Clap along if you know what happiness is… to your tenants

This triggered a thought on whether there were some parallels developing in real estate markets.

The CBRE European Occupier Survey published earlier in the year suggests there may well be. Occupiers are supplementing their cost-based performance metrics with ones that measure the quality of life of their staff. In other words, the welfare and wellbeing of staff are being recognised as having an important impact on company performance.

The report states this is a significant shift from what was found 12 months previously.

Reducing costs was nevertheless still important. One feature of the CBRE report that is interesting reading for landlords is that 72% of respondents cite lease renegotiations as their favoured means of cost reduction. This suggests to me that many tenants see this as money for old rope as rent reductions or capital receipts in exchange for committing to a property that suits them is not a difficult decision to take.

As a consequence, I believe that fund managers are much too quick to utilise the lease rejig as a value protection or creation tool. The desire to prove active management credentials and generate a quarterly valuation uplift are understandable, but if the tenant is likely to renew in any event why sacrifice rent or capital when the sands of time erode the lease length and value that you have paid to create?

If you have a good, well-managed property, the chances are you may get the renewal for nothing. This is where short-termism may be destroying value.

I believe investment managers should sit up and note what occupiers are trying to achieve for their staff in these new developing workplace strategies. The asset manager’s goal should be to create the optimum conditions for the tenant to renew by enhancing the workplace strategy and creating an environment that the tenant employees value and do not want to give up. This in the long term should deliver a more resilient cashflow and a sustainable creation of value.

AECOM, in a publication called See Further, focuses on the pursuit of happiness and how it influences productivity. The author suggests measures of happiness in the workplace should be about value and innovation. Unhappy work places are disengaged, have high staff turnover and levels of sickness, loss of motivation and poor performance. Happy workplaces are the opposite, with engaged staff, laughter, an active social side, high levels of staff retention and an environment where work and play
is blurred. If the landlord can measure its contribution to tenant productivity improvements it would be a very useful marketing tool.

The best proponent to date that I have seen of asset management based on happiness is Chiswick Park. Having conceived this project with Stanhope some 15 years ago I may be biased! However, the original concept of Enjoy Work has stood the test of time and maybe all the more relevant in 2014 than at the end of the 1990s.

The management ethos is based on looking after the employees on the park (the guests) with the principle that if you can create an environment where employees enjoy work they will do better work. If they do better work the tenants will have better businesses. If tenants have better businesses they will not want to leave.

In a recent Stanhope-sponsored survey of 1,000 employees on the park there is a clear takeaway for all landlords: the physical aspects of the workplace, supplemented by a programme of events and activities, have a major influence on employee wellbeing and levels of performance.

I am not suggesting that doing the basics of asset management well, which now includes all the green-related issues, is not important in the context of changing occupier workplace strategies. However, a greater focus on looking at how the building owner can enhance tenant employee wellbeing and happiness may pay considerable dividends.

I am going to steal a concept I heard articulated by students to describe the social aspects of sustainability at Reading University - a blue strategy. Landlords should therefore not just think green, but also blue.

William Hill is director of Mayfair Capital Investment Management