Commercial Offices

For all their evident concerns over current economic and political uncertainty, many in our industry believe the biggest threat to the office market in big cities comes from the technological disrupters that will pave the way for new ways of working. The modernisation and digitalisation of banking, automation of routine transactional tasks, the use of artificial intelligence (AI) and virtual reality (VR) will affect how much space is needed and how it is used.

These developments will make it harder to sustain full occupancy and could exert a significant drag on office take-up. But they will also create opportunities to deploy space more innovatively, more productively and extract premium returns for investors that succeed in developing and operating such a complex “product”.

Those workers that are still needed however, are more likely to be in creative roles and demand a more flexible office environment. And inevitably problems will surface during a period of transition. The director of one international design firm points out:

“We are seeing an increased density in the workplace. Large open-plan workplaces with a lot of people in them – [but] there is evidence that this is damaging productivity, and that there isn’t enough choice in how and where to work. This is affecting ability to retain talent. We will need more mobile solutions, ability for workers to work outside the office.”

Emerging Trend Europe’s respondents agree we will be spending much less time in the office as we continue to move towards more flexible working. Shorter, more flexible leases, more communal and break out areas, a focus on wellbeing and digital connectivity will be core requirements for the offices of the future. Offices will be ruthlessly judged on their technological capabilities and how they boost collaboration and human interaction. The quality of the workplace and how it aligns with all the other places we spend our increasingly integrated lifestyles will become a key tool in the war for talent.

From the perspective of the real estate owner/operator, Emerging Trends Europe’s respondents see a continuation of the trend towards shorter leases, flexible leases and contracts as “partnerships” with tenants. These changes will be driven further by new IFRS 16 accounting standards, which capitalise most future lease obligations as a balance sheet liability for the tenant. This will inevitably shine a spotlight on the value-add that each component of a lease provides, and add weight to the shift towards real estate as a service. All of the above point to a divergence in value between the new generation of offices and more traditional spaces, suggesting that “younger” portfolios should outperform. As businesses strive to innovate and keep pace with rapidly changing demands, they need to adapt their operational capabilities quickly. Workspace will thus become obsolescent and in need of much quicker upgrade and renewal than ever before.

77% of CEOs in PwC’s 20th CEO survey are concerned that key skills shortages could impair their companies growth and it’s the soft skills they value most that are hardest to find.

Working spaces that nurture creativity and productivity will play an important role in attracting that talent, and the reality is that traditional offices – like the ones we’ve worked in for the last 20 or 30 years – will change. The way younger people use real estate, the way they work in it, it’s changing.

We believe that low economic growth may be a catalyst for change as the pressure to cut costs and get more from space intensifies. For both new and existing office space, functionality will be key with shorter, more flexible leases, more communal and break out areas, a focus on wellbeing and digital connectivity moving from nice to have to must have.

“Technology is changing how we think about space,” said Laing. “We need to redesign space for work rather than for offices. We should think of this as a ‘workscape’: a collaborative in which spaces and buildings are increasingly shared, and space is more often provided as a service.”

Fast-forward to today, however, and technology has severed the desktop umbilical cord, allowing the social democratic model of office design to evolve to the networked workscape.

“Technology is redefining the time and space of work, allowing new ways of collaborating,” Laing told attendees. “Today we are mobile, but we have not yet fully designed our work environments to recognize this. Work can now escape from the office and will be happening in a new variety of types of buildings. Working places will be provided in new ways with new kinds of players, changing who is providing the work space, how is it provided, and how is it consumed.”

For example, in one tech firm, a group of app developers facing a tight deadline were allowed to rent a house together during the life of their project. Collaborating closely away from the normal office routine, they successfully completed their project much faster than anyone had anticipated. The organization decided to replicate the success of the “app house” within its evolving office environment.

“The new demands of knowledge workers will reach well beyond the scale of the office building to the much wider setting of the city and suburb,” Laing said. “We used to say that the office is the city, but now are saying that the city is the office.”

New urban workscapes are appearing along three different models, according to Laing:

Co-working spaces, where individuals come to work and collaborate
Open houses, in which organizations open their doors to others in addition to their own employees
Cohabitation, in which groups of organizations share an environment.

Six key concepts, in Laing’s view, define the networked workscape:

It has density. Physical closeness boosts virtual communication; in one study, engineers working closely together finished assignments 32 percent faster than those working in different places. It’s not about saving space, Laing pointed out, but about accelerating productivity.
It allows for serendipity. The best workspaces are designed to maximize the possibilities of chance encounters, which can lead to valuable interactions. Facebook’s new building, noted Laing, is basically a huge space in which people can easily bump into each other.
It’s networked. Successful networked workspaces are diverse, permeable, open-ended, 24-hour, interactive, nonlinear, and surprising. To achieve this type of environment, architects are deliberately not designing around efficiency.
It’s sentient. Cities, organizations, and individuals now have the technological capacity to sense, record, process, and transmit information in a way that changes how we use space. For example, GPS navigation on every smartphone enables individuals to find their way around what might otherwise be complicated environments.
It allows for sharing. The expansion of the “sharing economy” will change the way space is provided and consumed. The same smartphone that allows individuals to obtain Uber rides will allow them to obtain space on demand—as a service—bypassing the traditional roles of landlord and developer.
It enhances the workers’ experience. Laing concluded his presentation by asking: “Why are we not planning for the ultimate human level of comfort, which is happiness? The purpose of a workscape is to provide a creative environment in which knowledge workers can thrive, do productive work, and be happy.”