8 minute read 8 Jan 2021
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What corporate real estate trends should executives consider for a long-term workplace strategy?

By Mark Grinis

EY Global Real Estate, Hospitality & Construction Leader

Real estate leader drawing from three decades of experience. Author. Speaker.

8 minute read 8 Jan 2021
Related topics Workforce COVID-19

The COVID-19 pandemic has demanded that business leaders reimagine a workplace that meets the changing needs of employees and promotes employee safety.

In brief
  • Construction and real estate (CRE) companies have had to respond quickly to new demands that are both directly and indirectly related to the COVID-19 pandemic.
  • The changing needs of employers and employees are shaping the office of the future as workplace has expanded beyond traditional office buildings.
  • Executives must consider what the workplace will look like in 12 or 24 months, where to invest and where to retract, and how to meet the new demands of the employee experience in a mid- and post-pandemic world.

Construction and real estate (CRE) companies have had to respond quickly to new demands that are both directly and indirectly related to the COVID-19 pandemic. Whether they do so voluntarily or because there is no alternative, when employees return to factories, construction sites, stores, restaurants and offices, the physical infrastructure has been adapted for an entirely new health and safety environment. Significant investment is required to plan and execute a partial, phased and managed return that promotes social distancing and ensures employee safety.

However, as companies begin to plan how the workplace will look in the longer term, they are re-evaluating the purpose of the office, along with its value to employees and the organization at large. What does this analysis mean for CRE companies and the commercial real estate market as a whole? To plan an effective strategy, CRE executives must consider what the workplace will look like in 12 or 24 months, where to invest and where to retract, and how to meet the new demands of the employee experience in a mid- and post-pandemic world.

The changing needs of both employers and employees are shaping the office of the future, marked by flexible leasing, a shift from central headquarters to suburban hubs and a prioritization of collaboration spaces over individual workstations. The office of the future also will need to be retrofitted with futureproofed technology, enhanced HVAC systems or natural ventilation, touch-free controls and advanced workstation reservation systems to anticipate and control occupancy. Even after the urgency of the pandemic has eased due to effective vaccination and better treatment options, all workspaces will need to permanently demonstrate enhanced health and safety standards.

Diminishing demand for “trophy” office space in top-tier cities

According to a September 2020 Ernst & Young LLP survey of CRE executives in the US, 67% of companies are currently occupying less than 10% of their total office space. Even looking to the longer term, just over half of respondents (57%) expect to reopen 75% or more of their real estate in the next year. As a result, almost all respondents (93%) are considering subleasing unoccupied office space.

Our shift to remote working has been a global workplace experiment, and many see today’s pilot practices being adopted permanently. If employees are able to find effective workspace at home with minimal family distractions, and have fast and reliable connectivity and digital tools, then remote working is a win for both employer and employee. According to estimates by Global Workplace Analytics, organizations can save US$11k per year for an employee who works half of the week from home.¹

The majority of survey respondents (54%) anticipate that 25% to 50% of office-based employees will work remotely five days per week, with the attendant impact on square footage requirements. In fact, 9 of 10 CRE executives see a reduction in need for overall workstation numbers, and just over half (51%) envision less need for open-plan working space. Over one quarter of respondents (29%) are already deprioritizing large-format corporate offices over the next five years — a trend that is likely to grow. David Johnson, principal analyst at Forrester, for example, predicts that remote work will increase 300% on pre-pandemic levels.²

These findings echo statements by a number of high-profile Fortune 500 companies who have publicly announced permanent remote working as a choice for all or most of their staff.

However, it would be foolish to suggest that the office is a bygone relic. For younger staff and those with young families, working from home is no productivity heaven, but is rather a constant battle to find quiet space in which to work. Employees who live in rural areas are often beset by poor and unreliable connectivity. And the intangible benefits of physical proximity ­— such as planned collaborations and ad-hoc water cooler interactions — are widely recognized. Bringing employees together also reinforces corporate culture, forging strong team bonds and combating isolation. The office is a social space as much as it is a workstation.

survey respondents

44%

see an increase in the need for social spaces, or more “we” space and less “me” space."

The most likely future we see is work that will take place in a mix of remote, urban, suburban and drop-in locations as companies adopt a “hub-and-spoke” model.

