Flexibility, ‘perk economy’ and data key for occupier decision making

Flexibility, ‘perk economy’ and data key for occupier decision making

20 December 2019

CBRE’s latest Australian Office Occupier Survey identifies three themes that will have an increasing impact on occupier decision making over the next three to five years.

1. Employees expect more from their workplace. Amenity is now considered commonplace as employees have higher expectations of what a workplace should offer. Perks have emerged as the key differentiator for landlords, occupiers and end-users alike.

2. Need for flexibility shows no sign of slowing down. Occupier demand for increased flexibility is driving the acceleration of space-as-a-service. This will continue with the rise of flexible working trends and an increasing reliance on the gig economy.

3. Now is the time to harness data insights. Landlords have an opportunity to add value to occupiers’ real estate strategies by delivering increased productivity and reduced cost. Many landlords are missing out on harnessing data to drive insight.

Macro factors

In addition to these key themes, the report highlights the changing macroeconomic conditions and business confidence. The rise of populist politics, Brexit and the US / China trade war have contributed to lower levels of business confidence and investment globally. In 2019 the International Monetary Fund forecast World GDP growth of 3%, the lowest level since 2009.

Australia is not immune to these global headwinds and will likely record its weakest economic growth this year since the 1991 recession. These conditions were not lost on the 2019 occupier survey respondents, with 48% of the sample citing economic uncertainty as the biggest challenge to their business over the next 12 months.

The NAB Monthly Business Survey indicates that business confidence has fallen from a recent peak of 11.2 in April 2018 to 0 in November 2019. This will weigh on business investment decisions in 2020, tempering white collar employment growth and making it more challenging for businesses to commit to long-term real estate solutions.

Cost escalation was also identified as a challenge for 29% of survey respondents. This is in the context of rising energy prices, escalating rents in Sydney and Melbourne and government fiscal prudence impacting public sector tenants. Cost escalation will be a contributing factor in some tenants decentralising from the Sydney and Melbourne CBDs over the coming years.

Perk economy

The report also highlights how much businesses are competing for talent. The very best companies are constantly looking for meaningful angles to gain and retain the best and most productive people from an ever-broadening global talent pool.

Over the past three years amenity and perks have catapulted in the importance of factors driving property decisions, with 69% of respondents claiming that amenity and 47% of respondents claiming perks are an important factor when choosing a building suitable for their head office.

The distinction between amenity and perks is how they relate to the end-user. An amenity is anything pertaining to the built form such as high-quality end-of-trip facilities and lobby cafés and shared roof gardens.

A perk pertains to an individual participating in a fitness class, attending a building party or having a concierge arrange their dry cleaning. Perks come in many forms, and occupier demand for the right perks is rising.

When asked respondents what perks employees would engage with in and around their building, responses fell within four broad categories: Of Body, Convenience, Social & Community and Of Mind.

Mismatched expectations

While 47% of respondents say that the availability of perks is an important driver in choosing a suitable landlord, only 6% think their building manager is doing well at delivering these events and initiatives in their building.

This response signals a void between occupier demand for perks and the successful delivery of these initiatives – presenting an opportunity for landlords to fill this void with a well-curated program of events and initiatives that resonates with their buildings’ communities.

Space-as-a-service

Businesses face the challenge of rapidly changing markets making it more difficult than ever to predict long-term needs for headcount accommodation within offices.

Demand is therefore rising for office accommodation that provides tenants the flexibility to dial up or dial down their space commitment with flexible lease terms, while providing a curated experience that allows them to focus more deeply on the job at hand rather than ensuring the space is working for them.

Data insights key

In the past, the industry would talk about technology as the new frontier, but as the world grows more adept in developing and implementing technology, the industry has moved beyond this with the significance of data insight taking over.

The opportunities afforded by effective data analysis are here, tenants are demanding that landlords offer platforms to enable data-informed decision making, but there is still a gap in this provision.

Click here to read the full report.