SENTIMENT AND REALITY: NAVIGATING A COMPLEX AGENDA
Corporate occupiers are currently engaged in a delicate balancing act, transitioning from crisis-mode to preparing, and executing, plans for the future of work. Organisations are having to get this balance right across Europe as countries come out of local lockdowns at varying speeds; offices in Germany and the Netherlands have been open much earlier than the UK, for example.
Grounded in making the best decisions possible for the safety and productivity of employees in an environment where revenues, headcount and a vaccine are uncertain, occupier sentiment can be characterised across three key areas. Each of these areas have complex, intertwining and nuanced business realities, that will manifest themselves differently across geographies and businesses over the next 12 months and beyond.
TOWARDS AN INCREASINGLY FLUID WORKPLACE
NOT A QUESTION OF ‘ON OR OFF?’ BUT A QUESTION OF ‘WHERE AND WHEN?’ FOR THE FUTURE OF THE OFFICE
Speculation abounds on the future of the office, with a handful of corporate announcements on the permanency of home-working strategies being misconstrued by many as implying a long-term shift from the office to the home as the permanent place of work. The reality for multi-service and multi-location businesses is not a binary choice of the office or the home, but one of fluid working requiring fluid workplace options.
While 93% of occupiers in CBRE’s recent European Occupier Survey indicated that remote working will increase in the coming years, this will not necessarily be as a replacement for office space. Fluidity will come in the form of working from a variety of locations (from home, to headquarters, to flex office to coffee shop) reflecting the diversity of tasks and the preferences of employees.
For example, at aggregate European level, the proportion of the workforce working from home ‘sometimes’ has risen from 6% to 9% over a 10-year period. This is not a uniform trend; in Germany this proportion has declined with workers shifting from working from home ‘sometimes’ to ‘usually’ in increasing numbers, the opposite to what we have seen in France. The UK has been the most fluid of these countries, with over a fifth of employees working from home ‘sometimes’ over the decade.
Both working from home 'sometimes' and 'usually' mean that most employees go to an office much of the time. The outlook for at least the next 12 months would therefore suggest that the temporary forced mass remote working pilot will help accelerate the trend of fluid working, rather than lead to a wholesale structural shift in such a short-period of time. Fixed elements of culture and urban structure are critical factors in understanding this underlying trend.
FIGURE 18: WORKING FROM HOME PROPENSITY, SELECTED COUNTRIES
Source: Eurostat, CBRE Research, 2020.
LESS DENSE BUT BETTER-QUALITY SPACE WHICH IS MORE SUPPORTIVE OF EMPLOYEE WELLBEING AND BRAND
There will be a subtle acceleration of the trend towards greater provision and focus of wellbeing measures in the workplace over the next 12 months.
This will begin with a review of workplace density, cited by 46% of European occupiers in CBRE’s survey, but will extend beyond this, including the continuation of health and safety elements enforced by the pandemic (e.g. enhanced cleaning and observation of social distancing) as well as investments in touch-free technology and mental health and wellbeing programmes.
What the pandemic catalyses is the trend of occupiers looking for and trying to create great workplaces that attract, retain and engage the best talent across markets.
Even pre-pandemic, among the fastest growing building selection factors cited by occupiers were brand image (from 22% to 55%), smart building technology (18% to 33%) and wellness capability (17% to 25%). These are all factors which are more explicitly aimed at talent rather than building operations, and are all factors which occupiers will be looking for more in the near-future.
This will renew the attractiveness of prime trophy headquarters space, particularly in core office markets, which may lead to greater divergence in performance of prime and secondary office stock. As we come to the end of the current real estate cycle which in general has seen limited development of new space, competition for the best new space may increase.
FIGURE 19: PERCENTAGE OF OCCUPIERS EXPECTING TO ADOPT WELLBEING MEASURES POST-COVID-19
Source: CBRE Research, 2020.
With the outlook for fluid working set to increase and heightened pandemic and economic uncertainty to continue, occupiers of all sizes will increasingly look to create more agility within their portfolios, alongside high-quality, long-term core space. Agility will be provided to employees in a number of ways depending on the organisation.
It will cover:
- Increased tech investment to enable home and remote working.
- Increased availability of satellite suburban/local/peripheral serviced office space.
- Increased availability of drop-in touchdown space via memberships.
- Development and refinement of ‘Hub & Spoke’ strategy.
The provision of flexible office space in Europe’s cities has been growing at an average of 30% per annum since 2014, but has not produced uniform levels of flex stock levels across the continent. The main contributor to that growth has been third-party operators leasing space from landlords, which we expect to slow down or even contract in H2 2020 in some markets. With only five markets having third-party flex penetration above 3% (which will dwindle) it raises the question of whether Europe has enough flex space to fulfil potential demand.
We expect landlords to make-up for this under-provision through providing more tenant-ready, managed and flexible office space, not just to meet occupier demand but to alleviate vacancy and monetise space as overall demand begins to weaken in an uncertain environment.
FIGURE 20: TOP 15 FLEX MARKETS BY THIRD-PARTY MARKET PENETRATION
Source: CBRE Research, 2020.