Jul 22, 2020

The Trend of Flexible Working Won’t Kill the Office

PMG Chief Executive Scott McKenzie shares why the future of the office is looking strong, and the facts prove it.

By PMG Chief Executive Scott McKenzie

There is much-unsubstantiated speculation around an office’s purpose after the working from home experiment many of us experienced thanks to COVID-19. The claims are the office sector is dead because businesses will want to downsize or get rid of their offices altogether after some witnessed an increase in productivity at home.

While there is some truth to achieving greater productivity at home, with a few companies making noises about reducing their office sizes, these generalised statements are not only unsubstantiated, subjective opinions, but are scaremongering commercial property investors.

The reality is far different from that of the demise of the office sector. Here are the facts:

First and foremost, there are lease contracts in place. Companies cannot, on mass, up and leave their offices due to their legal obligations of lease terms, with many years away from expiring.

We are innate beings that need each other. Humans require social interaction to maintain mental health[1].

Increased productivity was not the consensus. While working from home can be productive, a Colliers New Zealand Research Report (June 2020) said 52% of respondents felt productivity decreased at home, 41% felt no change, and only 8% reported an increase.

Face-to-face interaction is a catalyst for collaboration, creativity, innovation and knowledge transfer. Working from home can be counterproductive and detrimental to long-term working relationships, team cohesion and company progression. There has to be a balance between both.

It’s not what people want. Research conducted by global office design and delivery company Unispace (The COVID-19 Scramble, May 2020), revealed that 100 per cent of executives interviewed noted that there will be an increased uptake of working from home as part of their future strategy, but the workplace is also here to stay. A quote pulled from a Real Estate Industry executive said, “We are happier when we are together and talking.”

It’s not what businesses are planning. Unispace’s research also revealed there won’t be a significant reduction in floorplate, with 95% of executives interviewed stating their office footprint is likely to remain the same for now. The highest reduction of floor space was said to be 25%.

History shows us that we have been here before. In 1998, when Auckland’s CBD power cut meant all city workers had to work from home for five weeks, some businesses failed but most couldn’t wait to get back to the city centre[2]. Following the September 11 attacks in 2001, it was thought that no one would want to work in the CBD of New York again. While it took businesses some time, they still did return.

So what will we see?

It is likely businesses will continue to seek to be more efficient in the way they use office space; a trend that has been in play for many years now. Short-term decisions by firms to reduce office footprints – on account of greater social distancing and jumping on the fad of sending all staff home to work remotely – is likely to be overshadowed in the medium to long term with improved utilisation of space. Landlords of the future will increasingly need to consider the design of space to suit human needs. Be it technology-enabled collaborative spaces, quiet task-based areas and areas dedicated for social interaction.

The flexible working trend has moved forward 10 years in the last three months thanks to COVID-19. Staff and employers are more comfortable allowing and using a remote or home office for one to two days per week. It’s especially useful for focused tasks, which don’t require too much collaboration with others.

However, many businesses will still need to encourage staff to spend three to four days per week within the office to ensure they foster creativity, innovation and knowledge transfer, which can only largely be achieved through in-person interaction. Office space of the future will increasingly need to both complement the remote office and compete with it. Progressive businesses focusing on embedding a strong culture and staff loyalty will need to ensure they offer an office environment that people want to spend time in.

New Zealand is in a strong position. As we went into the pandemic we had low prime office vacancies in our main metropolitan cities. The current economy will also see less development of commercial and office spaces in the coming few years and will put a restraint on supply for subsequent years to come. If companies decide to move or downsize, the emphasis will be on a flight to quality. This is why PMG deliberately implemented the strategy of improving the quality of each fund’s portfolio over the last six years.

In all, there will not be a fast or major shift in the office sector for New Zealand. Gradual change with lease term expiry means we could be years or more away from statistically seeing these changes.

Proactive property owners will increasingly need to anticipate these fast-moving trends for tenants and adapt their investment strategy and office offering accordingly. Rest assured the future of office will continue to evolve and look different, but it is far from becoming obsolete.

[1] https://www.forbes.com/sites/onemind/2020/03/17/when-home-becomes-the-workplace-mental-health-and-remote-work/#4558e0261760

[2] https://www.rnz.co.nz/national/programmes/eyewitness/audio/2018636891/the-night-the-lights-went-out-in-auckland

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