Flight to secondary cities and the ’burbs

Just as the demand has risen for homes in leafy suburbs away from congested city centers, so too will more office space be needed in suburban hubs.³ We see a diffusion of work away from large-scale mega-offices to smaller, more local hubs that are closer to employees’ homes, removing long commutes but offering collaboration spaces for better social interactions. In the UK, for example, there has been a 267% increase in demand for suburban office space year-on-year, as companies flee London in search of cheaper and less congested alternatives.⁴

Dozens of cities once considered too small, too rural or too lacking in amenities and culture are now finding themselves at the top of desirability lists. Americans, increasingly freed from long commutes to and from their employers’ headquarters, are seeking homes that offer more space, better access to the outdoors, better hospitals and better schools.⁵ This shift will alter the economic and demographic balance of the country. Page-per-view property views on real estate platforms such as Zillow are up 50% year-on-year.⁶ “Even the coolest markets in America right now are generally performing well and titled in favor of sellers,” says Cheryl Young, Senior Economist at Zillow. “There’s a lot of demand for housing right now and homes are typically selling quickly for prices above what we were seeing last year.”⁷

Flexible leasing

This year’s events have already buffeted businesses with sudden regional spikes in infection and partial or complete lockdowns of targeted sectors. A saw-toothed economic recovery appears to be a feature of growth as we emerge from the pandemic. These peaks and troughs in demand require employers to build an agile cost base, and shorter, more flexible leases are already in demand. Two thirds of CRE executives in our survey (64%) are targeting lease terms of three to five years. But flexibility has to be weighed against a cost premium for shorter commitments.

We may see developers creating their own flexible office brands as they readjust their strategies to meet the demands for flexibility and on-demand space provision, or pursue partnership models.

The smart, clean, ventilated office

This year’s focus on enhanced hygiene in all workplaces is unlikely to abate anytime soon. In May 2020, the World Economic Forum made a series of predictions about the office of the future,⁸ and this report indicates that socially distanced workstations may be in permanent demand. Some modifications to workspaces — including contactless controls and simple solutions for frequent and thorough cleaning — are likely to outlive the crisis period of the pandemic. In addition, office design will need to accommodate the desire for natural ventilation, such as windows that can be opened in lieu of using sealed air-conditioning systems.

This low-tech shift is balanced by an increasing long-term demand for technology such as smart buildings that support companies’ environmental, sustainability, health and wellness initiatives. For example, a number of companies are experimenting with virtual and augmented reality to enhance the experience of virtual collaboration.⁹ Increasing use of automation and robots will help organizations support new safety standards, monitor employee footfall, phase high-intensity periods and leverage analytics to better understand employee behavior. While many companies have seen an increase in trust of employees, technology also has a major role in addressing the need for enhanced oversight of remote workers. Artificial intelligence systems can monitor keystrokes to estimate and check productivity of employees located at home, for example.¹⁰ Futureproofed smart buildings that are wired to enable increasing use of advanced technologies will be winners in this new post-pandemic era.

The employee experience

Companies competing for talent must be able to provide an attractive experience for employees — enhanced employee experience. The office isn’t just a place for productive work to be undertaken and supervised; it’s also where high-energy, meaningful interactions and a challenging work experience happen. The office is increasingly a source of value rather than a fixed cost. How this experience is defined is changing. The talent of the future will take flexible working, enhanced hygiene and first-rate digital tools as a given. But employers will also need to create a working environment that optimizes creative thinking, high productivity and teamwork.

  • Show references#Hide references

    ¹ “Latest Work-At-Home/Telecommuting/Mobile Work/Remote Work Statistics,” Global Workplace Analytics website, accessed 15 December 2020.

    ² “Predictions 2021: Remote Work, Automation, And HR Tech Will Flourish,” Forrester website, accessed 15 December 2020.

    ³ “Flight to suburbs boosts U.S. homebuilding, but COVID-19 surge erodes consumer sentiment,” Reuters website, accessed 15 December 2020.

    ⁴ “267% Increase In Demand For Suburban Flexible Offices Puts Data Behind Theory,” Bisnow website, accessed 15 December 2020.

    ⁵ “COVID-19 Has Changed The Housing Market Forever. Here’s Where Americans Are Moving (And Why),” Forbes website, accessed 15 December 2020.

    ⁶ Ibid.

    ⁷ Ibid. 

     ⁸ “COVID-19: Is this what the office of the future will look like?,” World Economic Forum website, accessed 15 December 2020.

    ⁹ “You Can Go Back to the Office—You Just Need a Virtual-Reality Headset,” The Wall Street Journal website, accessed 15 December 2020.

    ¹⁰ “Here’s how employers are using tech tools to keep a close watch on their remote workers,” CNBC website, accessed 15 December 2020.

Summary

Accelerated by the COVID-19 pandemic, the real estate industry has evolved. Workplace has expanded beyond office buildings and construction and real estate companies have had to quickly respond to new demands. As companies consider the changing needs of employers and employees to shape the office of the future, it may include flexible leading, a shift to suburban hubs and a focus on collaborative spaces. Organizations will need to look to futureproofed technology for their workplaces and demonstrate enhanced health and safety standards.

About this article

By Mark Grinis

EY Global Real Estate, Hospitality & Construction Leader

Real estate leader drawing from three decades of experience. Author. Speaker.

Related topics Workforce COVID-19