29 April 2022
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.
Time and Space
Welcome to this week’s blog. If you’d prefer to listen to an audio version, click here for the podcast.
We’ve all heard the stat that our cars spend 90+% of their time sat inactive either on our driveways or in some other parking space. In a world where efficiency initiatives are squeezing out every last inch of redundancy, this feels like a profligate waste of our second most significant life purchase, and a hideous overconsumption of natural resources. Until recently however, this has been unavoidable. If you wanted to have the option of driving a car, you needed to own one. Now, the sharing economy is opening up new opportunities to dip into car usage without putting your name on the V5C form. You can call an Uber and have it arrive pretty much on demand, or join a car club and share the cost with your neighbours. Combined with a modal shift to trains in our big cities, this opportunity has in recent years reversed the increase in car ownership for the first time since cars were invented.
If the juggernaut of car ownership has been arrested, then what about our most significant life purchase: our home? Or in a corporate context, one of the most significant long term cost commitments on the P&L, your office? In this week’s Futures /Cut, I consider how and why our buildings will increasingly come under pressure to demonstrate higher utilisation, and point to innovative ways in which this is already being achieved.
Consider a typical office building. Pre-pandemic utilisation rates were typically perhaps 75%. However, let’s unpack that a little further. Utilisation is typically taken to mean the amount of people who spend at least some of their time in the office during a typical day. This is often measured by security gate counts, or connections to the WiFi. And so, someone who checks in and spends 10 mins at their desk would count as being there for that day. Traditionally, the fact that you had entered your workplace was usually a good proxy for having stayed there the majority of the day. However, in recent years the workforce has become more footloose and likely to work from multiple venues (client / supplier sites, coffee shops etc) during a given day. New technologies like IoT sensors now allow us to much more accurately measure office utilisation, and so as a consequence the real utilisation looks lower than the headline utilisation; maybe 60%.
Next consider what this doesn’t cover. Despite accounting for almost 30% of the week, weekends don’t get taken into utilisation rates. Office buildings typically sit dead at the weekend. Even more significantly, a typical workday is taken to be the eight hours from 9 to 5. Even if we were generous and added 2 hours at either side of this for cleaning etc, this still means that we are only using our offices for half of the 24-hour day.
So… on this crude maths, offices are typically in active use 75% x 70% x 50% = say a quarter of the time. Compare this to a distribution warehouse, which is often in active use 24/7 and the inefficiency becomes clear.
Let’s wind forward to post-pandemic. Whilst the whole thing is still settling down and there is significant variation from company to company, sector-to-sector, function-to-function and grade-to-grade, there are already fairly clear central tendencies emerging around a mid-week peak. Most contemporary analysis shows relatively high levels of occupation on Tuesday, Wednesday and Thursday, and relatively low levels of occupation on Monday and particularly Friday. If for some sectors being in the office becomes a three day a week activity, how does this affect the equation?
Assuming that mid-week occupation remains comparable to pre-pandemic, and Monday and Friday are now essentially nil, then utilisation becomes 75% x 40% x 50% = 15%. Which isn’t exactly great.
It’s also not great for our wider city centres, most of which have effectively been designed on a model which relies on the regular traffic of high value office workers. The utilisation patterns ripple outwards. Empty offices, mean empty coffee shops and restaurants, less visited retail and empty soulless streets. At night-time, mono-use CBDs are ghost towns with attendant security and safety issues. This isn’t a reason to change a business’s occupational strategy, but neither is it sustainable nor desirable.
For older cities like London, the problems highlighted above have a relatively modern genesis. 200 years ago, the residential population of the City of London was ~130,000. The square mile was a bustling mix of working, shopping, trading and living. Work was typically conducted in the ground floors of residential premises, in coffee shops and in public trading areas – to have a separate office was the domain of major (often government backed) institutions that employed a large number of workers. The activity carried out well into the evening and spilled out into the street. Well intentioned planning policies and social drivers have over the years radically affected this model in central districts across the world. First, the noxious uses were pulled out to the edge of cities – undoubtedly a good thing. However, the more impactful shift has been the relocating of people out of our city centres. Despite the (metro area) population of London increasing by 900% in the past 200 years, the City of London is now home to just 7% of its 1801 population. This hollowing out has been a common theme across the world and notably in the big American cities. Much has been made of the challenges of dormitory suburbs, but the equal and opposite problem is daytime CBDs, which go quiet at night and weekends. City centres which are home to people are more vibrant and better utilised city centres.
