Presented By: HqO
Why the Modern Office Environment is Rich with Opportunity
On October 18, Commercial Observer Partner Insights hosted a custom event online, presented by HqO, titled, “Unleashing the Power of Employee Experience as the Ultimate Competitive Edge.”
The discussion featured insights from moderator Jess Johnson, Global Head of Enterprise Partnerships with HqO, along with Ilene Goldfine, Senior VP and Chief Digital Strategy Officer for Hines, and Sabrina Pagani, Senior Managing Director of Workplace at Savills.
Johnson set the stage with a blunt summary of current conditions affecting the office market.
“We have $1.5 trillion worth of commercial mortgages coming up in the next three years,” said Johnson. “We have had the most rapid rise in interest rates in the history of the United States, and that’s true across central banks globally as well. And office foot traffic is about 50% of what it was pre-pandemic, and it’s sort of stalled out there. So any outsider might be looking at this and say, it looks like a brutal environment.”
While insiders might share that view as well, Goldfine led the charge on how even the most challenging times can lead to opportunity.
“Collectively, I think the real estate industry will come through this in a better place than they were before,” said Goldfine. “The question is how long that’s going to take. But I’m hopeful that the real estate industry coalesces about how to do things differently, focusing on experience [in ways that] haven’t been looked at as holistically in the past.”
Johnson, expanding on this, notes the shift in industry focus from “a commodity to a service to an experience,” with Covid accelerating this change at “warp speed.”
Pagani echoed how within these changes lie tremendous opportunities.
“There’s so much out there in the market – so much more supply in so many cities. There are incredible deals on spaces, and this is the moment. It’s really an opportunity,” said Pagani. “A lot of people are viewing it that way, and they’re just trying to get it right.”
Pagani then drew upon recent research by Savills to confirm reasons for this optimism.
“Tenant demand is up from the last quarter in several cities, which is exciting,” said Pagani. “In Boston, leasing bounced back after its slowest rate in 10 years. Orange County, which we all were worried about, is showing a 23% increase in leasing activity. DC is showing a sharp uptick in the government sector, and in Dallas, there’s a demand for quality buildings that remains strong.”
Johnson noted that both primary and secondary markets are showing upticks in demand for space, with requests up 3% and 8%, respectively. He asked Goldfine how Hines was positioning itself to capture the demand.
“We have a very strong belief that good quality office attracts tenants,” said Goldfine. “What you’re seeing with occupiers is, it is not just a means to an end anymore. In the past it was space so I can put bodies to work. But now, it’s not about that. It’s space to do something else. It’s still about the work, but people are being really thoughtful about, why are they coming back in? Why do I need to draw them back in? There’s an underlying current of, I need to give them something. I need to do something different.”
“Work has to fit into the ecosystem of work/live/play. It’s not binary anymore,” said Pagani. “They’re looking for things that are super convenient for them so they can have their private lives – one of the top [demands we’re seeing] is convenience and commute. So big cities near commuting hubs are still doing really well.”
All of this speaks, Pagani said, to modern employees finding the balance that allows them to bring their “whole self” to work, and employers providing the sort of workplace that accommodates this.
“The building has to provide a variety of amenities that allow employees to do other things, even while they’re taking care of work,” Pagani said. “They can get healthy food, they have higher quality air ventilation systems and natural light, they have a barista bar. These are things that people now expect. If there’s anything you should invest in, it’s a great quality espresso machine.”
While the debate over work-from-home/hybrid work vs. full time office may continue to rage, Pagani notes that whichever side you come down on, the need for offices that accommodate our modern moment is essential for a company’s success.
“Companies really need to understand that whether you’re remote-first or office-first, your office still has to be beautiful no matter what,” said Pagani. “That’s just a fact now that can’t be overlooked.”
Pagani said that the next step for owners is utilizing advanced technology, including data and AI, to facilitate easy transitions between an employee’s work life and personal life.
“We want to be able to say, ‘Hey Siri, I want to come in on Wednesday and work for three hours with my team, then I want to do individual work, and then I want to go to a social event.’” said Pagani. “We want to understand that all of those spaces will be available to us, and maybe even calibrate noise levels for the right focus time. All of these things are possible.”
Goldfine notes that for owners to provide the sort of environment that tenants demand, there needs to be a cracking open of the closed systems that most CRE data is enmeshed in.
“In order to provide your clients with the experience they want, you have to know what’s happening in the building systems, and these systems have been closed forever,” said Goldfine. “End users, advisors, companies like Hines are saying, in order to get to that, this can’t be closed anymore. We can’t do this as an industry anymore, because this is insanity. You feel like you’re being held hostage, like, I can’t get my data out. I think what’s going to come out of this time is the breaking apart and rebuilding of these systems that don’t talk to each other. You have to get to that data. Without it, you can’t give occupiers what they’re looking for.”