It is broadly understood that the work-life changes propelled by COVID-19 lockdowns won’t diminish the need for offices.
Corporates are expected to retain their flagship city centre premises with good quality fit-outs to support their business culture and innovation.
However, owners of A-grade or secondary offices face a more stark turn of fortune as our Q420 Market Snapshot survey results clearly illustrate the 'flight to quality' trend. Prime office vacancies actually decreased 86 basis points (BPS) over the quarter to 4.0%, meanwhile secondary vacancies increased substantially by 266bps to 13.8%.
As a result, landlords are now in a position to rearrange and repurpose older office buildings to attract tenants hunting for modern spaces so that they can in turn help lure employees back to the appeals of the office.
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A fully collaborative workplace with integrated amenities and technology is becoming increasingly crucial to engagement, productivity and loyalty – and we are really just at the start of the trend curve. So how can you future-proof your workplace?
Everything from traditionally-leased office floors to lobbies and end-of-trip facilities are being looked at, triggered by the shift to a hybrid work model.
In a softening rental market, refurbishments can help retain and attract new tenants, protecting landlords from leasing risk which is becoming a key factor for investors. There is a shopping list of capital expenditure strategies that landlords can get underway in their buildings as a proactive defensive strategy in the current climate.
An expectation for amenity
Increasingly businesses are seeing the tangible benefits of genuine hospitality-style amenities in their workplaces. Not only are these amenities valued perks that help attract and retain talent, they also make employees more engaged.
Modern landlords have quickly grasped this and in addition to providing quality food and beverage options, are reacting by offering new and extended end-of-trip facilities like showers, bike racks, laundry resources, and even access to gyms and other health facilities. From a tenant’s perspective, allowing employees to exercise at work creates wellness and a staff member that is healthy, fit, and engaged is more productive.
Tenants surveyed by JLL who have moved to modern workspaces within the last few years reported seeing significant reductions in absenteeism. This is a true cost benefit to a company and should always be considered.
Home sweet home
It takes more than a ping-pong table in a breakroom to impress these days. In this high-stakes business environment, landlords are collaborating with organisations to raise the bar and provide workplaces that employees actually want to spend time in. As such, an increasing number of new fit-outs are blurring the lines between residential and commercial, particularly through interior selection.
Businesses are bringing in more material selections like custom timber feature ceilings, refined wall finishes, and even bespoke lighting designs. From start-ups to corporate offices, these residential elements and textures are serving to support morale and pick up the tempo in how employees engage and work within the space.
Rethinking interiors includes enabling the flexibility for where employees want to work, whether this is at their desk, lounging on a beanbag, at a leaner in the kitchen, in a focus room, within numerous collaboration settings, or even while drinking coffee within their client-facing café. Cutting the cords and removing the landlines can enable an agile neighbourhood-based work setting that will boost productivity and sentiment within the office.
Go green
When money gets tight, initiatives supporting the environment can be among the first to get side-lined. But despite this, companies and investors are expected to stay the course. Not only for our future, but also because it makes fiscal sense.
Our global research shows that in real estate, assets with high ESG (environmental, social and corporate governance) ratings can attain a 33 percent rental premium over comparable non-green certified buildings.
Not only that, but a building with green credentials can improve tenant attraction and retainment as occupiers can benefit from improved health and wellbeing, reduced operating costs, and heightened marketability as a result of corporate social responsibility.
Refurbishments as a value driver
The prospect of decreasing valuations is also driving landlords to modernise their buildings. While refurbishments alone can’t reverse value declines, they can help provide support.
There is a whole basket of things that drive value, including the markets first and foremost and also tenancy and rental profile. But in totality, refurbishments will always make a difference because if the buildings you’re competing against have all the bells and whistles, and you don’t, you’re immediately at a disadvantage in a leasing market that’s going to be competitive for some time.
Meanwhile, offices left untouched could provide rich pickings for investors on the hunt for value-add opportunities, especially to create assets with strong sustainability attributes.
The new year may not shake off all the challenges of a pandemic-hit economy, but with strong recovery in many markets and new dynamics influencing how people work, live and play, 2021 could establish itself as a year where New Zealand enters a whole new cycle of real estate growth, innovation, and investment.
- Ashleigh Duke is JLL New Zealand Project and Development Services Director
