as we’ve moved to a hybrid model over the past few years,” Telefónica Estates and Development Manager Chris Early said. The company employs 120,000 people around the world.
“You’ve got a massively strong pincer movement,” he added, coming from an increased desire of staff to not be in the office all day, every day, and the financial pressures on companies and the savings that can be made in reducing space. Early said before the pandemic, desk utilisation rates were on average 50% in both public and private sector companies. “That’s rubbish, and won’t be tolerated anymore.
“I think that pincer is far too strong, and there has to be a reduction in office footprint overall. I think we are deluded if we think there won’t be. There are still people banging the drum for, it will all go back to normal, but I don’t think that’s realistic. And I don’t think it would be responsible to do so from an environmental perspective.”
In terms of the location of demand, a lot has been written about companies moving to a hub-and-spoke model, with a central headquarters, possibly of reduced size, along with smaller offices in suburban locations, closer to the homes of employees. This is the solution that flexible office operators are particularly interested in; IWG UK Chief Executive Richard Morris pointed out that companies would be unlikely to take permanent suburban offices, but could take flexible space to be used when needed.
But this is not going to work for all companies, the summit’s audience heard, especially larger companies with strict regulatory or compliance issues to take into account.
“For the type of organisation we are, a financial institution, I’m not really sure whether the idea of the hub-and-spoke will play itself out in reality,” Morgan Stanley Global Head of Corporate Services Ekene Ezulike said. “But I get how for certain industries that would work."
“What I don’t know works is if the spoke model is where a lone ranger or a couple of lone rangers get together near where they live to come together and work."
For a big corporate it is always going to be the case where the centre is where people come together to collaborate, he said, and then if people ultimately don’t need to do that for a particular day or week then they use the technology to access the centre and make video calls or find other ways of collaborating.
“For us I don’t see the spoke being that relevant,” he said. “Having said that, certain suburban locations, campuses that we have in locations around the world, the desire to work there has gone up sharply, but what we’re thinking of is moving certain teams there, rather than one or two people from different functions.”
Ezulike outlined how the company is looking to tap into that current real estate buzzword, flexibility, but that does not necessarily mean leasing lots of flexible office space. Technology provides people the ability to work remotely, and then the HQ itself needs to be flexible.
“Flexibility means the underlying infrastructure within a building, so you have space that is reconfigurable, because the workforce of today and how it works today could be very different to that of the future — we don’t know exactly how, but you need flexibility of design so you can change where you need to. And finally it’s about flexibility in your lease arrangements so that you can flex up and down depending on how the organization changes and reshapes itself.”
In terms of technology, companies are using new tools to work out whether some of the design principles that have become fashionable in recent years, such as agile working and collaboration spaces, are what people actually want.
“We are definitely looking at how we utilise technology throughout our business, and right now we look at office booking being the priority,” Transferwise Office Expansions Project Manager Geraldine Jardeleza said. The tech company has 14 offices across the world.
“That is being able to book in to come in to the office, being able to contact trace if there are any cases.”
Second right now is how are employees beginning to use space post-COVID. Now that companies have built this office of the future, how will employees use it?
“It’s not just about tracking desks anymore,” she said. “We’ve created these agile and collaboration spaces, it’s understanding how employees are actually utilising these spaces. They may have said they want them, but do they actually use them?”
Having a really good tool or technology or software that provides a great dashboard and analytics allows the workplace team to make data-driven decisions, she added.
The big takeaway from the session is that in future, people won’t have to come in to the office — you have to make them want to.
“Market dislocations come and go, just look at 9/11 or SARS,” Ezulike said. “I think what you’ll find with human nature is that normality will return, but maybe with quirks.”
Whereas before some managers or leaders in organisations wanted to have everyone within eyesight of their office, we will see the trend continuing of people spending one or two days a week from home, he said.
“Things that emphasise or reinforce the human experience will be so important. When you want people to come in and collaborate in work, you have to differentiate the workplace standard. It needs to be different and curated and people need to feel it is a better destination than working from home.”