“Balancing a range of competing – sometimes conflicting – priorities in assembling and managing real estate portfolios isn’t a new challenge for corporates. But the range of tools available to occupiers is expanding rapidly and, more importantly, the primacy of people and the growing need to deliver high-quality user experiences to the workforce are coming to dominate decision-making,” begins the 2019 edition of CBRE’s Occupier Survey, charting trends in commercial real estate.
Survey respondents, made up of Heads of Corporate Real Estate or equivalent from 180 companies, identified ‘Labor and Skills Shortages’ as one of their top three strategic challenges, with double the percentage of votes compared to last year.
This was the key trend in a report that consistently highlighted the increasing importance of human aspects to decision-makers in the commercial building space. Employee engagement and talent attraction, for example, made up two of the three most important drivers of corporate real estate strategy. “Optimising human capital is becoming the overriding aim of occupiers’ property decisions,” the report states.
The survey identifies four major, and interlocking, levers through which companies are seeking to use real estate as a way of influencing and enhancing their appeal to skilled labor:
Procurement and fit-out strategy determines the internal characteristics of the building such as floorplate design and, especially, favorable lease options, which are becoming increasingly important. “In part, this [trend] just reflects a desire for greater flexibility in design and leasing, but it also stems from changes in the relative importance of different elements of CRE strategy: in short, people are becoming even more important,” the report highlights.
Flexible space strategy is also becoming more important for attracting and retaining talent, earning ten percentage points higher than it did a year ago. The survey points to continued growth in corporate demand for flexible space, with 45% of companies expecting to make significant use of flexible space over the next three years, compared with 25% currently. Conversely, the proportion expecting to make little or no use of flexible space shrinks from 75% currently to 54% in the next three years.
“Corporate appetite for flexible space continues to grow,” reads the report. “The proportion of companies expecting to make significant use of flexible space over the next three years is twenty percentage points higher than those who currently do so. Attracting and retaining talent is explicitly part of the reason for this, while a rising number of companies are using flexible space as part of a wider attempt to experiment with different workplace and occupancy models. This is also seen as one way of satisfying a growing need for service and amenities, to a greater extent than any perceived “community” benefits.”
More companies also say they are recruiting dedicated personnel to develop user experience (UX) strategies. However, this is still somewhat of a “minority pursuit” according to the report that found only a limited number of formal UX programmes aimed at curating the full range of workforce needs across the workplace, amenites, and services. Where they do exist, the report suggested, they focus more on physical aspects of the working environment than on softer “community” elements.
“We see this as a phase in their evolution into something more comprehensive and towards wider adoption,” the UX specific portion of the report clarified. “This view is backed by the fact that a third of companies have plans to hire a UX lead and two-thirds would pay a premium for a building in which the landlord had provided an enhanced UX offer,” it added.
Technology disruption, particularly AI and machine learning, is one of the key drivers of technology strategy. Technology is increasingly viewed as the means of achieving people-centric ends the report found. As much as 70% of companies intend to raise their level of real estate technology investment in the next few years, and the majority in a more people-centric direction. This reflects the maturation of data science fields, underlined by the increased willingness of corporations to utilize technology outsourcing approaches.
In this new era for commercial real estate, occupiers are increasingly identifying labor and skills shortages as a key strategic challenge, which means decision-making across a range of issues is increasingly dominated by the need to optimize human capital. These human objectives form much of the basis of corporate real estate strategy, and is now expected to drive decisions relating to the selection, design, management, and format of all kinds of corporate space into the future.
“Corporate demand will become increasingly segmented as occupiers improve their ability to package space, service, and amenity. This will accelerate the shift towards customized solutions that reflect the specific needs of different business functions,” the report explains. “This is still a multi-track process, and should therefore differentiate across each business function and space type; one size doesn’t fit all,”