by Gavin J Gallagher
The four biggest trends I see driving the office sector are smart, green, healthy and flexible. Whilst there are certainly other trends impacting various segments of the office market I don’t see them coming close to impacting workplace design in the same way these four are. What is particularly interesting is the convergence of all four trends through smart, digital solutions that merge them together and have the potential to truly transform the workplace experience.
I have been fascinated by technology and innovation my entire life – I have colleagues who call me ‘Inspector Gadget’, a nickname I picked up in school such was my reputation for always having the latest piece of useless tech. But in the last 3-4 years I have started to find innovation and technology for the property and real estate market that is far from useless.
What was initially dismissed as a passing fad is truly starting to disrupt the market and this is evidenced by the share price of many listed companies on the stock market – service providers operating in the real estate space who take a traditional approach (branch networks with lots of staff) are finding it increasingly difficult to compete with online peers – I think this is a trend that will continue.
But I believe the bulk of the disruption will be felt when the FAANG companies begin to enter the real estate market with products and services that cannot be matched by either traditional or online players – imagine for a moment if Amazon were to start sourcing homes for you to buy or rent, or if Apple were to get into the home security space or appliances. We may still be a ways off this day but I do believe it will happen eventually.
At the moment the low hanging fruit are consumer services like brokerage and agency so you are seeing the likes of PurpleBricks and others making quite a bit of noise, but in time the entire building, from plant and machinery to internal sensors will all be connected to an overarching backbone or hub run by artificial intelligence – data harvesting is the key to improved efficiency and cost savings.
In 2015 ‘PropTech’ was a word I started to see popping up in certain places, so I attended my first conference Future:PropTech in London with a few hundred delegates in attendance. Today there are similar conferences taking place in every corner of the world and each draws thousands of delegates seeking out the latest PropTech products or services.
Whilst I do expect significant disruption in the property and real estate industry from technology, I feel there may be a period of lag while its influence slowly gathers pace with new systems and products quietly specified and rolled out across new projects. The time it takes to turn an idea or concept into a finished building is such that this lag time is inevitable, but the work is happening today and so it will eventually become ubiquitous.
Offsite prefabrication is starting to take hold with significant cost and time savings, improved quality control and health and safety considerations. Smart apps that allocate parking spaces, meeting rooms and individual desks as they are needed will enhance the ‘agile workplace’ giving those businesses who embrace this style of management an edge over peers.
When I started my career there was little or no consideration given to sustainability, emissions or the carbon footprint of a building – if you even attempted to raise the issue you were often shouted down and accused of being a ‘tree hugger’. I can assure you those days are long gone, today I would argue it is one of the most important considerations an investor can make.
Whilst there may still be a good portion of c-suite executives or senior management working at large property and real estate companies who will deny this, I believe their days are numbered. I am constantly in contact with large occupiers employing hundreds and sometimes thousands of staff in our buildings and it is quickly emerging as their primary concern.
Does it cost more to deliver a sustainable building? Yes of course it does, but as time goes by the pool of occupiers willing to rent an unsustainable building is shrinking. I believe it would be financial suicide or at the very least reckless to commence an office development project today without carrying out a robust sustainability audit to ensure it ticks as many boxes as possible.
Last week we saw headlines that the temperature of the Arctic rose above 20ºC in January for the first time since records began. This concerns me and is sure to trigger more climate protests as young people register their concern and anger over the lack of action being taken. At some point in the future a line will be crossed that cannot be ignored and sudden, painful action will be forced on us to try to reverse the climate trends.
Whether the line crossed is actual evidence of irreversible climate damage or growing anger and political instability remains unclear, but what is clear is that as more and more young people enter the workforce and positions of leadership the agenda is shifting. In December Finland appointed a new prime minister, Sanna Marin at the ripe old age of 34. As these young politicians take up positions of leadership their beliefs will guide national policy as they seek to address the priorities of a younger electorate.
