Just as families need a roof over their heads, businesses traditionally needed a place from which to operate — whether it was a shop, a warehouse, a factory or an office. Over the last decade this logic has undergone a significant challenge, and the COVID-19 pandemic has accelerated changing perceptions surrounding where we work.
Never could we have imagined that the bastions of the 20th Century city center, the office building, would face an existential challenge. The office skyscrapers that dominate the skyline of major cities are largely vacant as a consequence of the pandemic. Now that enterprises have survived the onslaught of lockdown, many leaders are starting to frame their medium-term strategies and are asking themselves, “Can we get along without the traditional office?”
COVID-19 has created the perfect storm for the corporate real estate sector.
As enterprise leaders mull over the challenge of conserving cash, cutting costs and building a more resilient operation, they are also likely contemplating a more distributed workforce strategy. This was never considered an option for most corporations pre-pandemic. But the game has changed, and leaders are now beginning to see that, for the first time ever, they have a range of choices. The either/or option of office versus work from home will extend far into the future.
Working from an office is a legacy of the Industrial Age, and the 2020 lockdown has become the tipping point for a major overhaul of how we structure work, how it’s managed, and how it’s carried out. Leaders are realizing that there are real choices available, and prejudices such as the need for “presenteeism” are being thrown out the window.
On the flipside, the investors in and providers of commercial real estate have enjoyed great returns due to a captive income provider — their tenants. The core of commercial real estate is driven by the landlord and tenant relationship, which involves a one-way take it or leave it deal. As vast fortunes have been built on this, it is hard to see why anyone would advocate for change. Now, however, their tenants may walk away from the servile arrangement and the commercial real estate house of cards will collapse.
Looking to the future, it’s time to move away from the traditional adversarial relationships that typify the commercial real estate sector and accept the arrival of real choice in terms of the provision and use of the office.
Here are some ways that the providers of corporate real estate can reimagine a more responsive supply model:
1. Create alternatives to traditional leasing. While the traditional vanilla leasing system will continue, it likely won’t remain the dominant component of the market. Property owners could develop portfolio-wide propositions for customers as an alternative, or extension, to the long-term lease offer.
2. Invite input from stakeholders. A new office supply model that allows input from multiple perspectives can replace the outdated and one-sided landlord-tenant relationship. Instead of a linear process, it will enable a fluid and flexible system for the provision of offices that meets the demands of a distributed and engaged workforce. This will shift the paradigm to a more customer-focused relationship, and clients will receive real value-added services.
3. Look beyond the building. Landlords tend to focus only on construction, build-out and leasing of their office spaces. Tenants, on the other hand, need to better understand how a building enables employees to perform their best work. By closing this gap and shifting the thinking beyond a traditional deal-oriented mindset, landlords can offer space as a service that helps enable their tenants to work in an efficient and effective manner.
4. Upgrade property management services. Customers now expect a consumer-friendly digital presence to facilitate service delivery. International property databases such as Proptech are driving the availability of accessible information, including providing a reliable and accurate picture of the value of real estate. They have accelerated property transactions considerably, and expectations for digitalized services now need to be met.
5. Champion corporate values. User experience and well-being, as well as sustainability concerns — such as transforming buildings to reduce emissions or limiting the use of harmful materials — have become key corporate responsibility considerations. The global community is increasingly discerning about the environmental and ethical practices of employers and auxillary service providers, which extends to the real estate management industry.