And finally…the office is dead, long live the office

Well-being, flexibility and collaboration are the new buzzwords when it comes to offices and the shifts in attitude are causing disruption in commercial real estate markets.

Jason Baggaley, fund manager of the Standard Life Investments Property Income Trust (SLIPIT), manages 78 properties worth a total of £1.1 billion across the UK including offices, shops, retail parks and logistic hubs.

He has been considering what new features are now considered essentials, what has been binned, and why.

He said: “People are the biggest cost that most companies have, with real estate as a close second, but both are inextricably linked. Businesses have woken up to the fact that getting their real estate strategy right can enable them to attract and retain the best talent, creating an environment that people want to work in and which encourages them to be as productive as possible. Of course this will lead to significant cost savings. One company recently saw a 300% reduction in the number of sick days, simply by moving to a new building.”

GOING UP ↑

Showers, changing rooms, and secure bike storage

Cold storage for grocery deliveries

Light, acoustic and air quality

Creative hubs and huddle areas

Superfast IT infrastructure

Mindfulness and contemplative areas

Varied food and drink provision

Private chefs and kitchens

Baristas

Location

GOING DOWN ↓

Car parks in central London and other cities

A separate office for the MD or CEO

Isolated out of town locations

Space in general

Banks of desks

Mr Baggaley continued: “Wellness at work is firmly at the top of the agenda. Many modern offices now provide fitness and lifestyle facilities as standard. We are just making alterations to the Pinnacle building in Reading which we bought recently, creating new bike and shower facilities plus a dedicated space for yoga along with tenant amenity space in the reception area.

“Location is even more important now. In order to recruit and retain the best talent Companies are choosing locations that are close to major universities, and also benefit from a vibrant environment with a mix of housing and social close by, as well as strong transport links. As a result, we are seeing rising demand in towns and cities such as Reading, Manchester, Cambridge and Bristol.”

“These shifts are disrupting the market. It means real estate investors and managers can think more creatively and look at alternative locations, properties and opportunities. An unloved building in a great location can be reconfigured and refurbished to create the environment that companies want and attract new tenants. Equally, alternative locations can be considered where transport hubs are being developed or universities are becoming more successful.”

Simon Kinnie, head of real estate forecasting at ASI, added: “There is also a move away from desk based activity to output based work styles. People want an office environment where they can share ideas and collaborate, as well as concentrate on individual tasks. Much of this is due to demographic and generational shifts. Millennials will account for 75 per cent of the workforce by 2025 and have completely different expectations of a work environment. They don’t want to be tied to traditional nine to five hours, and prefer to work in an agile way to interact and network freely in coffee bars and breakout areas. The ongoing tech revolution allows them to do this - with secure, remote, anytime working. To attract talent from this portion of the workforce, businesses and landlords have to adapt their approach to office space.

“The consequence is that by adopting modern, agile working practices, many companies only need around 70 to 75 per cent of the space they originally had. We are finding that some businesses are looking to downsize at the end of their lease, even if they have the same number of staff. Some organisations are opting for a smaller core corporate hub, then leasing extra flexible office space for projects and partnerships. As a result, flexible office space has undergone a major evolution. Gone are the cramped, dingy partitions in nondescript buildings – replaced by cool, collaborative work hubs.

“Millennials are also much more likely to start up their own business or work for a smaller organisation – again, accelerating demand in the flexible office sector. Flexible office space is now worth around 6% of the total UK office market.”