Three Key Trends CRE Planners Must Understand
Workplace mobility, collaboration, and global expansion trends are here to stay. Knowing the difference between an entrenched trend and a flash-in-the-pan idea can save a lot of time and effort, and produce better bottom-line results.
Kevin Hughes, Executive Managing Director and Principal, Jones Lang LaSalle (Winter 2012)
Following the global economic growth patterns under way, significant corporate expansion is planned for markets throughout Asia, while North American portfolios are not expected to grow in the near future.
Ideas may come and go, but trends that stand the test of time are what make the strongest new ideas actionable and transformative to a corporation, a business unit, or a company's real estate portfolio. By making an institutional commitment to emerging at the competitive forefront of trends such as work force mobility, productivity, and collaboration, CEOs and corporate site selectors can make the most of their current locations, and choose wisely as they select sites and design workplaces of the future.
Trend #1 - The Stalwart: Technology-Empowered Work Force Mobility
Mobility will be at the epicenter of real estate portfolio transformation in the years ahead. Globalization and demand for rapid results are requiring employees to work from client sites, geographically dispersed locations, and partner/collaborator offices around the world and down the street. The days of an employee reporting to a single location and working from 9 to 5 are a thing of the past. CEOs, together with their site selectors and corporate real estate teams, must rise to the challenge of developing mobile workplace solutions that enable the corporate culture to stay intact and keep employees engaged and productive, all while those very employees are likely geographically dispersed.
Worker mobility, collaboration in the workplace, expansion and contraction are not new trends but they continue to evolve and over time have a major impact on the business world.
Companies that understand and recognize this global trend represent a fundamental shift in the way businesses operate today and how they will continue to evolve, and thus harness the intelligent workers of tomorrow. In a recent research report, Jones Lang LaSalle's Director of Occupier Research Lauren Picariello prescribed the treatment of this trend: "The commercial real estate industry should be prepared to.work closely with human resources and information technology teams to find solutions that will offer employees a sustainable environment that fosters productivity and engagement - while meeting business objectives."
The ROI of workplace efficiency is well documented on the balance sheet of astute corporations around the globe. At the recent CoreNet Global Summit in Atlanta, Jones Lang LaSalle shared the results of a "Workplace of the Future" survey, administered to approximately 30 leading U.S. companies and design firms by international office furniture designer and manufacturer Teknion. The report identified how workplace mobility will not only fundamentally impact corporate culture, but also how it will help CEOs achieve cost-savings goals.
The report states, "Workplace mobility programs generate significant bottom-line occupancy savings for companies, often reducing annual occupancy expense by as much as 30 percent per year. These occupancy savings help organizations continue their investments in new and emerging technologies as help to attract and retain high-performing digital and creative talent." When asked what the most important strategy is in attracting the new generation of knowledge workers, the top two responses from "Workplace of the Future" respondents were offering employees flexible workplace options (41 percent) and the most leading-edge technology (39 percent).
Though the digital revolution is still gaining momentum, companies are enthusiastically adopting technological advancements that will soon become mainstream staples of the work environment. Not surprisingly, 88 percent of companies offer their work forces smart personal devices including smart phones, PDAs, and tablets. Desktop video conferencing is also gaining ground in light of a more mobile work force, with 62 percent of companies using the technology. The survey also revealed that nearly 90 percent plan to increase their investment in productivity-enabling technologies such as voice-activation and sophisticated video conferencing by 2015.
Companies dedicating resources to "going digital" - or investing to support work force mobility - cited their expectations for the following outcomes:
- Enables business process transformation (25 percent)
- Enables greater distributed global work force collaboration (23 percent)
- Provides work/life balance and flexibility to work force (20 percent)
- Reduces operational costs and waste (14 percent)
- Supports environmental sustainability (10 percent)
- Reduces disparity between preferred generational work styles (8 percent)
The reasons to responsibly invest in these solutions are plentiful. Workplace mobility is a trend here to stay as more companies learn that merging technology with real estate strategy equals improved business performance.
Trend #2 - The One to Watch: Increasing Workplace Productivity and Collaboration
If creating mobile workplaces is a key trend in how companies are working, it's important to look deeper, exploring why it's so important that employees be empowered to work from anywhere. Globalization is perhaps the most obvious reason, which will be explored in the next section on expanding and contracting markets. But regardless of location, mobility also contributes to increasing productivity and collaboration, two goals that are inextricably intertwined and equally essential to competing in today's innovation-centric business world.