So what’s to be done? I make the case above for mixed-use cities; if people stay in the same place around the clock then the demand for 24/7 services and amenities increases. However, demand for a mix of uses is only half the equation; what about the supply side? To achieve better, more sustainably endurable utilisation, the aspiration should be for mixed-use buildings. And I don’t just mean an office with a ground floor café. I mean spaces which can fluidly transform from one use to another through the day and week. Such spaces maximise utilisation and vibrancy. However, there are barriers to achieving this. Quite a few, it transpires.
Physical. Different activities require different types of space. The most significant element of this is that public-facing space (like shops) tends to have differing requirements to privately occupied space (like residential). Particularly in Western countries, we don’t tend to work well with vertical retail, and so the opportunity to house retail uses at upper floors tends to be more limited. For uses which are more similar (e.g. different forms of work) there is more opportunity to coincide space at upper floors, but central to this is the ability to change the boundaries of the space flexibly. An open plan floorplate, or one with demountable / moveable partitions and furniture is more likely to be capable of adaption than a cellular environment.
Privacy & Confidentiality. Notwithstanding the physical potential to adapt space, the primary reason for not doing so is often due to the need to create and respect privacy. At its most extreme, you wouldn’t want someone setting up a shop in your bedroom whilst you were at work. A more likely scenario might be the use of an office building by a community group at the weekend. If said office building was the trading floor of an investment bank, this would probably be a non-starter. If, however, it was in the client facing meeting rooms of a charity then it feels much more viable. The shift to digitalisation of work activities and hotdesking has meant that clear desk policies typically prevail, and the likelihood of confidential paper files being left on the floor has also reduced. Nevertheless, the sweet spot for temporal reuse at for instance weekends remains in environments where clear desks and depersonalised, unbranded, vacated space is part of the operating model – e.g. coworking space.
Legal. As most readers will doubtless be familiar, a key facet of a lease is exclusive possession, and you don’t get leases for Monday to Friday. Therefore, any pass through of occupation would likely need to be agreed with the landlord and subcontracted by the tenant. Unless it is the tenant’s business to operate property (e.g. a flex operator) they typically won’t be best placed to manage selling down of unsold capacity, which typically also requires some form of marketing platform. Could in the future we start to see temporal leases / licences, where for instance the weekend is excluded, and the landlord lets this separately? Perhaps, but much will depend on the privacy / confidentiality point above. In some cases where privacy is not of primary concern, (e.g. in a 3PL depot), operators have started to sell unsold pallet space on a daily or even hourly basis. And of course the same is true for events space and some touch-down work concepts.
Demand Peaks. One of the biggest challenges is that we all tend to want to do things at the same time. For instance, there are unlikely to be many opportunities to sell space in the office at weekends and during the night to other corporates who have the same weekday work models. The same is true of our infrastructure at rush hour. Seats on trains are always going to be in most demand during the first hour of the morning. Could two corporates, each anticipating a 2-day per week work model share 5 days of office space (or at least the ancillary space) between them on a rotating basis? Again, this feels possible, if they can overcome the discussion about who gets Wednesday and who gets Friday. However, the best solution is likely to be found in two different uses that have different temporal requirements. For instance, bars make their money late in the day, whereas coffee shops cash in early; and so the opportunity for synergy is more palpable.
So, let’s move this out of the theoretical and consider some examples. Here are a few illustrations of the temporal reuse of space within buildings.
Deskdog, Brixton – Pub by night, office by day. Scottish brewery chain Brewdog have filled the graveyard slot for their bar concept with a flex work offering, bundled with coffee, WiFi and even a free pint to ease the transition. Pubs are notoriously dead during the daytime, but are one of few uses to dominate the evening time slot. With a solid footprint across the UK, pubs provide opportunities for both city centre, decentralised and even rural office options.
Sofar Sounds – Bringing music everywhere. Music events business Sofar Sounds hosts intimate concerts in unique venues, from gardens and shops to rooftops and private homes. Guests are often seated on the floor (eliminating the need for furniture swap outs) and are encouraged to bring their own alcohol (so no need to install a bar). Now a 10,000 event per year global operation, they currently have 139 planned events across London with typical audience sizes of 100. Previous gigs have been hosted at the swimming pool at the bottom of Columbus Circle, NYC, in WeWork venues and in empty office space at Tileyard studios.
Slowear18, Milan – Fashion store by day, cocktail bar by night. Particularly as retail has shifted from filling shelves to exhibiting brand and product, there tends to be enough space and a complementary shared vibe with sophisticated drinking. Designed by Italian studio, Visual Display, this hybrid concept delivers both. At night a glass ‘chandelier’ descends over the products to keep them safe and provides a secondary function as a product showcase.
Gladstone’s Library, Wales – Books to Beds. Once the 250,000-work library closes to the public at 17.00, overnight guests can spend a further 5 hours browsing the collection and taking their favourite book back to their bookcase-wallpapered bedroom. The library is also home to 19 digitally connected workspaces, a café for breakfast and a restaurant for a Sunday Roast. Other ‘night-at-the-museum’ concepts include at Science Museum, the London Zoo, Hamley’s Toy Shop and onboard the HMS Belfast.
Bar Lotus, Shanghai – Coffee by day, booze by night – there is a fluid (excuse the pun) transition between coffee and cocktails. The fit out to both operations is common – a bar and some seats – and so the main lift at 18.00 is changing porcelain for highballs. Originally planned as a restaurant, the designers changed the tone of the venue through creating stronger, more visible connections to the street. ‘Over Under’ have pioneered a similar concept on Deansgate in Manchester, transforming the venue at night by ‘turning the music up and the lights down’. To further assist, the tables flip and the walls are on hinges.
The Night Ministry, Chicago – Community uses 24/7. Originally an industrial unit, the Ministry is now home to offices, kitchen, meeting space and overnight shelter accommodation for Chicago’s homeless population. There is an operational synergy between these uses, with administrative functions closely embedded with the core delivery of the charitable work.
All of these uses point to a future that has not yet reached the mainstream. Technology will help us to get some of the way through new flexible design adaptions, and the substitution of physical artefacts in for instance the workplace with digital ones that can disappear when not needed, facilitating adaptive reuse. However, the real tipping point as to whether or not this kind of thinking will take hold is much more dependent on how we choose to live our lives.
For now, we live largely in a 9-5 work culture, with the evenings and weekends dedicated to family or leisure, and where we sleep in the same bed every night. These are long established societal norms. The result is that our homes are sacrosanct, and the opportunities for reusing commercial space on the evening are heavily dominated by leisure operations that can ‘pop up’ like cocktail bars.
This reality stands in sharp relief to many visions of the future of our cities, which envisage a vibrant albeit sometimes dystopic 24/7 mix of colourful uses. The standard work week does appear under threat. Although the current indications are that it might contract to fewer days, it is also not implausible that the separation of week and weekend might one day be a thing of the past. Machines work day and night, and operations which use them (more and more each day) also show prospect for 24-hour utilisation. People tend not to prefer this. However, data from the TUC suggests that 3 million people in the UK are now nightshift workers and this is rising sharply. Might one day, the final Rubicon of removing the delineation between day and night finally be crossed?
These are big changes that won’t happen easily. However, to drive up customers’ perception of value for money from real estate in the meantime, we as an industry should continually challenge ourselves to not just put a name on the lease, but also to drive vehicles for higher utilisation. One such vehicle is likely to be the operation of flex space, not as a separate proposition, but as an integrated part of the leasing offer within any given building. Operated by the building owner, this could help to smooth variances in usage patterns. One solution might be a clearing system for such flex space. Perhaps a new model will emerge where the most affluent tenants bid most to secure the extra space on Wednesdays, whereas more thrifty organisations pay less, get Fridays and conform their occupational model around that?
These kind of innovations would facilitate the bedding down of as yet uncertain hybrid work models, and in turn we might hope to restore vibrancy to our city centres.
Regards,
© Cushman & Wakefield 2022. This information contained in this briefing is for information purposes only. Accordingly, the information contained herein should not be relied upon or used as for any business decision. Any such decision should be based only on suitable and specific professional advice. This briefing is not directed to, or intended for distribution or use in, any jurisdiction where such distribution or use would be prohibited. To the extent permitted by law, Cushman & Wakefield accepts no duty of care and cannot be held responsible or liable for any loss or damages which may be incurred by any person (directly or indirectly) as a consequence of relying or otherwise acting on the information contained in this briefing.
