Newmark Knight Frank (NFK) is one of the world’s leading, publicly-held commercial real estate advisory firms. NFK’s newly released 1st Edition (Y)our Space: Insights from the Global Workplace summarizes the key results from the firm’s Global Occupier Survey conducted earlier this year.
The Survey collected the views of over 100 real estate leaders around the world, and highlights the key trends, critical perspectives and changing dynamics that are shaping occupational strategies over the next three years.
Commercial Real Estate is Transforming from a Fixed Asset to a Service Business
Occupiers no longer look at real estate strictly as an expense. Today real estate has become a strategic priority that affects an array of business priorities including talent management, transformation of the corporate culture, and business innovation in the face of rapid technological change.
Landlords are being forced to rethink their strategic agendas and market propositions. Changing occupier expectations mean property is becoming less of a fixed, physical product and more of a fluid and flexible business service. While high-quality, well-design space remains important landlords will also need to provide first-rate customer service and winning experience for occupiers. Landlords who fail to do so are putting their income and asset performance at risk.
Demand for Flexible, Coworking and Collaborative Space Will Continue to Grow
Knight Frank surveyed senior executives at 120 global companies who collectively employ over 3.5 million people and who occupy a combined total of over 233 million square feet of office space – equivalent to nearly half of the office space in New York City.
The growing demand for flexible coworking space was one of the main highlights in (Y)our Space. According to Lee Elliott, Knight Frank Global Head of Occupier Research:
While coworking and serviced office operators have grown rapidly over the past five years, driven largely by startups inand the freelance economy, this is only the tip of the iceberg with latent demand from global companies set to emerge over the next three years.
In fact, 69% of global corporations plan on increasing their use of coworking and flexible workspace over the next three years. Nearly 45% of global corporates believe flexible workspace will account for up to one-fifth of total corporate workspace, and 75% of those surveyed are focusing on the best ways to utilize business space to boost employee satisfaction and improve productivity.
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8 Key Takeaways from the Knight Frank (Y)our Space report
The report identifies eight important views and key trends that are shaping the occupation strategies of global corporations:
- Over 91% say their global portfolio will be different with over 60% increasing their total space
- Over 87% view real estate as a strategic device within their organizations
- Over 73% see automation and artificial intelligence as the two technologies having the greatest impact on business
- Over 70% see the four key business features of office space quality, space design, amount of collaborative space, and corporate wide innovation increasing
- Over 64% say these technologies will result in a decrease in employee headcount, while nearly 60% say there will be no affect on the amount of space occupied
- 48% say money spent on real estate will stay the same or increase to support corporate growth
- Nearly 45% expect to move their core offices within the next three years
- Cost savings, business restructuring or downsizing, and access to talent are the three primary drivers for core office relocation
There are five themes that will shape the use of space and occupational demand in global real estate markets over the coming years. Taken individually these themes are very influential. When combined, they are creating a new occupational norm in commercial real estate.
The Push for Productivity
Commercial real estate is rapidly becoming a strategic device as businesses focus on effective rather than inexpensive real estate solutions. To increase productivity occupiers will increasingly look for ways to solidify the interaction between people and property. This is being accomplished by creating and investing in a positive, serviced, and supported workplace experience.
New Technologies, New Business Models, New Occupational Demands
Automation and AI (artificial intelligence) are rapidly changing the way businesses organize and engineer. These next wave technologies are affecting the form, function, and location of the workplace as we know it. Staffing levels and employee quality, and increasing interaction between humans and machines, are combining to create new and unique forms of occupational demand around the world.
Corporate Constitutions Are Changing
The increased frequency of technological change is forcing companies to constantly revise their business models. Businesses are increasingly focusing on their core competencies, and outsourcing skills that are not part of their core. Corporate supply chains for both product and people are becoming broader and deeper. As a result, the demand for flexible, collaborative workspace is increasing to improve interaction between staff.
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Space as a Service
The workplace as a flexible business service that actively supports growth continues to become the default demand from business users. The occupiers of today and tomorrow no longer view real estate as a physical product with a high fixed cost. Landlords are being forced to adapt to this new dynamic by delivering real estate that provides soft-services, community, and well-being for space occupiers.
Mobility and Mergers Drive Occupier Activity
The growing number of mergers and acquisitions will increasingly drive occupier activity. The search for business talent will continue to intensify, and markets and submarkets that are home to talent pools will become key areas of workspace location. Occupiers will continue to demand that wherever workspaces are located, the access to amenities, services, and infrastructure be available to help retain top talent.
The Future Global Workplace – What, Where, How and Why
Acting in unison, these five themes – productivity, technology, corporate constitutions, the space as a service paradigm, and occupier mobility – are increasing the complexity of global corporate real estate portfolios. Simultaneously, these factors are also increasing the demand for commercial real estate in new markets and submarkets, and in emerging real estate markets in the U.S. and around the world.
Technology Acts as a Business Disruptor and Driver of Office Leasing Activity
As over 73% of the survey respondents indicated, the growth of automation and AI are the two new and growing technological factors that are having the greatest impact on business structure and demand for space. Existing and emerging technology companies – and those businesses being disrupted by technological change – will continue to drive leasing activity in markets that are home to tech and creative talent. Unlike in the past, where workers relocated in search of job, today the technology employer is coming to the worker.
6 Factors Supporting Infrastructure for Technology
Occupiers will increasingly locate in, and relocate to, global centers that offer the skilled workforce and infrastructure that allow business to harness the opportunities of this next wave of technology.
There are six key factors that support tech sector infrastructure:
- Educational infrastructure
- Technology talent
- Economy supportive of tech and start-up businesses
- Tech based growth
- Capacity to innovate
- City infrastructure
The World’s Top 15 Tech Cities
Based on these six key factors the Knight Frank 1st Edition (Y)our Space report identified 15 global cities that provide occupiers with the human capital, economic development, governmental support, and infrastructure needed for business to successfully transform and compete.
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These are the world’s top 15 tech cities by continent and the overall global ranking assigned to each:
North America
#1 San Francisco
#4 New York
#5 Boston
#15 Toronto
#6 Los Angeles
Europe
#2 London
#7 Amsterdam
#9 Zurich
#11 Berlin
#12 Paris
#13 Stockholm
Asia-Pacific
#3 Singapore
#8 Tokyo
#10 Seoul
#14 Sydney
The Changing Face of Commercial Real Estate Around the World
The use of real estate as a strategic business device is continuing to grow. Rather than being thought of as a line item expense, money is being spent on space that will boost productivity. Effective – not cheap – real estate solutions are what global occupiers are demanding.
New technology is disrupting existing business structures, cultures, and the need for human capital. As the digital age continues to grow organizations will continue looking for ways to implement these new technologies to further their competitive advantage, and to create and enter brand new markets.
Commercial real estate is rapidly transitioning from being a fixed physical product towards a flexible customer-centric service model. 69% of global corporates plan on increasing their use of flexible and coworking office space over the next three years. Property owners who aren’t responsive to the changing needs and expectations from occupiers run the very real risk of incomes declining and assets becoming less valuable.
