When it comes to corporate occupier strategy, there is no denying that cost is always high on the agenda in location decisions. But increasingly, the need to attract and retain talent is becoming the key challenge for businesses.
According to the latest survey of global corporate occupiers by Cushman & Wakefield, there is a continuing tension between the aspirations of corporate real estate executives and their practical decision making. While the main concern for business leaders is attracting talent, a continuing need to reduce cost (of which real estate is always second to staff), can hinder the real estate team’s efforts to find the best, most productive space.
Here, we take a look at how to balance the two goals of talent attraction and cost saving to see if London can measure up.
“Where a corporation locates within a metropolitan area has a direct impact on all top C-suite challenges,” says C&W’s report. “Location selection reveals the ways that strategic drivers are translated into practical decision making.”
The report found that more and more corporates were moving back to core urban areas, particularly in the business services, TMT and financial services sectors. Some 41%, 46% and 56% of these sectors respectively had undergone an urban relocation, says the report.
Challenge
The dwindling supply of suitable labour to carry out business operations clearly remains a fundamental challenge for companies and it is revealing itself in occupational strategies.
The survey, which questioned close to 300 global businesses, found a strong and growing preference for sites in urban areas that offered strong transport infrastructure and the ability to engage talent.
It found that some 64% of respondents globally were choosing either central business districts or creative urban environments for their offices. Some 43% of respondents said that they planned to relocate their suburban sites to more central locations, a trend that C&W said had been increasing year on year.
Being within a 10-minute walk of a railway station was particularly important to EMEA businesses, with three-quarters saying this was a key in their location decisions. For financial firms in the EMEA region, 67% said they were planning to move office functions back to urban environments, while 45% of TMT firms were considering the same strategy.
But it is not all “location, location, location” (see comment). Nine out of 10 global survey respondents said the physical workplace was a critical factor in securing superior workers and enhancing their wellbeing. However, many said that their workplace practices fell short of providing “a great place to work” or an ideal environment for attracting innovative workers. More than half (63%) said that their companies dedicated less than 25% of space for collaborative working. However, companies are increasingly adopting a co-working model, says the report, with some 22% of respondents saying this was now part of their core portfolio strategy.
So, with urban, creative space, close to infrastructure and with plenty of co-working opportunities, all at an affordable rate, being identified as the key wants for global corporate occupiers, how does London measure up?
London leading
On co-working space, London is leading. Flexible office space has accounted for more than 4.5m sq ft of take-up in London over the past five years, making the UK capital the leading global market for co-working, says C&W. Last year, take-up amounted to 842,888 sq ft across central London, 8.8% of total take-up.
And more space is coming to feed the demand. US co-working giant WeWork wants to double the size of its 11-building London empire by the end of the year.
Elsewhere, Israeli entrepreneur Teddy Sagi is seeking to expand his London estate to grow his co-working venture, Interchange, while The Office Group, Regus, Instant and numerous others continue to grow, too.
In terms of infrastructure, London is improving. Crossrail will start to become operational from next year, adding 10 new stations to Greater London’s 360-plus network of railway stations and enabling a further 1.5m people to be within 45 minutes of central London. A Northern Line extension out to Battersea, SW11, where Apple has signed for a 500,000 sq ft new office, also scores points for London on occupational demands.
It is affordability where London suffers most, of course. It has topped the table as the most expensive office location in the world for several years, consistently out-pricing Hong Kong and New York. But rents in some of London’s most prime locations have been softening recently.
According to C&W data, average prime rents in central London fell by 0.8% in the early part of the year, with Mayfair and St James’s recording the biggest dip of 6%. Overall, the agent expects prime rents to fall by between 4% and 5% this year, before stabilising in 2018.
So, while London would ordinarily score a good four out of five for being able to meet corporate occupier wants and needs, could a window of softer rents enable a five-star rating?
Comment: ‘Well’ workplaces work best
FTSE 100 companies prioritising employee engagement and wellbeing have been shown to outperform the rest of the index by an average of 10%. Little wonder, then, that surveys of multinationals reveal more than 80% aspire to achieve a strong culture of wellbeing, writes Sophy Moffat, head of global occupier insight, Cushman & Wakefield.
This global, corporate issue is also, fundamentally, a real estate issue. We spend 90% of our time inside and 90% of the cost of a building is its occupants. People working in well-ventilated offices with below-average levels of indoor pollutants have significantly higher cognitive functioning. Those in offices with windows get 46 minutes more sleep a night than those without, and efficiency can be improved by between 7% and 12% when staff have a view of nature.
As the body of evidence for considering health and wellbeing in real estate increases, more initiatives and benchmarks are emerging to support building users.
But this goes beyond a “nice to have”: there could be a tangible premium for investors and developers. McGraw Hill Construction carried out an in-depth study that found owners are willing to pay more for buildings that demonstrate positive impacts on wellbeing and health.
A “well” workplace is a tool that can progress the oft-cited objectives of multinationals – “improving performance”, “improving employee engagement and morale” and “attracting and retaining talent”. As such, designing in wellbeing should be a priority for any investor offering a building to the market.
