Today’s Commercial Real Estate Occupiers: Strategic Implementation During a Time of Transformation
In late March, CBRE Research released its second annual Occupier Survey Report—a report outlining the top priorities and concerns of senior corporate real estate executives throughout the Americas (North, Central and South America). Appropriately subtitled, “Building Advantage in Uncertain Territory,” three priorities stood out in this year’s responses: preparing for uncertainty, building a workplace experience, and the transforming role of real estate executives. While these results are reflective of the priorities outlined in 2016, there was a significant increase in respondents reporting “economic uncertainty” as a top-three challenge for 2017—52 percent as compared to 36 percent in 2016.
Though there is uncertainty on the horizon, occupiers in the Americas, and right here at home in Utah, are focusing on those items that are within their control in an effort to mitigate risks and save on costs while also implementing a workplace that is both employer- and employee-centric.
Preparing for Uncertainty
Although some uncertainty was resolved through last fall’s election, the mix of policy that will be enacted remains unknown. This is important to businesses because some proposals will be notably pro-growth, but other issues are of concern—particularly those related to trade and immigration.
Also adding to this mix of uncertainty is the anticipation of an end to the current economic growth cycle. In an effort to respond to this challenge, corporate real estate executives are preparing for the future by focusing on workplace efficiencies.
The majority of corporate real estate executives are disposing of surplus space and implementing efficient workplace designs that foster productivity. This is justified, as current commercial real estate (CRE) fundamentals favor landlords. At the end of Q4 2016, U.S. office vacancy was at its lowest level since 2008, landing at 12.8%, and U.S. office completions were below the 20-year average. Combine this with the robust office-using job growth being experienced (426,000 jobs in 2016), and it’s apparent why now is a good time for occupiers to focus on efficiencies and dispose of surplus space – a process known as right-sizing. CRE executives are also working hard to retain talent by focusing on building environments that are attractive to today’s workforce.
Building a Workplace Environment
When asked what the main drivers of their organization’s approach to workplace strategy were, talent attraction and retention, promoting collaboration, and operating expense savings were the three top responses. Work-life balance has been in the headlines for several years, but this feat is difficult to achieve. Instead, the concept of work-life integration has risen. Mobile and cloud technology make it efficient to work from anywhere, so the office is becoming an optional place. As such, employees must be drawn to the workplace through a positive emotional connection. When done successfully, employers benefit from a collaborative and cohesive culture as both formal and informal communication are more powerful when face-to-face.
Creating a work environment that supports how people actually work involves more than design and technology; it also involves supporting services. Respondents indicated that the most important factors to their labor force are amenity offerings that support the integration of the workplace into both their personal and professional lives. Although implementing these offerings incurs am additional expense, they also make the office a more attractive destination and foster a sense of place. Amenities ranging from food offerings to hospitality services can boost a company’s sense of place and create loyalty with employees.
Another way occupiers are increasing the appeal of their workplaces is by implementing a shared-workplace model at least moderately, if not substantially, as part of their portfolio offering by 2020. The top two reasons for implementing this strategy were cost and flexibility, though attracting and retaining talent was included in the top five. Types of shared workplaces include business incubators, innovation centers and co-working space. This growing demand is evidence that employers realize a flexible work environment can help achieve both portfolio efficiency and employee productivity.
The Transforming Role of Real Estate Executives
Corporate real estate departments are continuing to become more centralized and elevated within their respective organizations. The 2017 responses reflected an industry focused on reducing portfolio costs and optimizing footprints, largely through a growing acceptance of modern, tech-aided work styles and workplaces. This shift demonstrates the balancing act executives must perform as they seek to meet the competing goals of maximizing costs saved and people served.
Jonathon Bates is the Executive Director of Real Estate Administration for the University of Utah, where he is tasked with managing the University’s portfolio of leased space, consisting of more than 1.3 million square feet and over 200 lease agreements. He is a clear example of the “balancing act” executives face in focusing on meeting the competing goals of maximizing costs saved while best-serving employees. For several years, we have worked with him on implementing a real estate strategy that would decrease the University’s footprint and real estate costs, while also differentiating the workplace in an effort to increase collaboration and retention. In other words, at a local level organizations are focused on preparing for uncertainty while building a workplace experience.
“There was a misconception at the University that in order for any support service to be productive it was essential to be on campus,” noted Bates. “Once we were able to modify this perception, we could focus on other priorities, which included improving the productivity and collaboration of our employees while also decreasing expenses. This was accomplished through right-sizing efforts, including the consolidation of multiple sites, resulting in a decrease in our overall footprint. As a result of this action, our employees’ output and collaboration have both improved, even though they are now located in downtown Salt Lake City, several miles from campus. Additionally, the employees now have greater access to a full range of amenities, including public transportation, which are priorities for our workforce. This process also gave me the opportunity to negotiate more favorable lease terms for the sites we now occupy. We were able to successfully increase employee satisfaction and productivity, while saving on real estate costs, solidifying our strategic position as we move into an uncertain economic future.”
Today’s top companies are utilizing their real estate as a customizable, revenue-enhancing tool as opposed to viewing it as a mandatory cost. Going forward, we expect to see more companies right-sizing their real estate and re-investing the savings in their workforce in an effort to attract and retain a high-quality, loyal employees base.
Authored by: Barb Johnson, CCIM, SIOR and Vic Galanis, SIOR, are First Vice Presidents with CBRE. They specialize in representing corporations in selling and leasing office properties. They focus a great deal on workplace strategies – the practice of designing work environments that align the tasks performed with the optimal space in which to perform them, while placing an emphasis on efficiency and future growth.