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Is your office ready? The workspace trends set to drive investment performance

The world of work is changing fast, and real estate must keep pace. Jonathan Steel, head of global corporate solutions, outlines the key workspace trends that are set to drive investment performance.

Technology is revolutionising how, where, and what we do at work. More than ever, occupiers require flexibility, while investors continue to seek income security and to protect capital values.

The good news is that occupiers are prepared to pay a premium for space that meets their physical and technological demands and is able to flex in line with their changing business needs.

We are seeing five key corporate trends that investors should be aware of:

Flexible Friends

Average office lease lengths in London are just over six years, a far cry from the 25-year lease with fixed uplifts of the 20th century. Landlords have been protected from further declines in part thanks to the rise of serviced offices providers – in just three years WeWork, for example, has grown to become one of the five largest occupiers in the capital, with a footprint of 1.3m sq ft.

But should investors allow serviced office intermediaries to continue to collect the premiums for taking and managing short lease risks? Forward-thinking landlords are beginning to innovate to protect their investment model and keep the rewards stemming from providing flexibility to tenants.

‘Core and flex’, whereby tenants rent a fixed square footage and the right to a certain amount of bookable space on a ‘flexible floor’ is one model that is gaining in popularity, protecting average lease lengths, while allowing tenants to flex their requirements over the life of a lease. More frequently this flex offering is being provided by the developers own operation or in collaboration with a known provider.

Dynamic Space

‘Agility’ has replaced ‘durability’ as our overarching business value. Today’s start-ups are capable of growing their staff five-fold in just a few months. The property they occupy and the services it provides must learn to keep pace.

Buildings will need the capacity to evolve and be adapt to different uses. This ability to be flexible has been shown to improve productivity, more so than installing slides or trampolines. We will see more services and spaces that are not obviously part of the world of work, but that blend time and place, work and private lives. These multifunctional places will be used for fun, leisure and study, according to the needs of the user.

Wellbeing

Businesses’ property policies are increasingly driven by a focus on employee wellbeing. This begins with the choice of location within a city, and extends through architecture to the design of workspaces.

Service provision needs to evolve to promote employee wellbeing, attract and retain talent, and boost productivity. Offering services covering every part of the work-life balance should be seen as an investment in performance, rather than a cost.

Location, Location… Lunch

Where do employees want to work? Investors need to think carefully about what makes a compelling location.

The urban renewal of transport hubs such as King’s Cross and London Bridge, and the development of new business and transport hubs such as Paddington and IQL Stratford, is transforming occupiers’ choice of locations and disrupting the old office market hierarchy.

Digital connectivity – access to superfast broadband – is also a growing consideration.
Research by Strutt & Parker last year found that commuting time and food and drink options’were the most significant factors in an office location’s attractiveness to staff.

Interestingly, being in close proximity to industry peers is important to only a minority of employees – a sign that London’s traditional industry clusters may be fragmenting.

From smart to responsive buildings

Investors need to future proof their investments, and increasingly this means buildings that are smart, allowing them to measure their performance and use the data to improve it. The drive for buildings designed to cut energy bills and reduce CO2 emissions has been turbo-charged by corporates and policy makers, and has brought big improvements. At the same time, widespread adoption of new technologies is helping improve the performance of both offices and homes.

The future may be one of cognitive and responsive buildings, equipped with artificial intelligence that enables them to learn and autonomously improve their performance. Is your office ready?

 

This article was published in the Estates Gazette London Investor Guide, Autumn 2017.

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