We spoke to some of the most dynamic thinkers and players in this space to find out what the move to hybrid working means for landlords and tenants.
As we launch into 2022 and a continued post-pandemic business landscape, landlords need to understand how the environment continues to change and what it means for them. With the rise of hybrid working and the increasing importance of flexible and sustainable workspaces, the world of work is rapidly evolving – and so are tenants’ needs.
In September 2021 we produced the Connecting the Dots report, which surveyed UK occupiers and looked at the acceleration of hybrid working.
In this new report, Smarter by Design, we spoke to key industry leaders from CBRE, WiredScore, Arup and Crown Estate to find out how the workplace is evolving in response to a growing focus on the environment, social and governance goals (ESG) in corporate strategies, increased attention to staff wellbeing, and growing concern about cyber threats.
Smarter by Design is essential reading for office landlords, it’s packed with insights about tenants’ changing priorities. Fill out the form below to discover how investing in technology and infrastructure is crucial to meeting tenants’ needs and improving profitability.
Before anyone had seriously considered that a pandemic could disrupt business and society, the notion of ‘hybrid working’ was already in vogue.
Hybrid working is the idea that workers no longer need to be tied to a specific office, but could travel between meetings, from client offices, from a coffee shop or from home to be as efficient as possible.
The main office would transform to become a central hub, essential as the work HQ, there as the default workplace, to build work culture, host clients and suppliers, and for meetings.
Several key technologies made this idea possible: widespread Wi-Fi; cloud-based servers and services coupled with software as a service (SaaS); and increased security to manage cyber threats.
Together, these technologies offered a dynamic vision for offices as hubs. The unintended consequence was to give employees the ability to work from home during a pandemic.
Essentially, the pandemic has catapulted hybrid working from a notion of how we could do business to the default way to do business.
Smarter by Design explores the changing post-pandemic landscape, and how landlords can adapt and persevere.
How can landlords and occupiers work together to achieve net zero in a rapidly changing world?
As businesses globally digest the ramifications of COP26, it’s difficult to get away from the role that the real estate sector has to play in achieving net zero targets. According to the UK Green Building Council (UKGBC), the built environment accounts for 39% of the country’s carbon emissions.
The decarbonisation of the real estate sector has become a pressing issue, and one that occupiers put high on their list of priorities when looking for space. But it’s just one of the factors that landlords and tenants have to consider, in addition to staff wellbeing and flexibility, and evolving cyber threats.
Our report ‘Connecting the Dots ’, published in September 2021, found that all three are key and growing concerns for businesses. On the environment alone, almost three in five (59%) businesses are working towards net zero, with a further 40% intending to do so.
Landlords who can help occupiers achieve their carbon reduction commitments, use technology for happier and more productive staff, and keep tenants cyber secure, have a clear advantage.
The numbers bear this out. On sustainability alone, KPMG described the shift to net zero as the ‘next industrial revolution ’. Our report found that 69% of tenants would be willing to pay more for a sustainable office. Similarly, 69% would be willing to pay more for an office that incorporates the smart technology needed to help them meet their net zero initiatives and keep staff happier and more productive.
In Smarter by Design, we asked, how can landlords and occupiers work together to achieve net zero in a rapidly changing world?
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of tenants would be willing to pay more for a sustainable office
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would be willing to pay more for an office that incorporates smart technology
Strategic goals around ESG continue to shift, flexible and adaptable workplaces have become an expectation. How can landlords ensure they deliver and remain competitive?
ESG encompasses not just the environment but also the social, or human, side of an organisation. Improving the ‘user experience’ is important. The trend towards flexible, adaptable workplaces, already underway before the pandemic, has accelerated.
KPMG, in its CEO Outlook 2021, noted 37% of UK and global CEOs said that most employees will work remotely at least two to three days a week.
In parallel, the growing significance of sustainability targets has led to changes in the priorities of occupiers. Our ‘Connecting the dots’ report found that 97% of tenants view sustainability as an important consideration when choosing office space over the next three to five years.
Alex Kim, Customer Partnership Director at Crown Estate, says the size of the organisation plays a significant role in the adoption of ESG initiatives.
“When it comes to delivering sustainability, one of the inherent challenges for a service provider is that we need customers to be aligned with us. What we are seeing at the moment is that larger, more visible organisations are beginning to prioritise ESG in their real estate strategy. The smaller the business, the less visible it is to consumers,” he continues, “the less important a part sustainability plays in the conversation and, most likely, they will resist initiatives that might increase occupational costs.”
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of tenants say the sustainability of their office will be an important consideration when choosing an office in the next 3-5 years
"There is a myriad of things that you can do with a properly designed, well enabled technically competent building that adds to user outcomes at so many different levels,” he says. “The onus should be on the landlord to deliver a base building with this technical foundation"
Technology and good connectivity are crucial. They enable many of those elements that tenants want like flexibility, adaptability and sustainability, and allow staff to work as efficiently as possible. Building management software (BMS) and specialised applications can help landlords and occupiers meet their ESG goals by producing granular data on a building’s sustainability through energy usage, as well as tenant occupation trends.