Copenhagen set itself the objective of becoming a zero-carbon city by 2025 – whether you believe they can achieve this ambitious goal or not, it stands out a mile when compared with the 20 and 30 year timeframes being announced by other city municipalities around the world. Ask yourself do you want to be a leader or a follower? I believe the sacrifices being made in Denmark today will seem small compared with those required from the rest of us in 10 years.
My point is that change is coming. Climate change seems to me to be inevitable and perhaps irreversible climate damage is not far off. The real estate industry is responsible for 40% of global greenhouse gas emissions so when climate protection eventually becomes a priority our industry is going to be directly in the firing line with both municipal and government policy seeking to urgently address carbon emissions.
One of the biggest struggles that large organisations are facing around the world is caused by the War for Talent. An organisation’s ability to recruit and retain talented young staff is becoming a make or break issue. As this problem grows I have noticed the focus of large occupiers shift towards staff health and wellness.
Air quality, water quality, natural light, glare, noise, nice views, space to meditate, space to workout, to shower and dry clothes after cycling or running to work. The presence of plants or biophilia that can soothe the mind, the ability to sit comfortably or stand at your desk, to take a private phone call – all of these previously ignored design features are starting to become major considerations when a new fit out is planned.
Can a member of staff find healthy food choices at their place or work? The vending machine full of Mars and Snickers does not cut it anymore – availability of fresh fruit and vegetables is now expected. Do you provide secure bike storage or scooter storage? All of these metrics contribute to a buildings score in its WELL Certificate – a new workplace rating system from the IWBI or International WELL Building Institute.
Wellness is further behind sustainability and PropTech in terms of what an office developer may be thinking but it is quickly catching up. In this market anything that helps an organisation with its recruitment and retention of talent is going to be taken seriously so it’s little wonder there is a lot of focus on this from the occupiers at the moment – this being the case developers should take note.
Depending on the size of the building and its location, it’s going to attract a certain type of occupiers with various requirements – small professional firms have different needs to SMEs (small-medium enterprises) and large multinationals will have different needs again. One trend that has crossed into all segments and attracted a lot of attention is flex office and coworking.
Notwithstanding the collapse of the WeWork IPO and bail out by SoftBank I believe flex office and coworking is here to stay. WeWork did a great job of identifying a niche market early and developed out a great brand with a strong product market fit – the main cause of their problems would appear to be runaway growth and an unsustainable valuation.
There has been quite a fascinating shift to flexible solutions by large organisations, particularly financial institutions. Where they would have leased space for all staff in the past we are starting to see them move to an agile workplace model where they will only lease space for 80 of the 100 staff employed at that location.
Space usage audits have revealed that large offices have traditionally had only 70% occupancy due to vacation, sick leave and staff out at meetings. Rather than have 30 out of 100 desks sit empty, they now devote about 20% of their total desk space to a flex space or hot desk environment. This ensures far better space usage stats – incidentally the data is now available in real time thanks to new sensors and PropTech solutions.
A variation of the above model that I have seen recently was a large organisation that reduced its permanent leased space down to just 60 per 100 staff at a particular location but then supplemented with an additional 20 desks at an adjacent WeWork or similar. In order to make this work these organisations are having to employ smart technology solutions to dynamically manage employee movements and allocate available desks in real time.
If you would like to see an example of this model in action check out this video of The Edge building in Amsterdam by OVG Real Estate (recently renamed Edge Technologies). This was a close collaboration between occupier Deloitte and the developer – the end result is a building widely regarded as the smartest and greenest in the world.
As I said at the beginning, these trends appear to be converging. Smart technology monitors the building plant and energy systems making them more sustainable, bringing down emissions and improving efficiency. Occupant wellness is directly impacted by air quality and temperature control – factors that can be measured and adjusted in real time using IoT sensors.
Flexible office space is more than just a couple of hot desks, it requires tech to monitor and allocate desks and meeting rooms. Each of these trends impacts the individual user of the building and collectively this impacts the entire organisation, whether by design or accident. This is one of the reasons I consider the workplace to be one of the most important considerations of any organisation.