No one needs to hear the words “rumours of my demise have been greatly exaggerated” again. Not just because it is a misquote, but because anyone who is working in the world of real estate and offices knows as much. Despite an increasing demand for flex space, the majority of leases on offices are pretty long and require expiries or breaks to get out of them. That means that knee-jerk reactions that could lead to the death of the office just aren’t possible.
So property owners, take a deep breath. It’s all going to be OK. For a while anyway. But, says Dr Lee Elliott, global head of occupier research at Knight Frank, don’t get too complacent. Changes that were taking place pre-Covid have been accelerated and the onus now is on landlords more than ever to truly understand who occupiers are and what is important to them.
Elliott spoke to more than 400 global occupiers, employing more than 10m people collectively, to get an insight into what they are thinking. Here, he shares that insight with EG.
The first key takeaway from Elliott’s research, published in Knight Frank’s most recent (Y)Our Space report, is that real estate matters and it matters a lot to business.
Some 90% of respondents to the survey said that real estate was a strategic device for the business, up from 85% when KF first undertook the survey in 2018. Around 65% said they were not expecting to reduce the size of their portfolio, while 30% expected to increase their office footprint. Some 40% of those anticipated doing so by more than 10%.
Elliott boils down occupiers’ key thought processes around offices to a list of four S words. The first among them being strategy.
“I don’t see many occupiers in the future taking real estate as a box to put people in or simply a factor of production or even a cost to manage downwards,” he says. “Real estate is going to be mobilised by occupiers to really make a difference to their business strategy, particularly things like digital transformation and resilience. All the things that we’ve become accustomed to over the past 12 months.”
And while wellbeing was already moving up the agenda for occupiers pre-Covid, the pandemic has inevitably led to an increased focus on safety, says Elliott, setting up his second S word.
Occupiers will want spaces that not only provide for the physical wellbeing of their staff, with air quality sure to be high among requirements post-Covid, but that look after their mental wellbeing too – a factor that has been brought under the spotlight as a result of the pandemic.
Sustainability too, has only moved up the agenda for occupiers this year. And it is here that Elliott believes that real estate has a great opportunity to seize.
“Our research shows quite clearly that there’s a fundamental disconnect between corporate ambition around net zero and action, particularly real estate action, and the connections are not being fully explored or exploited, and I think they will need to be in short order,” he says. “That will point to a gravitation towards a more sustainable product, but also obviously a more sustainable running or operation of offices longer term.”
His final S is smart and the adoption of technology. Elliott says sensor-enabled real estate that collects data that can be used to inform the decision-making process will become increasingly important for occupiers.
“There is a feeling that is probably quite accurate, that a lot of occupiers are acting on gut feel, market opportunism or the wants of the C Suite leadership and actually are not able to challenge that gut feel or not able to provide an alternative because they’ve generally not had good data,” says Elliott.
“The data they’ve generally had is how much money they spend on real estate. The adoption of smart technology will support that decision-making process. But not only that, critically, I think what it will do is ensure that the workplace environment is better managed to support those sustainability issues and the workplace experience is going to become better curated through data.”
It is this workplace experience that will be key in the decision-making processes of occupiers as and when lease events occur.
More than an experience
The office of the future will be about experience, not sitting at a desk writing e-mails, says Elliott. It will be about bringing people together, showcasing what a company is all about, underlining its brand and purpose.
“We asked occupiers what their top strategic agenda items were that real estate would best support,” said Elliott. “The number one finding was supporting corporate image, brand and culture. So, if you’ve got a space that supports those people to bring their best selves to work, then you can galvanise that culture.”
All of these demands are going to come in long-term discussions with landlords, not knee-jerk reactions and exaggerated tales of demise.
“In 20 years of working with occupiers, the one fundamental is they always need a break or expiry to drive action. And those breaks and expiries don’t neatly align with a crisis, generally,” says Elliott. “What we’re likely to see is an increased evolutionary cadence of how occupiers think about the office and what the office becomes, rather than a cliff edge, revolutionary moment when we do an about-turn and go off in a completely different direction.”
Elliott says the Covid experience has merely crystallised thinking around offices and caused a questioning around what they are for. It is those questions that are leading to action.
“But that action does not occur in the next six months,” he says. “It occurs because of those inbuilt brakes of breaks and expiries, which condition the way the occupiers behave. It’s likely to play out over a 10-year period. And over that 10-year period, of course, there will be other headwinds and other issues that start to re-emerge that will be equally as important.”
It has therefore never been more important for landlords to really understand the drivers and thought processes of the businesses they want as their occupiers. And for Elliott, that is a big piece of work that needs to be done there before tales of the death of the office really mean something.
“Landlords need to do a lot more work in understanding who’s the other side of the table, who is the occupier, what is their business going through? What are their dynamics? What is their culture?” says Elliott. “How many how many landlords actually do that level of due diligence? They’re looking at covenant strength and financials but are they getting under the bonnet? Are they really understand in the organisation they’re trying to secure for their buildings?
“My fundamental piece of advice is work harder to understand the occupier and go below the generic headlines to actually truly understand the nuance, because the nuance is where the value is, and that’s where the depth of customer interaction will come from.”
To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews
