Offices on a global scale 

April 30, 2018

North East Times’ property writer, Chris Dobson, takes a look at global trends in office space and the questions arising from there, as part of this issue’s international theme

First impressions are not always right, as the tower cranes outside Zurich railway station suggested yet another European office core under construction, when in fact it was high-rise residential development ‘en-masse’.

True, I thought I had spotted something comparable to the buildings grouped around London’s Stock Exchange. Cores tend to be easily recognised but it’s only on closer inspection that the quality of them can be seen.

In particular, it is not just stunning architecture but occupiers too. Basel, for example, is the home to pharmaceuticals giants, Novartis, Roche Group and many others. In Zurich, the large occupiers include Zurich Insurance, Credit Suisse, UBS and Migros from the financial sector. In both cities, there are lots more international company headquarters.

Across the globe there are similar office locations that dazzle by their number. Cushman & Wakefield, the global industry knowledge leader, has published a major report, Office Space across the World, which surveys occupancy costs across 215 office markets in 58 countries worldwide. Using data collected from its extensive network of local Cushman & Wakefield offices, it ranks occupancy costs per workstation for prime office space globally.

It concludes that Hong Kong and London remain by far the most expensive office markets in which to accommodate staff. But all across the world, occupancy costs are increasing and many employees are working in more dense environments.

Finding the tipping point when density and the lack of collaborative space becomes a hindrance to people getting their work done is becoming increasingly important for workplace design. This is particularly true as businesses use the office as a tool for talent attraction and performance enhancement.

The technology sector is growing, thereby creating a new generation of firms. When it comes to location, these companies are more ‘footloose’ than their traditional counterparts. This allows secondary cities to compete in ways not possible during the industrial age. As a result, these cities are moving up Cushman & Wakefield’s cost rankings.

Occupancy costs
Occupancy costs remain a key issue. Globally, annual costs per workstation rose by 1.5 per cent last year. This was driven by the Americas where costs increased by 4.2 per cent and Asia Pacific where they rose by 3.4 per cent. Across Europe, the Middle East and Africa costs fell by 1.3 per cent.

At a city level, costs fell in two of Cushman & Wakefield’s top 10 office markets – London and Paris. Hong Kong saw annual costs per workstation increase by 5.5 per cent, while New York and Silicon Valley experienced growth of 6 per cent.

Currency fluctuations have produced some of the biggest changes in rankings. For companies looking at their local costs, it is this which will exercise them more than property markets over the next year.

Despite a fall in office costs, London remains by far the most expensive city along with Hong Kong. For the same cost of accommodating 100 staff in a Hong Kong office, 300 can be accommodated in Toronto, 500 in Madrid, and 900 in Mumbai.

Office densities
The global financial crisis forced many businesses to reassess their financial commitments. Office consolidations and closures enabled companies to realise immediate cost savings, while flexible work solutions – by way of remote working, hot-desking and ad hoc space rental – proved highly effective in reducing real estate footprints and managing uncertainty.
Employment in Organisation for Economic Cooperation and Development (OECD) countries had recovered to pre-recession levels by 2012. But sustained growth in workplace-based employments, coupled with rising rents in central business districts (CBDs), meant continued densification. As a result in New York, London and Asian cities alike there is growing adaptive behaviour by occupiers who see rising workplace populations and rising occupancy costs as a result.

For example, densities in New York have reduced drastically in the past five years. Hudson Yards is a 28-acre urban development project in the city which will provide several skyscrapers and millions of square feet of commercial space. Here, developers are testing super-dense office space: certain buildings have multiple floors that can provide each office worker less than 78 square feet of space. In the Empire State Building, by way of historical example, most floors provide 150 square feet or more per office worker.
When businesses decide to occupy a traditional office in London, a five or 10-year lease is the norm. But this is incompatible with many corporations’ desire for flexibility. Businesses in London are increasingly taking up co-working space.

Co-working providers offer flexible rental packages which operate on a rolling per desk per month, week or day basis – this gives firms the option to expand or relocate quickly, with little upfront capital or commitment. For corporations this is simple, cost effective and requires no long-term commitment that either hinders growth or wastes money on unnecessary space.

Activity Based Working (ABW) has garnered significant interest across various gateway cities in Asia. Instead of assigning employees a seat, ABW offers a variety of environments in the workplace and gives employees the freedom to choose a particular setting tailored to the work they do and the activities they prioritise. It has been shown to improve employee satisfaction and boost performance, but typically assigns less space per person. ABW will continue to resonate in the high pressure and busy environments characteristic of many Asian cities.

Calculating density and when the lack of collaborative space becomes a hindrance to people getting their work done is by luck for some, but for others through the art and science of workplace design. Known as proxemics – the study of the cultural, behavioural and sociological aspects of spatial distances between individuals – it has repeatedly shown that being respectful of ‘comfort zones’ is crucial for wellbeing and productivity.

In the coming years, working habits will resemble a menu of working environments, including traditional offices, and an assortment of other shared collaborative and ‘third space’ which is a less formal meeting / working area, somewhere between a traditional office and working from home. This will provide employees with the comfort and flexibility they need.

The case for our region
The final and most important thought is how Newcastle figures in this picture of workplace design, flexible rental packages and work solutions.

“Clearly Newcastle does not have the dynamics of major business locations as found around the world, but it has a strong regional position with the pipeline of development at such a stage that current trends in occupier demands can be accommodated,” says Greg Davison, partner, office agency, Cushman & Wakefield’s Newcastle office.

He adds: “The latest phase of development in Newcastle is seeing building design and layout change from what we have considered acceptable in the past, in order to accommodate changing occupier trends.

“A modern building must accommodate higher occupational density, flexibility in sub division, but also create space and amenity that blurs the boundary between work-life and home-life for its occupiers.

“Within the UK, Newcastle and the North East remains one of the most cost effective cities in the UK in which to locate, and in the context of our global research, competes favourably on an international scale.

“The next generation of development schemes demonstrates that ‘cost effective’ does not require any compromise on quality or relevance to the needs of a modern business, whether that be in projecting corporate image, attracting and retaining talent or meeting the well-being needs of staff in order to improve efficiency and fulfilment. Already in our region we offer a very high quality of life, and with office accommodation that meets the needs of modern life at an attractive cost, the case for our region is compelling.”