“ESG, sustainability and tech are all inextricably linked,” says Nick Wright, Head of Digital Sales at CBRE. “We talk about the PHD of a building. The ‘P’ is the physical: the systems and tech to capture and analyse the data to improve the efficiency and management of a building. The ‘H’ is the human side: the tech used to improve the user experience. The ‘D’ is the digital which brings the physical and human together.”
Alan Newbold, UKIMEA Digital Services Leader at Arup agrees that occupancy is in flux. “We are all seeing a significant shift in the way that buildings are being used,” he says. “The question is: how do you create the right environment for people coming in? That’s quite a challenge."
“Technology is a significant enabler, with the data generated by smart applications providing important feedback to improve the user experience,” he says.
Tom Vaughan-Fowler, Head of National Markets at WiredScore, believes landlords must use technology to enable tenants to make the most of their occupancy. “There is a myriad of things that you can do with a properly designed, well enabled technically competent building that adds to user outcomes at so many different levels,” he says. “The onus should be on the landlord to deliver a base building with this technical foundation.”
He adds that for data to be useful and to make a difference, there needs to be clear communication, a ‘feedback loop’, between facilities manager and occupier: “The role of the facilities manager is crucial in this, as they have the day-to-day insight in terms of what is going on in the building. The responsibility should be on them to drive engagement with the tenant.”
Better for the planet at every step, you consume fewer resources, create less landfill and support your tenants’ ESG agenda.
Big corporates view their buildings as more than four walls. It has to reflect the culture of the organisation; sustainability and wellbeing are an intrinsic part of that culture.
Simple tech can produce advanced results. For example, smartphone apps examining occupancy can help tenants learn more about how they use their space, their energy usage and so on. This gives tenants the information they need to make informed decisions about their occupancy says Kim.
Vaughan-Fowler agrees. “You have to look at how the data waterfalls down to the individual employee. Having a good interface, such a building app allows you to do that.”
The right technology is an enabler, but there also needs to be a culture within the organisation that prioritises ESG goals. “We can design systems that can be used as a communication tool, but then that needs to be put into practice by the occupier,” Kim says. “That is a challenge in itself – there needs to be buy-in at the leadership level.”
Wright says a culture of sustainability is vital: “Big corporates view their buildings as more than four walls. It has to reflect the culture of the organisation; sustainability and wellbeing are an intrinsic part of that culture.”
“ESG, sustainability and tech are all inextricably linked. We talk about the PHD of a building. The ‘P’ is the physical: the systems and tech to capture and analyse the data to improve the efficiency and management of a building. The ‘H’ is the human side: the tech used to improve the user experience. The ‘D’ is the digital which brings the physical and human together."
Future-proof technology that is optimised for hybrid working, and supports the needs of today’s connected workforce.
While landlords may be able to deliver the connectivity tenants want on new developments, it leads to a growing divide between primary and secondary markets.
As older stock becomes less attractive to occupiers, it ultimately also becomes less valuable to landlords.
“Previous metrics might have judged a building to be prime on fit-out, location and design, but now a building’s green credentials will be equally important,” says Vaughan-Fowler.
Retrofitting older buildings to incorporate smart technology for improved sustainability requires a financial commitment by the landlord.
“Two out of five of the buildings that will be in existence in 2050 have already been built,” explains Wright. “While a new development might have a BREEAM ‘excellent’ rating, this is a certification that is only used for new developments. Retrofitting existing buildings to a level that makes them sustainable requires a massive capital investment programme,”
Wright says there may not yet be a premium for more sustainable buildings, “we are seeing ‘brown’ discounts,” where older, less sustainable buildings may be perceived to be less sustainable and less attractive overall.
Kim says that by investing in existing stock you keep it attractive and in play. “We have a record of investing in new technology and are continually evolving our products to make sure we generate resilient revenue from them. We are conscious of having to invest proactively in order to avoid obsolescence,” he says.
How should the cost of this investment be recouped, if at all? The service charge may be one option, but “it is not something that the landlord community feels comfortable doing at the moment,” says Wright.
The Crown Estate sees itself as a beacon for contemporary business and has decided to absorb the cost of “pushing the envelope”, says Kim. “A lot of the tech that we see is in the early stages of development and requires us to invest time, money and commitment to resource that technology. It can be risky, because it might not work, and that has happened to us in the past. As a business, we have, to an extent, had to absorb the cost of these pilots, but see that as the cost of driving change.”
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of tenants say the staff well-being will be very important when choosing a new office in the next 3-5 years
"We have a record of investing in new technology and are continually evolving our products to make sure we generate resilient revenue from them. We are conscious of having to invest proactively in order to avoid obsolescence."
Vaughan-Fowler believes retrofitting smart tech onto existing buildings is an investment worth making. “We are all on board with the idea that a more sustainable building will drive a return on investment because people will want to be in those buildings. We are also all on board with the idea that a building with better wellbeing facilities will drive a better return on investment.
