The future is not inevitable. We can influence it, if we know what we want it to be.
Charles Handy
What comes to mind when you pass by an office building? Those ubiquitous concrete, steel and glass monuments built to service commerce and Mammon; commanding the skyline of the modern cityscape and dominating the lives of the millions of people who work in them. Most people hurrying past these monoliths do not pay them much attention. For the workers themselves, one office building is pretty much the same as all the others: it is just the place you go to work. Pre-Covid-19, many employees were unaware of the different work options now available which do not necessarily involve commuting into an office every day. Business leaders, and especially CFOs, view the office building as an expensive, inflexible liability, especially when coupled with complex leasing systems – making it difficult for them to see how a cost centre can transform into value creator for their enterprise.
Again it is down to how one perceives work, the workplace and how one relates to office buildings, but it is becoming more evident that they are no longer seen as edifices providing shelter for those working in them. As has been demonstrated, the way that many organizations function and the very nature of work has now changed. Covid-19 has certainly provoked a wider debate about what the office of the future might look like, with some even proclaiming the demise of the office itself.
What should be discussed is: what is the purpose of the office and the workplace in today’s business environment? This is a question I asked many interviewees while doing my research for this book and for the most part they confirmed my long-held view that the workplace in all its guises, is there to support the enterprise – that the buildings are not just an asset, but that they should also enable business performance and productivity. I have always wondered what would happen if both sides of the landlord and tenant divide could align around this goal. It would require a shift in both the traditional landlord and tenant mindset to a more progressive and forward-looking standpoint. However, this is being influenced by the convergence of three key aspects:
• The way the use of offices has changed owing to the digital revolution, the maturing of flexible working options and the nature of demand;
• The impact of the 2020 pandemic and Proptech on the supply and demand side of the commercial real estate equation;
• The upsurge in sustainability and ‘doing the right thing’ agenda – in other words, what I call ‘Smart Value’.
One has to also factor in the enormous changes taking place which are altering the working landscape. This is a landscape which is becoming more reliant on talent who wish to be agile and are more footloose. This ‘liquid workforce’ will drive real estate agility as the gig economy grows significantly over the next decade. Added to that, people are also becoming increasingly discerning about where they work and who they work for – reflected in global consciousness surrounding sustainability, the environment and ethical governance (ESG), plus the effects they have on business, society and by extension everyone’s lives. This is a dilemma which enterprises and leaders are faced with, especially when major Wall Street CEOs make bold statements such as ‘awareness is rapidly changing’ or that the business world is ‘on the edge of a fundamental reshaping of finance’, – businesspeople are sitting up and taking note.
The events of 2020 may well add to their focus as the impact of the Coronavirus pandemic has yet to be understood at the time of writing. One thing that is certain is that the crisis forced us all to consider different ways of doing office work at scale. Having experienced different ways of working and seen how well it operates, both employers and employees will recognize that there are in fact alternatives which are feasible and practical – but will the effects of the pandemic bring about a significant change in perspective into how we use offices?
Furthermore how does commercial real estate fit into this ‘new reality’? Many involved in the supply side of the equation would point out that the last ten years have been very profitable, with low voids, high rents and better still, they enjoyed good personal bonuses. After all, in their view tenants will always exist and they will always have to rent or buy buildings so there is no reason for them to concern themselves in helping the business or ESG performance of their tenants. After all, who wants to rock a boat on a very smooth, profitable journey? Unless the boat is about to hit a typhoon, which might be a distinct possibility, given that the Covid-19 crisis may well prove to be the ‘accelerant’ for other forms of disruption in the pipeline. Coping with the need to adapt to remote working at scale has demonstrated to many leaders that distributed working is feasible and it has now totally discredited the long-held fears of managers that no work gets done unless they can see their staff at their desks. As Dr Marie Puybaraud, Global Head of Research at JLL commented; ‘once people have moved to remote working there is no reason to go back to the old ways’.
Covid-19 apart, it would be commercial suicide for the property world to ignore the all-pervasive impact of technology. Coupled with the events of 2020, it would be wise to adopt a positive approach and harness the dividend made possible by developments in digital capability. The other aspect is Social Value and the ESG factors, which are still relatively new, but will provide significant gains if the supply side helps the performance of its tenants and their businesses.
The broader impact on society and the community experience will become an important factor for both organizations seeking to attract talent and for building owners/landlords wanting to attract corporate tenancies. There needs to be a combined effort from the providers, operators and consumers of real estate embracing Social Value for the benefit of the wider environment and society as a whole.
Harnessing the Digital Dividend
One of the main imperatives of regenerating the BBC’s property portfolio was the broadcasting industry’s switch from analogue to digital. This was something I witnessed first-hand as the UK’s national broadcaster struggled to come to terms with what was a new order powered by technology.
It was not merely a case of installing new digital equipment, but even the way programmes were being made was changing right in front of our eyes. For example, producers could edit content on an Apple Mac at home rather than book time in an edit suite. However, the real disruption came with the explosion of choice in programming and the shift in putting the viewer in control of what they wanted to watch.
If we look back on how we grew up with TV, in the UK it was just three channels, with a fourth joining in the 1980s. Over in the US, TV viewing was dominated by the ‘Big Three’ – NBC, CBS and ABC – with independents, including Fox and cable-TV networks such as CNN, jumping into the fray in the mid-1980s. Whichever side of the Pond you were on, the common denominator was that they ruled the airwaves, dictating programme selection and scheduling – it was their way, or no way!
The mass-marketing success of video cassette recorders in the 1980s gave the viewer a little leeway into the possibility of choice, despite the clunky system and remembering to record favourite programmes. Fast-forward 40 years and digital technology has enabled us to stream our favourite shows into our tablets/phones and watch them whenever and wherever we want – even binge-watching to entertain us on that long, boring commute! Our viewing pleasure is now on-demand at any time and place so broadcasters, whether ‘old-school’ BBC, ABC and their ilk, or ‘newer kids’ like Netflix, HBO, Sky and many others, are putting their customers/viewers in control of their personal schedules and really upping the ante by competing to make really watchable Hollywood-style content.
The key point here and the lesson for commercial real estate is that technological change will impact on workplace provision dramatically by disrupting the system as it did for TV, particularly in the last 20 years. The question is how will the property world adapt to it, especially the nascent inroads being made by Proptech in developing more customer-focused tools such as office space sourcing apps, which will inevitably lead to the much-vaunted ‘Uberization’ of the workplace?
Established commercial real estate providers, either from fear of stagnation and decline or through recognition of the necessity to progress, are taking the venture capital route and investing or partnering up strategically with tech companies, either in the Proptech sector itself or developing their own tech in-house tools to deliver solutions for their own enterprise or for the wider-built environment. They have come to realize that technology and improved access to data enables real estate operatives to provide better advice for their tenants/clients. Some are looking into virtual and augmented reality to help sell a building or a space, making it possible to visualize its capacity as a workplace or even to demonstrate what a change-management programme will look like.
Leading US real estate operator/developer and landlord Tishman Speyer, who own the Rockefeller Center, used technology to improve the work–life balance of its tenants and staff by setting up an app and web portal offering a comprehensive concierge service, with other property players following suit. Tishman’s platform extends to healthcare screening, personal grooming appointments, backup childcare, food deliveries, travel planning right through to organizing community volunteering for its more altruistic occupiers and employees. On launching the initiative, CEO Rob Speyer commented, ‘Instead of defining ourselves by the square feet we own, we will define ourselves by the quarter million people who use the square feet and how well we tend to them.’
Undoubtedly there will be casualties in real estate with the onslaught of digital disruption. We only have to look at the way it has impacted accountancy and the legal sector, where many basic processes have been automated and are being simplified or integrated within digital systems. This is affecting paralegal and book-keeping jobs, just as the advance of Proptech will put pressure on the real estate brokers in the middle ground.
Many forecasters say that disintermediation will hit the broking world hard. However, I take a more positive view of how the cosy old world of traditional leasing will function, as the need for broking decreases. It will not disappear altogether, but companies offering this product will need to reinvent themselves; especially as other functions such as asset and property management face disruption. In my opinion, this reinvention of the intermediaries aligns with the 2018 World Economic Forum report on ‘The Future of Jobs’, which states, ‘New technologies give rise to new job roles, occupations and industries, with wholly new types of jobs emerging to perform new work tasks related to new technologies.’
Nevertheless, the current reality is that for the most part commercial real estate is stuck in analogue, ‘Big Three’ channel mode. The appearance of serviced offices in the 1980s is commercial property’s ‘VCR moment’ and co-working/flexible workplaces are its equivalent of multi-channel, on-demand digital broadcasting. Like the world of media, corporates will soon be able to have real multiple choice as the growth of flexible space options builds to industrial scale, leaving the traditional core leasing sector as its junior partner.
