Throughout 2018, the corporate real estate industry has been reshaped by shifts in technology and business. Given the current extended up cycle in the corporate real estate market, it’s likely that this will only accelerate in 2019. These effects, while widespread, are not necessarily uniform; regional and national factors play a part, sometimes leading to unanticipated results.
I recently sat down with my colleagues Paul Kay, Vice President in Toronto, and Melissa Marsh, Senior Managing Director, Occupant Experience, based in Savills Studley’s New York headquarters, for a conversation about three of the most intriguing trends.
Technology is transforming the urban fabric
The prolonged post-recession building boom has yielded a noticeable increase in a new type of technologically advanced building that is outperforming older buildings for the corporate tenant. These new buildings set a higher standard for what smart, tech-enabled design can do to improve the occupant experience and enable greater productivity and user satisfaction. This is evident in large and well-known developments like New York’s Hudson Yards, the Waterfront Innovation Center in Toronto, and smaller projects throughout urban areas around the world.
Occupants now have the expectation that office buildings will provide a level of service that is more akin to their tech-enabled personal lifestyle. Buildings are incorporating, from the ground up, systems that not only support a mobile workstyle, but also respond to occupants’ needs via smartphone apps and sensors: adjusting lights, temperature and even restocking kitchen and restroom supplies on demand. Recent evidence that this is the shape of future workplace design includes Siemens’ recent acquisition of Comfy, which provides an app-based interface for personalization of spaces.
In the near future, large-scale implementations of office environments built on high-tech foundations will proliferate. Google’s Sidewalk Labs is proposing a project on Toronto’s Waterfront that envisions an entire complex built “from the internet up.” Among other things, it will use integrated sensors to optimize the environment for adaptability to its occupants.
In 2019, regardless of whether the new construction boom continues, occupants will be seeking better and better buildings. Thankfully, there has also been a proliferation of products and services that allow for retrofitting older buildings to accommodate this mass personalization and high-tech features. Sometimes the hot new neighborhood is actually a hot old neighborhood.
Companies are already beginning to abandon older office buildings for newer building stock equipped with more robust power, communications and digital climate-control systems. We see clients who are willing to pay more per square foot for buildings that offer more natural light, more flexible floorplates, more sustainable features and better technology infrastructure. There’s a growing recognition that higher quality workplaces deliver better return on investment in improved productivity, employee attraction and retention.
Even traditional firms embrace coworking
Thanks to the exponential growth of the coworking concept, we are seeing a global embrace of the workplace as a service. WeWork and similar firms are setting international standards for workplace features, including collaborative space, community programming and plug-and-play desks. Much like one might expect every hotel in a given chain to offer similar design and service, users will have an expectation of what these spaces should offer, based on growing experience with these enriched coworking environments. The trend is bringing Silicon Valley-style amenities to cities from Charlotte to Vancouver, as companies face pressure to provide a comparable experience in all of those locations. It used to be that no one outside of the Valley had to worry about Google’s free massage policy, but now everyone does.
Coworking has precipitated buildings being less closed-off, and more open to the public than they have been historically. When a coworking environment has entered the space, more companies mix together in both workspaces and building amenity spaces. Now that more people have experienced these user-centric spaces, either as tenants or visitors, demand for these services in a traditional workplace is growing.
Not only is coworking appealing to employees, more and more corporate leaders are considering it for strategic reasons. Coworking is no longer just for tech companies and startups. It offers larger enterprises a new flexibility not found in traditional leases and subleases. While the cost per square foot or per desk is much higher for coworking space than traditional space, the flexibility it offers is often worth a premium price. Companies are using it when they need to expand, contract or test out a new market. The ability to pivot quickly, without having to negotiate a detailed contract and allocate funds to refurbish or fit out a space, is very appealing, even to larger organizations or more traditional sectors.
Pendulum is swinging back from “open office for all”
Over the past decade, as companies have sought to densify their real estate from an occupancy perspective, the pendulum now seems to be swinging back from excessive commitment to square footage compression and extreme open-plan layouts.
Companies that felt compelled to set an example by putting everyone from the CEO down in an open plan space have discovered the meaning of the term, “bleeding edge.” They have learned the hard way that it doesn’t suit employees whose day-to-day work requires head-down focus, confidentiality or group discussions. Often these designs force employees to find workarounds, with teams permanently booking conference rooms or opting to work from home, undermining the main goal of fostering a collaborative culture.
Few companies will completely renounce the open office concept, but in 2019, look for more organizations to bring balance back to their workplace design. Many will adjust the concept to accommodate different activity-based workspaces. With careful analysis and research, rather than using rank to determine who needs a private office, these environments will be shaped more by work function.
Striking the right balance will require greater sensitivity in workplace design, project and change management. Using a data-based approach to assessing workplace needs and measuring the results will become even more important before and after a company invests in a workplace redesign.
While the past year has seen pioneering companies embrace more high-tech buildings, coworking space and activity-based office layouts, we predict 2019 will see these trends spreading out in waves across the entire commercial real estate sector. We’ll be thinking about these trends as we unplug and recharge over the holidays. We look forward to continuing the conversation in the new year!