14 January 2021
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.
The Future of Work
When we in the property industry talk about ‘the future of work’, I find what we really tend to mean is ‘the future of clerical work’. Beyond that there are narrower discussions around city centre work, professional work, and corporate work. This narrow agenda tends to be a consequence of the markets in which we in real estate make our money. However, as cities, fortunes, and the very essence of work changes over the coming decades, it is perhaps worth taking a wider view and putting the status quo into context.
A brief history of work
Firstly, let’s briefly step back into our distant past. In our first societies, everyone was self-employed, and everyone was involved in some way in food production. You hunted or gathered to survive, and that was about it. No one owned anything and there was no money. The only real estate was the caves and temporary huts in which you ate and slept.
Moving forwards, agriculture created predictability, which stimulated permanent settlement. This in turn created surplus and allowed for the profusion of new specialist work roles such as priests, doctors, warriors and eventually civil servants. Urbanism proved a success, and with it flourished two interconnected concepts: division of labour, and trade. Adam Smith described how in a pin factory, rather than have one person make the whole pin, each operative was given the separate task of say cutting it, pointing it, and putting on the pinhead. This created expertise through repetition and specialisation and generated the increased efficiency around which Henry Ford would subsequently build his factory lines.
However, at its essence, division of labour is reliant on trade. If you only make pinheads, then you need someone else to make your car. If you assemble cars, then you need someone else to construct your house. And if you make houses, you need someone else to provide your food. This comes through trading the output of your work with that of other people; the basis for our modern society, for how our economy is structured, and the choice you have to do a different job from other people.
Sometimes, however, there is economic advantage to ensuring a supply of multiple skills under one umbrella. The earliest examples of this came in the collective nature of armies, comprised of specialist archers, infantry, cavalry and medics. A second example of collective operations came from family businesses, which ‘employed’ numerous family members (and sometimes apprentices) to deliver scale to their operations. However, the first formal commercial structures didn’t come until the creation of companies (such as the Dutch East India Company) in the seventeenth century. These new groups of coordinated workers needed somewhere to convene, and for bosses to make sure that the companies’ objectives were being fulfilled. The office was born, and the rest is history. However, in this journey to the modern day, it is worth noting that offices occupy only a footnote in the history of work. For most of history, work has not been conducted in offices, and this holds true to today.
Sizing up work today
Let’s examine this using the UK as an example. The UK is an advanced, complex, service-based economy, which is not representative of the wider world, but serves as an indication of where developing economies might end up.
The population of the UK is ~67m. Of this ~33m people work. Let that sink in: less than half of people work. The majority of those that don’t work are either younger than 16 (~13m) or over 64 (~10m). Of the working age population: fewer than 1.5m are unemployed (and seeking employment), and the balance (~8.5m) are ‘economically inactive’, (e.g. home-makers, students, the long-term sick, early retirees and the large majority being people who don’t want a job).
Of those that do work, there is no definitive measure of which roles are office based; however, we can approximate through reference to ONS occupational groups. We can probably safely say that ‘Elementary Occupations’ (3.4m), Process Operatives (2.0m), Caring (3.0m) and Trades (3.2m) based workers don’t work from an office. About half of Sales (2.5m) people work in shops, and so the same is true for them. Even, within ‘Professional’ (11.1m) we have Health, Teaching, Welfare, Protective, Arts and Sports services totalling almost 5m. Hence by my crude estimation there are more non-office workers (~18m), than office workers (~14m) in the UK. Of these ‘office’ workers about 4m (including many self-employed workers) work remotely or in an agile manner. Hence it might be said that genuine office workers account for only 10/66 = 15% of the UK population, and 30% of the working population. Work is not about offices.
The future of work
That is the status quo, but change is coming. Today, less than ~1% of the US labour force is based in agriculture. In 1860 the same figure was ~50%. (It’s worth noting that at that time ~20% of the US workforce were slaves). In the UK we industrialised early, but even so, just in my lifetime, we have shifted from 21% to <8% employment in manufacturing. My point? The shape of economic activity and work is not fixed and can change quickly and structurally in respond to technological and societal change. So, how is work set to change going forwards? I suggest three headlines:
Firstly, the UK workforce will become more diverse. The biggest drivers for change are: (1) more women working more hours, (2) a likely increase in the retirement age, and (3) a growing population (~50% of which is due to migration). Hence our workforce will be older, more gender balanced, and with a higher weight to people born outside the UK.
Secondly, a greater percentage of people will be self-employed. Currently 15% of workers are self-employed (double that of 40 years ago). The area of greatest future change comes in the rise of the solopreneur, freelancer and gig worker (doubled in past 20 years). Business friendly labour policies, new business models, positive tax treatment and a weak economy are likely to push more people in this direction in the coming years.
Thirdly, automation will significantly refocus the labour market. In the seminal paper on the subject, Frey & Osbourne conclude that 47% of current roles are at risk, with those at lowest risk being ones which require perception, creativity and social intelligence. Common to many risky roles is low education and low pay; but that doesn’t just mean truck drivers and labourers. In fact, most of the high-risk roles sit in sales, admin, office and service roles, i.e. ones that are currently based in an office. At highest risk are telemarketers, data entry keyers, ‘clerks’ and ‘tellers’ – all office jobs.
This doesn’t mean dystopia; it just means change. In the same way that agricultural workers obtained jobs in factories, and then their descendants took roles in call centres, the current breed of service workers (80% of the UK economy) will find new work. But what comes after a service economy? As services become commoditised, many are pointing to the emergence of a more resilient ‘creative economy’; one that sits at the nexus of science, innovation and manufacturing. Combined with this we will see the rise of creative roles as a percentage of the total workforce within non-creative sectors. So, we end up with a new world of work, with a more diverse workforce, more focussed on creative tasks, with an increased percentage of self-employed workers. What does this mean for real estate?
The implications for real estate
Firstly, if we start with the premise that most people don’t work, and most of those that do, don’t work in an office, then the opportunity to be found outside of mainstream offices should be clear. This starts with the millions of people who work in our fulfilment centres, supermarkets and leisure venues. However it also includes the hospitals and surgeries staffed by 1.5m healthcare professionals, the education facilities taught in by 1.5m educators and studied in every day by 13m children (…normally!), our police stations, our sports facilities, our food prep sites, and our burgeoning creative and life science spaces. It also includes the homes lived in during the daytime by the 34m people who don’t work; 65% of which are still owner-occupied, and which also constitute the workplace for others, from cleaners, to decorators and to carers.
Secondly, consider afresh the role of the office. For most of our history, people’s work has not resembled the work of today. Working from home is nothing new; it is what most people 200 years ago used to do; plying their trade in the same building in which they lived. In the context of history, the office is the exception rather than the rule. In the same way that factories and offices were designed around a new economy, I suggest that we need a new mode of real estate designed around our emerging economy.
This new mode needs to combine space for thinking, making and interacting with others. Increasingly those that use it won’t be employed by the same business, nor will they come from the same background or skills group. It needs to cater for an aging and diverse workforce. It needs to help remote workers to connect, and it needs to evoke creativity and collaboration among those present. For those of you that read this description and equate it with our existing office stock, you are either one of the lucky ones, or you’re kidding yourself. As we in the real estate industry emerge from a period of reflection this year, let’s get out a blank sheet of paper and see what’s possible.
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