It is likely that the enforced largescale shift to remote office working brought about by the Covid-19 crisis will accelerate awareness in boardrooms of the widening range of choices available in ways of working. Also many of their doubts will be alleviated as to how it will work for their organization. As this is still at a rudimentary stage, maybe leaders need to direct their teams to start focusing not just on cost-cutting, but on how the office portfolio could help business performance, as more and more organizations shift increasingly to flexible work, which also includes more traditional companies such as Amex, BP, Cisco, Dell, JP Morgan Chase, Philips, among many other major international firms. Taken together with early-adopters like Google, Microsoft and Salesforce, who have already shifted their thinking away from real estate portfolio strategies to focus more on distributed workforce strategies, for the large number of their employees who will be working differently. This must be seen as a sign that just like the broadcasting world’s migration into multi-channel viewing options, which provide choice for the consumer, commercial real estate’s answer has to be multi-modal omnichannel working.
One important aspect of the omnichannel model is empowering both the real estate sector and the enterprises which use its spaces to develop a joint approach in building real engagement with the emerging ESG agenda, while demonstrating true Social Value.
Embracing Social Value
How might a more joined-up approach deliver significant social value is a topic that merits further consideration beyond this book. For me, it is all about figuring out how we make better use of the built environment, since social value cannot be created in a vacuum, it requires the co-operation of all the stakeholders.
Together, we can all create social value by considering the economic and environmental impacts on society, as well as how to increase the wellbeing and development of an organization’s workforce and those of the neighbouring community around it. It is simply not enough to put lofty strategies in place if people, both on the consumer and supplier side, do not have the mindsets to address these issues in a cohesive way. On a basic level, which is well within the control of the two principals involved in the real estate equation, why not direct the industry to make a concerted effort to take waste out of the system of constructing and also operating offices? Some useful initiatives have been put in place but no one is talking about ‘the absolute disgrace’ of the tonnes of waste heading to landfill sites from commercial fit-outs or that offices continue to pump thousands of tonnes of carbon into the atmosphere. Andrew Mawson, founder of AWA, points out that a typical 50,000 square foot building generates the same CO₂ in a year, as 320 return trips from London to New York. Only by engaging with the occupiers of the buildings, the intermediaries and contractors – basically, the groups who write the million dollar/pound cheques – will any progress be made to improve matters. Old habits die hard in real estate, but the difference now is that the occupiers are calling the shots.
Unlocking social value is a process of collaboration between society, company leadership, investors, public opinion, local community and most of all, the workforce. The biggest challenge for real estate is to convince everyone that they are actually part of the solution rather than being part of the problem. Currently, developers and contractors do offer a range of Social Value initiatives such as job creation schemes, generous charitable donations or community outreach programmes, etc. Some cynics could claim that they could be tick box exercises to smooth over the planning permission process. Especially in the UK, where government introduced the Social Value Act back in 2012, which requires public sector bodies to consider economic, social and environmental wellbeing as part of the procurement procedure.
However, ‘doing the right thing’ has to go beyond an Act of Parliament and as the world of work is moving towards a truly agile distributed workforce and the adoption of the omnichannel workplace, it is time for some ‘big picture’ thinking. For example, along the lines of the entire occupier sector in partnership with the property industry, engineering a shift in commuting and working patterns. By adopting a ‘plug and play’ approach to how employees can use offices, this can enable individuals to move to a lifestyle with less commuting. Apart from the gains to the enterprise in terms of productivity and staff wellbeing, the secondary benefit is reduction in pollution from less car traffic and less pressure on public infrastructure such as roads and rail.
Many major world cities, such as London, Sydney, Paris, Rome, São Paulo, Istanbul and Moscow, along with the US hotspots – Los Angeles, Chicago, San Francisco, Boston, Washington DC and New York – suffer some of the heaviest traffic congestion in the world with inevitable long commutes. In San Francisco’s Bay Area workers can spend an average three to four hours commuting every day, which is untenable. Additionally, the high cost of living in some of these cities, coupled with unaffordable housing, is pricing out the workforce, especially young people.
International Workplace Studies specialist Professor Frank Becker contends commercial real estate together with corporations could provide a solution by taking a leaf out of the academic world, which provides accommodation for both students, academics and visitors, as California’s Stanford University had done in Silicon Valley, Cornell Tech doing the same in New York on the Hudson River and London’s Imperial College offering reasonably-priced living in White City. Frank’s proposal focuses on building new affordable communities not just for company employees but extended to locals as well as a means to attract and retain valued talent and engender a better and closer community spirit.
Regus’s Mark Dixon is a firm believer that ‘if you embrace the future, you will be a winner’ and he certainly subscribes to the notion that if organizations want a happy and productive workforce, commuting times have to be reduced. The challenging question is how to provide a more localized workplace to the knowledge worker in order to give them more time to spend with their families or their leisure activities. His answer is to open up 2,500 alternative/flexible workplaces in locations away from the big city centres and provide facilities locally in most towns and villages across the UK. Maybe some public sector organizations could take a leaf out of Dixon’s book and introduce community workspaces in their public spaces, such as libraries and civic buildings.
The time has come for the real estate world to realize its potential in the social value agenda and the beneficial role it could play in the surrounding communities where its buildings are located. This is all part of the wider remit of both supporting corporations in their ESG performance, as well as supporting the businesses which operate within their spaces and places.
Converting social value into ‘hard numbers’, a Bank of America Global Research study found that US companies with high ESG rankings in the S&P 500 Index have outperformed their counterparts with lower ESG rankings by at least 3 per cent every year from 2014 to 2019. Put simply, ESG derives value in the millions of dollars, but when an enterprise applies a holistic approach through using my Smart Value framework, then the potential can generate billions – undeniably a really great prize!
To help move to the next stage, here are six basic factors to achieve a Great Place to Work:
• Becoming better informed about enabling workspaces that generate meaningful outcomes and measurable impact wherever people work. Ones that deliver not only Entrepreneurial Value but Social Value, which also satisfy the ESG criteria of investors;
• Spaces and places can be used in a smarter, more sustainable way for all the stakeholders – providers, consumers and intermediaries – by adopting a fresh approach based on improved awareness and stronger relationships;
• Recognizing that the provision of offices/workspaces has shifted irretrievably from fixed to fluid with the new dimensions in demand and this should be seized on as an opportunity for all parties;
• Real estate providers/advisers need to create better relationships with their customers by educating occupiers on making the best use of real estate;
• Enterprise recognizes the competitive advantage opportunity of harnessing the link between an engaged worker and a well-run productive workspace. This is now underpinned by distributed working;
• Review how enterprises organize their internal support groups (HR, IT, CRE/FM and Procurement) to enable work and productivity, consolidate and empower fresh focus to support omnichannel working.
The vision is to create twenty-first-century workplaces which inspire employee engagement, foster creativity and increase productivity while also improving an enterprise’s capacity to compete and create value in all its guises. By working together, both producers and consumers of real estate can create effective and engaging workplaces which play their part in leaving a more sustainable ‘built’ legacy for future generations.
In the words of social thinker, art critic and poet John Ruskin, ‘When we build, let us think that we build for ever. Let it not be for present delight, nor for present use alone; let it be such work as our descendants will thank us for.’
Sources
1. ‘awareness is rapidly changing’ … ‘on the edge of a fundamental reshaping of finance’.
Fink, L. ‘A Fundamental Reshaping of Finance’, BlackRock CEO letter, 2020. https://www.blackrock.com/us/individual/larry-fink-ceo-letter
2. ‘Instead of defining ourselves by the square feet we own, we will define ourselves by the quarter million people who use the square feet and how well we tend to them.’
Tishman Speyer News. ‘Tishman Speyer Introduces Zo – a Comprehensive Suite of Wellness, Lifestyle and Corporate Services to Tenants’, Tishman Speyer website, 2017. https://tishmanspeyer.com/news/announcements/tishman-speyer-introduces-zo-%E2%80%93-comprehensive-suite-wellness-lifestyle-and
3. ‘new technologies give rise to new job roles, occupations and industries, with wholly new types of jobs emerging to perform new work tasks related to new technologies.’
Centre for the New Economy and Society. ‘The future of jobs report 2018’. World Economic Forum, p 18
4. ‘when we build, let us think that we build for ever. Let it not be for present delight, nor for present use alone; let it be such work as our descendants will thank us for.’
Ruskin, J. The Seven Lamps of Architecture. London: Smith, Elder & Co., 1849, p. 177.
Epigraph
Handy, C. The Age of Unreason 2nd edition, 2002. London: Random House, Arrow, 1989, p. 7.