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Leading business through the CRE balancing act

​​​​​​​​​​​​​​​​​​​​​​13 July 2016

Jeremy Sheldon on the corporate real estate balancing act

Jeremy Sheldon, head of Transactions and Portfolio Services, Asia Pacific at JLL, spoke to CoreNet’s The Leader magazine about the many challenges facing corporate real estate professionals.

We live in a wired and ever-changing world. The walls of the workspace have been knocked down, and we bank and buy with the device in our hand. But at times, we also need a personal touch.

That throws the concept of the "office," the "bank" and the "store" up in the air. So what does the modern corporate real estate (CRE) team need to do in order to help a company catch and then juggle all of those balls in a successful pattern?

The C-suite executives at some multinationals are currently hesitant about operations. Part of their reticence stems from the unprecedented situation we currently find ourselves in. Central banks are maintaining negative interest rates in countries that account for 70 percent of the OECD (Organisation for Economic Cooperation and Development), the most-advanced economies in the world. Investment-grade corporations have never found it easier to borrow. But where, in terms of their operations, should they be investing that money?

Asia has the best growth prospects. While China's annual economic growth has slowed from double digits registered in the past decade, its rate of growth of 6.5 percent for 2016 would still be the highest in the world, bar India's impressive 7.5 percent, if the number falls in line with the International Monetary Fund's latest forecast. Investors are largely positive about China, which is adding more cars, billionaires and middle-class consumers to its economy than anywhere else.

How will that work? In volatile markets, it is even more pertinent for companies to optimise space, retain talent and improve productivity. CRE teams are working more closely with C-suite executives now than at any time in the past to rein in costs and boost the bottom line.

How do you retain talent?

In the past, Asian companies have simply crammed as many people as possible into the space they have. But that is beginning to change, and corporations see the need to keep their people happy as well as busy. One study (Gallup, 2012) shows that each employee loss equates to $250,000.

Employee retention is therefore of paramount importance and is one of the biggest focuses for companies right now. Studies have shown companies with "engaged" employees and those that work at developing the corporate culture returned higher revenue and income.

This is reshaping the work force and, in turn, is reshaping the need of the corporation for space, for real estate, and, most literally, for "work stations," which are no longer what they once were.

Given Asia's cultural and religious diversity and varying levels of economic growth, the physical workspace would need to be different in different places. If you are entering a market, your position in terms of office and branding may need to differ from a market where you are already entrenched. "If you come to more mature markets, it's about legacy. If you come to other markets, it's about diversity," noted one of the panellists from the session, "Business Leader Views of Corporate Real Estate," at the CoreNet Global Summit held in March in Singapore.

The concept of the "job for life" has eroded. This was also one of the viewpoints put forth by the panel. In an increasingly uncertain world, it is just as risky to remain at a large corporation that could lay you off at any moment as to start your own company or work with a small team of people with a shared mindset.

So concepts such as work-life balance become as important as the old considerations of job security and income security. This is increasingly true of Millennials. Most people now in the work force have shifted their mindsets and have a fairly cohesive set of qualities they are looking for in a company. Besides adequate remuneration and work that is engaging, more and more employees are asking for a workplace that is ecological, ergonomic, socially friendly and fun.

This has led to a redefinition of the role of the workplace. The physical space of a company must be fully wired to allow for flexible workspaces, such as study nooks and meeting spots that help increase staff collaboration, creativity and productivity. But it must be even more flexible than that because it needs to accommodate a daily audience that shrinks and grows.

How do you define 'workforce'?

"The idea of the workforce as people on your payroll and the people who come to work in your building everyday is increasingly wrong," said one Summit panellist. A contingent workforce that might occasionally visit the office but largely work independently is increasingly supplementing the standard workforce. CRE teams must be flexible enough in their mentality to incorporate this workforce physically in the office building. But they can also consult on connectivity and how best the traditional office can interact with this 21st century, free-form one.

It is all about choice, and the smart corporation will offer people that choice. Work should be, as much as possible, a pleasure, not a chore. The modern workplace must adjust to and accommodate a workforce that may choose to work within the walls of your office – and outside those walls. This raises the question, "What is the optimum office space?"

That is often scary from a company's point of view. "I think most leadership teams aren't equipped to deal it," noted one panellist, a global consultant. Hot-desking is an obvious reaction, but that does not work if the company does not also reform its policies about people who want to be contingent workers, whose rights and benefits need to be addressed. "You have to change your space, and you have to change your mindset," he added.

The whole concept of measuring space is changing now, because if 30 percent of your workforce is contingent, and they visit the office irregularly, what space do you really need to house that workforce? What should "workspace" look, feel and breathe like, so that people actually want to work for you versus a competitor?

In the past, there may have been this difference between "the office" and "my home." They have merged now, so the office needs to be a place where people want to go because they can meet their colleagues and get more work done. Each corporate culture will be different but it needs to express itself.

Such workplace expression says as a lot about your corporate culture. Do you want to bring clients, suppliers or customers in for a meeting and, incidentally, to see where you work? Do you all want to team up, work with common objectives and achieve results?

Large corporations will always have a tougher time at answering these questions than a tech startup. JLL has explored such a situation with Millward Brown, the advertising agency, in Singapore. The end result was to convert "my space" to "our space" and make use, literally, of all five senses, with the end result of boosting teamwork, creativity and productivity.

Disruptive technology and the shared economy

Disruptive technology has permeated every industry, altering the way we live, travel and work. Not only has the definition of the workplace changed, retailing and hospitality sectors are also undergoing huge transformations. Shopping malls and hotels are increasingly focused on creating the right experience to provide product differentiation.

The shared-economy model epitomized by providers such as Airbnb and Uber is growing rapidly.  By 2030, JLL expects co-working spaces to increase to 20-30 percent of total office stock. The development of the FinTech sector, which is challenging traditional banking, is also changing the way CRE teams think about commercial real estate. For a start, the whole client-facing concept for the traditional bank has moved on from over-the-counter to a handheld device.

In mainland China, government strategies to encourage innovation and entrepreneurship – such as those that helped turn startups like e-commerce trader Alibaba, Internet media titan Tencent and online provider Baidu into market giants – are now being re-imagined to support so-called makerspaces, where people with common interests meet and create.

Plans have been announced by China to support the construction of 100 "innovation houses," while cheap property leases and telecommunication services are being offered to operators of co-working hubs.

In India, a rapidly growing economy with a highly skilled tech work force and active start-up scene has propelled Bangalore to the ranks of a global technology hub. The city was recently ranked by JLL as one of the top 20 technology-rich cities in the world. 

The challenge for the modern CRE team is to help companies map out how exactly, in physical and technological terms, they are going to pull off that difficult balancing act of meeting companies' business objectives as they juggle a fixed budget in a fast-changing market environment. A big strategic shift for the CRE sector in recent years is the demand for absolute flexibility and responsiveness ranging from the length of leases, types of space, the optimum amount of space and the kind of working environment to continually attract and engage the workforce.​

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