While productivity can mean different things in different contexts, there is a shared necessity to ensure that the employees are in a working environment conducive to the task at-hand, one that supports a balance between independent focus and team collaboration. Regardless of whether it is increasing sales-per-hour in a retail setting, expanding distribution center shipping output, or ensuring innovative results from team-based management, corporations will be taking a long, hard look at how real estate can contribute to efficiency and productivity. With the stock market tepid, executives are looking for other ways to increase shareholder value - and making real estate changes to support productivity will be high on that list.
Real estate changes in office environments many times mean transforming the way a group looks at the use of its space. The trend toward productivity in the office will focus on making workers the most productive both when they are mobile - and when they come into the office to collaborate and work together with others.
The "Workplace of the Future" survey cites several factors that articulate this trend toward productivity, and will distinguish the future workplace from traditional offices, factories, and other facilities including:
This trend carries good news for cost-conscious executives: productivity pays off.
- Space assigned by function, not hierarchy
- Focus on collaboration
- Higher degree of customization
- More flexibility and agility
- Less focus on corporate data storage and computing
- More focus on enabling mobility and other forms of workplace flexibility
For those companies that invest in workplace strategies focused on mobility, productivity, and collaboration, the standard of square feet allocated per employee is predicted to drop from 200 square feet per person to estimates ranging from 50 to 100 square feet per person dependent upon the industry sector. Workplace utilization factors are expected to increase to 85 percent versus the 35 to 50 percent levels of today. That means that the C-suite can likely opt to reduce the total size of the corporation's real estate portfolio, its carrying costs, and its operating expenses.
To increase space utilization, companies are employing several strategies including:
Trend #3 - The Early Emerger: Market Expansion Overseas, Portfolio Contraction in North America
- More open, collaborative workspaces with less individual offices (77 percent)
- Denser individual workspaces within the corporate office (62 percent)
- Reduced square footage footprint through disposition (54 percent)
- More employees working remotely from home, satellite, or client sites (46 percent)
- Mobile working that includes desk-sharing, hoteling, and co-working (31 percent)
There is no denying that market forces drive where corporate locations are needed. Traditionally, more jobs equals more need for real estate. However, given today's mobile workplace, combined with widespread oversupply of commercial real estate throughout North America, the locations that are adding jobs may - or may not - be in need of new buildings, or even more space within existing buildings. As a result, corporate occupier trends specifically are becoming somewhat different from market trends overall. That said, economic growth in certain markets will continue to drive the need for locations there - if not always new construction.
Following the global economic growth patterns under way, significant corporate expansion is planned for markets throughout Asia, but specifically in China and India. Conversely, North American markets may see a need for more renovations for the changing use of existing real estate, but overall portfolios here are not expected to grow in the near future. A silver lining to the slower-than-expected recovery has been that corporate occupiers have been able to extend the window of time to evaluate and take full advantage of the real estate market, but that will narrow in time. As the economy continues to recover, companies will consider commercial real estate investments as an integral part of corporate portfolio strategy in 2012.
Market dynamics also indicate that in 2012, companies will move away from investing in new construction and toward retrofitting existing assets. Updating offices based on sustainability has become critical - from a business perspective, a regulatory standpoint, and also for employee recruitment. Location will likely drive retrofit investment dollars, and buildings in central, transit-oriented areas will present the greatest opportunities.
Significant users of corporate real estate are already adjusting their real estate investment strategies and that is impacting real estate fundamentals, as noted in a recent Corporate Occupier research report from Jones Lang LaSalle. Findings include:
Geographic trends will continue to be driven by macro-economic trends, albeit taking into consideration existing space and an ever-increasing focus on sustainability, which can also lead to choices to renovate and to co-locate with transportation hubs.
- Total investment transaction volume to increase by 15 to 20 percent to $190 billion in 2012 - a slower increase than the last two years
- Global uncertainty, slow employment growth, and changes in space use to cause office space demand to slow (Commodity - and technology-rich markets, such as Texas, Denver, and Northern California will lead demand growth.)
- Distribution hubs and ports to lead the industrial recovery in 2012
Bottom Line: Making Trends Relevant to the C-Suite
Understanding trends, implementing related strategies, and contributing ideas will increase the value a company gleans from using them, and is essential to the creation of game-changing corporate real estate, technology, and workplace programs. Meaningful workplace and location selection programs that are truly relevant to C-suite goals will relate to evergreen trends - not just today's fads. While commercial real estate hasn't always been the quickest adapter to changing dynamics, the industry is evolving. Now is the time to strategically invest in staying ahead of tomorrow's reality.