New business models, increased competition, digital technology and green building design top the list of commercial real estate trends expected in 2019. We are currently in a period of economic growth, which has heated up the competition for deals, talent, tenants, and capital. There was a similar set of trends in 2018 however in 2019 we expect to see more urgency, particularly in the area of technology adoption.
Technology Takes Center Stage
Technology is the hottest trend in CRE today. Staying connected in the workplace is vital in today’s work culture particularly as the number of remote workers, digital nomads and temporary workers/contractors increases. Access to a robust network delivers the ability to quickly communicate in a variety of ways, share knowledge, facilitate collaboration, share best practices, increase productivity, and support one another. Workers, regardless of status, need to be able to access at any time, from anywhere the same resources as easily as if they were sitting at a workstation at headquarters.
In addition, the Internet of Things (IoT) and the related technologies are changing the way we work, play and live by bridging the gap between the physical and digital worlds. Building owners are now paying attention to the additional technology infrastructure required to enable smart building IoT applications that will simplify business processes, increase efficiencies, and improve the bottom line for them and their tenants.
The infrastructure that enables smart building IoT applications requires a network of sensors and IoT devices (devices embedded with sensors). At a fundamental level, a wireless connected lighting system is also a wireless sensor network (WSN). Fixture-integrated sensor nodes on the wireless lighting system network collect physical and environmental data in a space including light, temperature, occupant activity and levels of volatile organic compounds (VOCs), moisture and/or noise. This data is then collected and processed by the lighting system manager and sent to the Cloud where it is stored for easy access by workplace analytics software developers that create smart building applications such as capacity planning, digital wayfinding and conference room optimization. Since lighting is ubiquitous in a commercial space, sensing can also be ubiquitous by integrating sensor technology within each luminaire.
Smart technology is proving to increase property values while saving on energy costs, improving building operations, boosting productivity and strengthening tenant relationships.
According to Statista, there were 4,043 coworking spaces supporting 542,000 people in the U.S. in 2017, and these numbers are forecasted to increase to 6,219 coworking spaces supporting about 1.08 million people in 2022. A key reason for this flexible workspace continuing to grow in popularity is that firms firms can save as much as 25% as compared to leased properties. In addition to remote workers and startups, large corporate customers with more than 1000 employees such as Microsoft, Facebook, Bank of America and Starbucks have embraced coworking. Some are using coworking space as a separate department arm for their company while others are using it to set up a specific innovation lab that may include partner employees.
Now that coworking is mainstream, we expect there to be a rise in niche specific space in 2019. Niche space is flexible space specifically designed for the needs of a particular type of business or demographic. Some examples are coworking space for small business with supporting services, workspace for the building industry that includes large-scale printing plotters, or an all-female workspace that offers amenities such as nursing rooms and exercise classes.
Competition for tenants is driving property owners to create amenity-rich spaces that offer conveniences such as easy access to dining, shopping, banking, exercising, healthcare, child daycare, and housing because that is what potential tenants require to attract and retain today’s talent. Properties with these community-based amenities that consider occupant lifestyles and well-being will continue to be in high demand. Comfortable chairs, private bathrooms, tea and coffee, natural light, a functional desk, and proximity to food outlets may be designed to make employees happier and more productive but are no longer considered amenities per se. They are now standard requirements and no longer differentiate a space.
Landlords must become more creative with amenities and partner with cleaners, health care providers, athletic clubs, recreational programs, dining options and entertainment to bring new value-added services to their tenants.
Standard amenities will evolve as well. Fitness rooms will get a facelift and transform into yoga studios or CrossFit gyms. Outdoor spaces will become meeting and social spaces with food trucks arriving at lunchtime giving tenants more options.
Flexible Office Design
While there are benefits to an open office environment, there are also documented problems that can arise. Topping the list of benefits that justify an open office design are real estate optimization (the ability to support increases and decreases in permanent staff quickly and cost-effectively), and the need to attract next generation employees that has been conditioned to collaborate in non-traditional, more informal, open environments. However, a study of human collaboration before-and-after open office space designs were implemented, found unintended effects on collaboration and communication -- conversations by email and instant messaging increased significantly, and the number of face-to-face interactions decreased.
Flexible office design incorporates an open concept but also introduces a range of spaces geared toward different tasks and individual preferences. This trend is replacing open space designs that don’t work for everyone and as a consequence, adversely affect productivity levels. Flexible office space design often includes quiet rooms for individuals working on tasks that require uninterrupted concentration (or that have difficulty getting their work done in an open space), phone rooms for private or lengthy conversations (that can also be disruptive to others in an open space), and unconventional communal space (for collaborative projects and teams that find a coffee bar or set of overstuffed sofas more conducive to generating new ideas and increasing conversation levels). Employees are given autonomy to use the space however it best suits their tasks and mood.
Green Buildings with Health & Wellbeing Features
Today, some of the most desirable office space takes into consideration natural lighting, clean air, great acoustics, and ergonomics. A report from the World Green Building Council (WorldGBC) makes the business case for green buildings that contain health and wellbeing features such as enhanced fresh air ventilation, an increase of daylight penetration and the use of biophilic design elements. Findings cited in the report include reduced employee absenteeism, minimized operating costs and employees that felt more productive and healthier after the introduction of these new features.
Going green provides competitive advantages as well as increased property values. According to the U.S. Green Building Council (USGBC), LEED buildings have faster lease-up rates, may qualify for incentives like tax rebates and zoning allowances, and retain higher property values. A survey conducted by Dodge Data Analytics, showed that building green is increasing over the next several years. Forty-seven percent of those participating in the survey expect that 60% of their projects will be green by 2021.
We have highlighted the benefits of green building standards in previous blogs including Make Your Employees Productive and Happy: Go Green!, The WELL Building Standard: The Future of Modern Design and Going Green with LEED.
Focus on People
The focus of all five of these commercial real estate trends is on people, and how commercial real estate design, amenities, technology and more can support their comfort and productivity levels as well as their general feelings about their work space and environment that, in turn, has an effect on their productivity levels and how they feel about working for your tenant.
Any company CEO will tell you that their company’s greatest asset is their people. As they look at different CRE options, they will be considering the overall value proposition your space offers including the services, conveniences and technology solutions available as a tenant. They will be looking at how the people supporting their business can work within the space. Why? Because the effect on their people could have a greater impact on their business than the difference in costs per square foot of the various spaces they are considering.
As a result, CRE owners that create space that is driven by the occupant experience will reap big rewards in terms of property values and the ability to become more competitive in this dynamic industry during 2019 and beyond.