Meeting demand: the tenant market, by necessity, is adapting to change

Colliers International explores the emerging trend of businesses increasingly prioritising people as the top criteria in their future occupancy strategies

- By Tim Farley, national director for Tenant Advisory, a division of the Occupier Services product line

It is well documented that Melbourne’s CBD and fringe office markets are currently under significant pressure to meet tenant demand, with a lag in new quality and contiguous supply entering the market forcing many occupiers to review their needs and strategies years in advance.

The key risks associated with occupiers leaving their review and strategy too late are primarily linked to:

• Not having sufficient choice of accommodation solutions within the required timeframe that are aligned to key business objectives; and
• Negotiating terms in the peak of the market – when demand exceeds supply and there are very few options (if any) in the market that meet requirements, the ability to leverage negotiations for the best possible commercial outcome are negatively impacted.

The primary cost (and asset) for most businesses is human resources. The second biggest cost for most businesses is property so it makes sense that property-based decisions should be aligned to better supporting and enhancing people-based objectives.

Human resources are a cost necessary to generate revenue. Better talent costs more but enhances productivity. Several studies also attest happy and more engaged staff are more productive and less likely to contemplate alternative employment opportunities. Similarly, businesses that strike the right balance become an employer of choice, not only retaining talent, but attracting talent. A positive side effect of being an employer of choice is that many prospective employees may want to work for your business, reducing the focus on remuneration when considered against alternative and less desirable employers that may be offering higher salaries.

So how do businesses make property-based decisions that help them achieve their people objectives? Common criteria includes but is not limited to:

• Location • Profile • Proximity • Quality • Environment • Design / functionality • Efficiency / flexibility • Technology • Cost

Location, and therefore access to premises, is two-fold. Improving access to staff increases the size of the talent pool for recruitment, while also making it easier for clients/customers to meet with you.
Profile can be used effectively to promote your brand and increase exposure to current and potential clients. Aligning the right property to your brand can have significant rewards for your business, particularly when compared in a positive light to competitors.
Proximity can relate to a number of matters, such as public transport, key clients, cafes, childcare, gymnasiums etc., that improve the experience for staff and customers alike, while allowing staff to better manage their time for a better work/life balance.
Quality is a broad measure but a better-quality building will include more amenity in the building itself (end-of-trip facilities/gymnasium/cafeteria), have less waiting time for lifts, or include better services, such as air-conditioning to support your preferred occupancy methodology and technology aspirations, where the number of staff and computer screens intended for your premises may increase heat load on aged or poor quality services beyond their limitations.
Environment can be addressed in both the built form and workplace methodology around work practices. These typically go hand in hand, where the benefits of a positive and healthy environment are known to reduce absenteeism and improve productivity.
Design and functionality support collaboration and other workplace aspirations, such as neighbourhoods and heat mapping.
Efficiency and flexibility seem obvious but can often be overlooked. An efficient space may come at a higher cost per sqm – however, the ability to do more with less may net considerable Net Lettable Area (NLA) and CAPEX savings for a business beyond the rental rate. Flexibility provides a means for a business to easily evolve and adapt to change, whether this be achieved in the fit-out design, or a building and lease document that best cater for expansion or contraction of the business over time.
Technology is the real enabler to meeting client objectives in many cases. The ability to book and manage meeting room spaces or arrange catering via on-line concierge portals can offer tenants significant benefits. Soft phones and laptops that allow staff to easily move and collaborate effectively in the work space. Sit/stand desks that address function and healthy habits. Technology aids flexibility and better work/life balance. Staff who fall ill can often still operate effectively from home without spreading sickness throughout the office if technology supports this. Premises can also adapt to change far better and cost-effectively when technology solutions support flexibility. 
Cost remains an important consideration but can be measured in so many ways. In the past, we have seen decisions based predominately on the cost of real estate but businesses are now realising the cost of making the wrong property decisions based on financial considerations, rather than best supporting its business objectives, can be far more costly than the rental rate per sqm. The inability to attract and retain the best talent costs a business through loss of productivity, recruitment and training. It may also negatively impact the business’ ability to win or retain clients. A return on investment is now being linked to return on engagement with staff and clients alike.

An exhaustive workplace strategy better enables businesses to successfully engage with their staff and clients in order to devise a thorough and considered accommodation strategy. We are now seeing landlords demonstrate their own understanding of workplace strategy by seeking to attract and retain tenants by offering many solutions (technology/environment/amenity/flexibility) within their assets, essentially future-proofing property-based decisions and reducing operating costs. Bookable meeting spaces and event centres have recently become the new end-of-trip facilities in tenant accommodation criteria, with tenants seeking to leverage “pay as you go” base building or third-party-operated facilities as a means to reduce the NLA required for underutilised large-scale board rooms etc., but also accommodating growth or project-based requirements without the need to source alternative fragmented accommodation. Best practice has very much become more of a landlord and tenant partnership as opposed to the adversarial mentality of the past, and this can only be a good thing.

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