Many people are making powerful and persuasive arguments for a return to the office. There is a lot of merit in getting us all back to “normal” or the “new normal” – cities need the business; people need to socialise, and landlords need the rent. I had little doubt that investors and property companies would strongly support this view, as I learnt from participating in a recent Urban Land Institute (ULI) debate on the topic.
I was there to put some counter arguments to the debate that the office building has a strong future. Rather than debate a hopeless cause, I suggested that we need to consider the conditions required for offices to have a strong future.
To set the context I reminded the audience that whilst most parts of the economy has shifted from analog to digital, the supply side of the property market is lagging well behind the curve in harnessing the digital dividend. When you look at the leasing system it still retains much of its medieval roots. On the consumer side, enterprise embraced new technology as a business imperative. Cloud technology had the effect of liberating the office worker from the desk and many companies adapted agile working practices. The 2020 lockdown made it possible for most businesses to consider not only working from home but working from anywhere.
The office may not be obsolete but the system needs an overhaul
The central focus of my argument was that the office building per se is not obsolete but the system itself needs an overhaul. By system, I’m referring to the way we both produce and consume commercial real estate. We all need to come to terms with a new paradigm, one which is based on a shift from fixed to fluid and where the human taking centre stage. We’re not entering the next Industrial Revolution but rather into the ‘Age of Human’; one based on distributed work forces working in a multi dimensioned manner and supported by distributed workplaces – omni-working.
As a first step the real estate sector needs to accept that there are fundamental structural changes taking place in the market. Many people talk about a ‘new normal’ and liken current market conditions to other market downturns. In my view not only has the game changed but Covid has also changed the stadium. Given the tsunami of changes facing all of us, may I suggest we all take a leaf out of a little book of less than 100 pages called “Who Moved My Cheese?” This motivational business story has sold over 28 million copies and describes four typical reactions to the changes in our lives and work, while providing some great insights into how people cope with and react to it. With the book in mind, I argued that the CRE sector should not run the risk of waking up one morning and finding that their cheese has not just moved – but disappeared altogether!
Key drivers of change
The nature of demand for space has changed irreversibly. The December 2020 Deloitte survey reported that 98% of UK CFO’s expect to see a five-fold increase in flexible working and home working by 2025. When it comes to understanding the drivers for this change in demand they can be summarised as:
· the lockdown proved beyond any doubt the viability of the WFH experience. The fact that the wheels didn’t come off has changed tenant expectations for ever. They are all asking what is the purpose of the office?
· The existing landlord and tenant operating system is cumbersome and unwieldy; especially as tenants and customers are demanding and needing more choice as never before.
· The current office building delivery system is also inflexible. Whether for a new building or an existing space – transacting, due diligence, fit-out – the processes involved take way too long.
Who is the customer?
I suggest that everyone on the supply side of the equation takes a long hard look at how to generate returns in this new paradigm. From a consumer perspective they see the supply side as costly, convoluted and confrontational. Two key questions should be part of this type of review.
· Do you really know your customers?
· Do you understand the customer journey from when they decide they need space to when they move in, as well as the day-to-day running of the building?
The time has come for fresh thinking and some genuine innovation.