25 September 2020
A personal view of the evolving role of real estate in a world of technological, social and business change, by Richard Pickering, Chief Strategy Officer, UK.
Are offices going down the same road as shops?
1995 was in retrospect a watershed year for retail. Although the world didn’t know it, two small businesses had been founded that would change the face of global high streets.
One intended to sell books; the other was a hobbyist website called AuctionWeb. By the year 2000, the e-commerce trend was being taken seriously, with both Amazon and the now rebranded e-Bay at its helm. In the following 20 years, this new distribution model rose from nothing, to account for 20% of all UK retail sales.
One fifth of shopping had moved into the ether. In the period since its peak, retail values have fallen by ~60% in real terms. Were other factors at play? Sure. But it is difficult to escape the online shift as the primary driver of this change.
In the wake of Coronavirus, the world now seems set to move from the traditional work model, to one which more formally recognises working from home as an integral element. It is at the extremes of this debate that commentators are saying that we will either move to a fully work from home model, or that we will be back in the office 5-days per week. Although there will be businesses and people that fall into both of these camps; most envisage some form of balance. The comparison with retail is palpable. If people work just one day per week from home, one fifth of work will have moved into the ether; a place where no office is required.
Are offices going down the same road as shops? There are some distinct similarities, but also some important differences.
We need to put this in the context of a much broader trend. The internet has enabled instant transfer of knowledge and the ability to transact remotely. This has been hugely beneficial for society. It has made many activities quicker and cheaper. Importantly it has also made many functional activities more convenient, removing inefficiencies, administration and hassle.
Whilst gamers and subscribers to certain websites might disagree, the internet is not built for fun; it is built for efficiency and reference. And for activities where convenience and efficiency are the primary focus, it is often a good choice.
For convenience shopping trips, we no longer need to drive to town, find a place to park a car, pay for parking and only then find out whether what we came to purchase is in stock. We just order online. Recently, many of us have found that we don’t need to sit in the doctors' germy waiting rooms to ask a quick health question – we can have an online video consultation. It is in this same category of convenience that commuters have recently won back up to 3 hours of their life every day; a powerful incentive to work from home.
And so, the wider digital shift, now affecting all areas of life and business, has come to the office. Should we expect a similar impact on real estate activity and value? Before making that call, it is important to consider some fairly fundamental differences between working and shopping.
Firstly, whereas shopping can be done in a couple of minutes on the Amazon app on your iPhone, professional work still requires a lot of time sitting at a desk. Until Elon Musk succeeds with his neural implant project, and we all move to living into Matrix-esque nutrition pods (please, no), then you are still going to need physical space to do work. Not a problem for me, a 41-year old home-owner, (exactly the average age of a UK office worker). My dining room is now my office. However, more of a problem for the me of 20 years ago, living in a shared, rented micro-flat I could barely afford. For the average 20-something urbanite – the same one that might do the majority of their shopping online - working from home is either not pleasant, or simply not viable.
Secondly, shopping is still a largely solitary activity, whereas work is not. Forget marketing images of a group of women in their 30s giggling together on the high street, their arms laden with shopping bags, and a glass of Prosecco in hand. The reality is that most of us shop alone most of the time. Furthermore, a 2018 survey confirms that 95% of us want to be left alone whilst in shops.
If you’re the kind of worker that spends all day on a computer by yourself, rarely interacting with colleagues or clients, then working from home is made for you. You should ditch the office for good. Of course, statistically, you’re in the group of office workers that are most likely to have their job automated in the next 20 years, so maybe don’t invest too much in that home office. Most modern work requires an element of collective, combinational thinking. Increasingly, high-value work is skewed towards creativity, which in turn is shown to thrive more so in (small) groups. Let’s be clear, these groups can still collaborate and be innovative online – it is patently false to state that they cannot – but for many people, particularly older extraverts, this is still a poor substitute for in-person meetings, facilitated in an office environment.
Thirdly, shopping is about buying – you are the customer and the customer is always right. Work is about earning; your employer is the customer of your services, and you might be ‘wrong’. Therefore, the mode of shopping is much more about personal choice and personal convenience, whereas the mode of working is about organisational choice and doing what you are told.
Should there be a conflict between what is good for the employee and the employer? Potentially. There is an emerging discussion about individual productivity vs organisational productivity. For instance, if you are a manager, you might be able to satisfy your personal KPIs at home, but the organisation might lose the synergy of the training benefit that you confer on others. This is ultimately about establishing an aligned reward culture that recognises these wider benefits. It is also about the talent agenda. Employers need to decide whether to adopt talent friendly policies which offer the employee choice, or more rigid, consistency focussed policies. In the next couple of years, the whip hand is likely to be with most employers, but the pendulum will probably swing back.
Fourthly, shopping is a public activity, whereas office work is a private activity. At the beginning of the day the retailer doesn’t know who their customer will be, and for most goods, repeat interactions are infrequent. The volume of purchases smooths peaks and troughs in demand over a typical week. However, in normal circumstances a store can go from empty to rammed in the space of minutes, and this is not a problem.
Office work typically involves a permanent contract between employee and employer. The employer knows who their employee is and is obligated to cater for their needs on a semi-permanent basis. This requires more predictability of the usage of office space. Employers cannot be in a position where they are unable to cope with peaks in demand for space – and without very heavy-handed management and shift-stacking this is exactly what they will get. For this reason, I strongly suspect that estates managers will need to overprovide office space to guard against peak overcapacity issues. This means that the flow through of reduced footfall to office space needs is likely to be weak, and office take-up may not be affected by working from home to the extent that some fear.
In conclusion… The world is shifting to digital delivery mechanisms. If you haven’t spotted this yet, then it’s probably best that you stay under your rock. Office work simply cannot be immune to this trend, which echoes what has already happened in retail. However, to leave the conclusion there, is a massive oversimplification of what is likely to happen next.
There are a number of strong fundamental reasons why the virtualisation of work will not translate to the figures we have seen in retail over the past 15 years. It will, however, increase employee choice and focus the minds of those who use office space on what they really want to get out of it. This is a great thing for society and a much-needed prompt to the property industry to get on with the stuff we have all been talking about for too long now.
To be clear this is not a free pass for office owners. Now more than ever, having a proposition aligned to the ‘new normal’ will be a key source of competitive advantage. Those who have been preparing for a future focused on what liberated employees actually want from their office should be well placed. In discovering this, I’d suggest looking to the retail sector, which has already had a head start in developing the answers: customer experience, wow factor, excitement, community and purpose. This is where the convergence of evolution between the two sectors will be felt most.
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