Back to the future

Last year was the year the return to the office ended. Whether you look at surveys of working from home levels or swipes into offices, the trend was flat through the year. Before the pandemic in the US, the average office worker spent less than one in ten days at home. That has now stabilised at approximately three in ten. Hybrid work is here to stay.

This creates profound and novel challenges for office demand. However, facing and adapting to structural difficulties is not new in real estate. The previous decade’s retail sector provides a compelling case study. The rise of e-commerce revolutionised consumer shopping habits, offering unprecedented convenience and variety. This seismic shift led to reduced foot traffic and sales in physical stores, impacting the values of retail properties.

Yet, amid these struggles, a noteworthy variance in portfolio performance emerged. Some investors successfully repositioned their assets and adapted their strategies, delivering robust returns amid the so-called retail apocalypse. What can we learn from those who effectively navigated retail’s structural challenges in the 2010s to inform office owners in the 2020s? Here are three key take-aways.

1. Adapt to the new purpose of physical space

In the era preceding e-commerce, retail stores primarily served as functional transaction points. Consumers visited these spaces to examine, try, and compare products, but fundamentally, these stores offered a practical solution to connect goods with consumers. However, the rise of e-commerce catalysed a significant shift in the role of the physical store, transforming it into a space for product discovery and experience rather than merely the final point of sale.

As online shopping burgeoned, retail spaces began focusing on offering unique, in-store experiences that the digital realm couldn’t replicate. This included personalised services, events, workshops, and creating immersive brand experiences. Mall owners rethought their tenant mix, blending retail with leisure to include more cafes, restaurants, and entertainment spaces. Retailers shifted their rent rationale; they were no longer paying merely for transaction space but for opportunities to connect with customers, elevate their brand, and deepen relationships.

In 2024, a similar reimagining is imperative for office spaces. Offices should no longer be seen as mere accommodations for desk space; occupiers are now utilising offices for the synergies that arise from face-to-face interactions, the productivity enhancements from optimised work environments, and the opportunities to establish culture, enhance brand identity, and express corporate ethos to employees, partners, and clients. Offices have become platforms for connection, where trust is built, relationships are deepened, and collaborative innovation flourishes.

Office landlords must actively manage the right amenity mix and ensure a vibrant ecosystem of occupiers. Modern offices need a variety of spaces, from formal meeting rooms to casual, collaborative areas, intimate discussion corners, and expansive spaces for group activities and events. Appropriate building-wide amenities are an essential part of the mix.

Landlords should share best practices with tenants, particularly in optimising space for different hybrid work models. They must aim to get ahead of occupier trends and cater to the most forward-thinking occupiers.

2. Accept the challenge and raise your game

The rise of e-commerce served as a wake-up call for retailers and landlords who had long neglected the in-store experience. Faced with the reality that consumers now had a choice about where to shop, retail had to elevate its game. This meant reducing pain points, enhancing pull factors, improving customer service, and creating a superior shopping experience. Real estate developers responded by upgrading physical spaces with more natural light, higher ceilings, and better finishes. Similarly, in the 2020s, technology has given people a choice about where they work. As a result, office spaces must deliver a superior workday experience.

Location remains a vital factor. The commute is a significant consideration for many, making offices with the best connectivity and proximity to amenity-rich neighbourhoods more appealing than ever. In an era where office days are increasingly about connecting, the significance of nearby coffee shops, restaurants, bars, and other meeting spots cannot be overstated.

While some locations might struggle to compete, the in-office experience remains crucial. Today’s office spaces must empower individuals to do their best work and provide great workday experiences. Offices must be purposefully designed to enhance productivity in a hybrid world. They should foster productive collaboration and nurture meaningful interactions while accommodating focused solo work. It’s essential to intelligently design office spaces that offer a variety of areas for different interactions or tasks, subtly segmenting quiet concentration areas from public socialisation spaces.

The design of work environments significantly affects performance. Comfort correlates with productivity. Factors like desk size, access to natural light, air quality, privacy, and acoustics are significant predictors of comfort, contentment, and productivity. Extraneous noise, for instance, disrupts working memory and can lead to stress.

Personalisation of workspaces is another aspect that enhances focus and comfort. Historically, personalisation was often viewed as counter to space efficiency. However, the narrative has now shifted from efficiency to experience.

3. Embrace flexibility and adaptability

Faced with the challenges of e-commerce, retail property owners learned the value of flexibility; both in their mindset and in their real estate solutions. A standout example of this adaptability was the emergence and success of pop-up stores. These temporary retail setups allowed brands to test new markets or concepts through short-term leases.

Initially, some landlords found it challenging to adapt to these shorter leases. However, pop-up stores enabled mall owners to fill vacant spaces, maintain foot traffic, and introduce novelty and freshness to the retail experience.

Today, office owners must similarly embrace flexibility and adaptability. Future office models will likely feature modular layouts and plug-and-play capabilities, catering to businesses’ evolving needs. Flexible leasing models will become more prevalent, reflecting the changing dynamics of workspace use.

A vital aspect of this flexibility will be the ability to adapt the amenities offered. The amenities tenants prefer can vary greatly depending on their leasing space usage. For instance, businesses primarily engaged in traditional desk work might seek amenities that facilitate occasional events, collaborative meetings, or project work. Conversely, those using their office mainly for teamwork or events may need access to extra desk space for focused work on a flexible basis.

When the right amenities are offered, they can be monetised, complementing traditional lease incomes.

Inertia creates opportunity

Many office owners are reluctant to accept the permanence of the profound changes that have revolutionised working life and office usage. This inertia, however, spells an opportunity for those who recognise that the role of the office has fundamentally changed and can design and implement the necessary adaptations to deliver excellent workday experiences.

A version of this article originally appeared in The Property Chronicle. To read other articles I have written for The Property Chronicle, please click here.