“Smart tech is the accelerator for sustainability, health and wellbeing. It is a way of getting to your goals more efficiently, and with better outcomes,” he says, adding that his ‘flight to quality’ will only accelerate the closer we get to 2030.
“We can already see that the new wave of building design is focused on smarter buildings. If we know that is where office stock is heading and a landlord chooses not to spend money on their building now, I can guarantee that it will be more expensive in three-, five-, or 10-years’ time when everyone else has done it because the technology will move on.”
Better first impressions and flexibility as your tenants’ needs evolve. Satisfied tenants mean less churn, saving you hassle and cost.
A digital twin might offer a deeper understanding of a portfolio, but there are risks.
The use of digital twins, or virtual replicas of physical buildings, is one way in which landlords can make informed decisions about a building. “Digital twins allow us to test new concepts and refine them, before applying them to the actual physical building, saving both time and money,” explains Newbold.
“Most of the larger new developments will now have one. For many it’s the first step in understanding what’s going on in their portfolio,” says Vaughan Fowler. He says an increasing number of clients use digital twins across their portfolios. “The age of the building is irrelevant,” he explains. “You can always build a digital twin for it.”
As with any technology, digital twins are potentially vulnerable to cyberattacks, and this needs to be ironed out early on, warns Newbold. Data gathered from a digital twin could open a physical building up to vulnerabilities if that data fell into the wrong hands.
But arguably a digital twin could itself be used to prevent cyberattacks by simulating real-life attacks and dealing with any potential vulnerabilities found.
While smart devices may be shaping our workplaces with useful data for both occupiers and their landlords, this also presents a cyber security risk, says Newbold.
It’s a growing problem. According to Forbes, cyber crime is growing exponentially, spurred by IoT devices and digital transformation - ransomware attacks alone increased by 438% in 2020 compared to 2019. In addition, the costs of ransomware attacks are increasing, tripling to $300k per incident over the past two years, with some of the biggest attacks commanding $10m demands.
Cyber security has the potential to increase. PropTech start-ups are often young, small, and with potentially vulnerable products. Such vulnerabilities could be detected by criminals from the street or online because IoT and smart building technologies offer cyber criminals a potential gateway to access the corporate data of you and your occupiers.
“We talk to our clients about creating a culture of being safe and secure; about the need to protect their virtual, as well as their actual identity,” says Newbold. “We need to be ‘safe by design’, designing out risks early on. There will always be new cyber threats, but it’s about making your business the least targetable.”
Security needs to be considered in three dimensions: people, process and the environment, says Newbold. “The first of these relates to creating a culture of security and awareness within your organisation. Your people are your first point of protection - education and training are key to this,” he says.
Security needs to be considered in three dimensions: people, process and the environment, says Newbold. “The first of these relates to creating a culture of security and awareness within your organisation. Your people are your first point of protection - education and training are key to this,” he says.
Process is about creating the right support structure. How do staff report cyber problems? How do you get the right support when needed? Finally, the environment must use technology designed to protect your assets.
“As technology moves on, cyber risks will change – it’s an ever-evolving piece, and there needs to be sufficient flexibility to accommodate that. I always advise taking a systematic approach, making sure that cyber is part of the early conversation between owner and occupier,” he says.
With cyber attacks on the rise, and business connectivity constantly evolving. It's time to understand the risks.
The hybrid work model that proved crucial for businesses over the pandemic is here to stay.
For employers looking to entice employees back to the workplace, having a landlord who understands their concerns will be a clear advantage. Issues like sustainability, staff welfare and cyber threats will be central to making the office of tomorrow attractive today.
Landlords have the opportunity to improve their existing stock and so avoid ‘brown discounting’ that could reduce margins now, and look to possible premiums for better buildings in the future.
Three ideas interact to give us a vision of the future of work, and where landlords need to think about their stock and what they offer tenants:
Decarbonising the workplace tends to be on the radar of larger businesses according to Alex Kim, but as we look to the future, sustainability will increase consistently as a concern for all businesses. Giving tenants the tools to manage their energy usage, often from simple solutions like smartphone apps will give landlords a distinct benefit.
Staff wellbeing is another concern. Nick Wright talked about ‘PHD’ or Physical, Human and Digital factors. By harnessing data to improve the efficiency and management of a building, particularly the human experience, and then using digital tools to bring physical and human factors together gives landlords and tenants the chance to get the most out of their space.
With so many digital tools, like digital twins, used to improve available stock, the dangers of cybercrime increase in tandem. Tenants want help to make their businesses safer without sacrificing flexibility for staff. Alan Newbold explained the need to design out cyber threats in three dimensions: people, process and the environment, to preserve the integrity of commercial property.
Lastly, Tom Vaughan-Fowler described the need for landlords to set the technical foundation for buildings, and establish a ‘feedback loop’ with the tenant to constantly develop and improve all three of these considerations for better buildings that are fit for the challenges ahead.
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