The 2019 EMEA Occupier Survey shows that occupiers identify labour and skills shortages as one of their top three strategic challenges. The proportion highlighting this as an area of focus has doubled since last year.
Employee engagement and talent attraction and development are two of the three most important drivers of corporate real estate strategy, even ahead of cost-reduction. In this context, optimising human capital is becoming the overriding aim of occupiers’ property decisions.
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 labour:
• Procurement and fit-out strategy
• Flexible space strategy
• User Experience strategy
• Technology strategy
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Head of Occupier
Advisory and Transaction Management
Occupiers are increasingly influenced by internal building characteristics – particularly a range of favourable lease options – in selecting properties.
While traditional procurement and fit-out approaches, Cat A or Shell and Core, are still favoured when taking large leases in a new building, there is evidence of willingness to pay premiums both for highly-serviced amenity rich space and tech-enabled smart space. There is also scope for exploring innovative cost-sharing partnership arrangements with landlords.
One of the key questions around “smart” or highly-serviced buildings is around financing: who pays ? Some insight can be gleaned from occupiers’ view on this.
There appears to be a two-speed approach to how occupiers look to procure space and the consequences for the fit-out of such space.
There is currently a greater willingness to pay for space-as-a-service as opposed to tech-enabled space, which may be closely linked to the flex agenda. In particular, 47% of corporates are prepared to pay 10-20% over prevailing Grade A rents for services-enabled space compared with 37% for tech-enabled space. In reality, the two things are linked and inevitably, tech will end up supporting the service agenda.
And occupiers’ views will become more nuanced: where and for which functions are occupiers willing to pay a premium for either tech or service-enabled buildings; and what should investors and landlords do to stay ahead of this curve? At the least, both occupiers and investors will need to formulate strategies in this area.
Premium Tolerances for tech and services
Source: CBRE Research 2019
There is currently a greater willingness to pay for
space-as-a-service as opposed to tech-enabled space
PROCUREMENT AND FIT-OUT
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.
Growing corporate appetite for flex space is one of the major features of this market cycle. In this survey, 32% of occupiers said they expect 5-20% of their portfolio to be in flex office space in three years’ time, with a further 13% saying flex space will comprise over 20% of their portfolio.
But it’s far from being even. If we split the sample by sector, all show a greater propensity to occupy flex space in the future than they do currently. Technology firms, already a leader in this area, will want more as will professional services but the largest absolute change is in the banking & finance sector – currently least likely to favour flex space but 25 percentage points more likely to do so in the future.
None of this is to that say ownership or traditional lease exposure is dead – just under a quarter of this year’s respondents (23%) said they wouldn’t be using flex space at all in the next three years. This compares with 38% who say they currently don’t use flex at all, which certainly shows the direction of travel towards occupiers having an increasingly “on demand” relationship with their space.
There are many questions that such shifts in appetite for flex raise, not least how occupiers choose to satisfy this demand and how investors can take advantage of this structural change. To understand the nuances and join the conversation, read on.
SECTOR VARIATIONS IN CURRENT AND FUTURE APPETITE
Just under a quarter of this year’s respondents (23%) said they wouldn’t be using flex space at all in the next three years
Corporate appetite for flexible space continues to grow.
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.
Formal User Experience (UX) programmes – aimed at curating the full range of workforce needs across workplace, amenity and service – are still a minority pursuit. Where they do exist, 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. 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.
This year’s results show that measuring the benefit of User Experience programs is still mostly a subjective process. The majority (79%) of occupiers surveyed measure the success of UX initiatives qualitatively through user feedback, typically a fairly blunt instrument.
We expect the coming years to see greater adoption of more rigorous, but currently little-used, approaches: Data-driven ROI analysis (36%) and User productivity measures (36%). This will enable far better visibility on the top-line benefits of such programmes (business productivity) and less focus on the otherwise bottom-line driven strategy which some would say currently typifies CRE strategies.
One key will ultimately be to track business advantage accruing to multiple business service functions – HR, CRE and IT and others – which means collaboration.
But what should you do about it? What are the steps you should take to enhance the user experience? Who’s doing it well and how should you develop the right strategy? Read on to find out more
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HOW SHOULD UX INITIATIVES GET MEASURED?
This will enable far better visibility on the top-line benefits of such programmes (business productivity)
Technology disruption – particularly AI and machine learning – is one of the drivers of technology strategy. 70% of companies intend to raise their level of real estate technology investment in the next few years mostly in a more people-centric direction.
The methods of acquiring the skills needed to deliver these aims, such as data scientists, are becoming more sophisticated, with corporates prepared to contemplate a broad range of approaches, including outsourcing to specialists.
At first sight it looks as if CRE managers are not particularly concerned about introducing new skills into their function: 44% of occupiers say they expect to hire no new tech skills into the CRE function. We don’t think its as simple as this.
Around a third expect to hire user experience leads and digital transformation officers, which is a significant finding. It points to an incremental change in hiring strategy, and indicates that occupiers are experimenting and will continue to adapt to digital change and invest in new types of skills when the time is right and opportunity is clear.
For the same reason we also don’t think that the low reading on data scientists means that companies aren’t interested in this skill set at all; more that they recognise the need to take preparatory steps to get their own data organised first or to reach an understanding of how best to deploy these skills.
Read on to see what our tech experts think, and how investors and occupiers alike can develop their tech strategies to take advantage of digital change.
Tech skills strategies becoming more sophisticated - AS they should
44% of occupiers say they expect to hire no new tech skills into the CRE function. We don’t think its as simple as this.