Although there was disappointing news this week with Portugal going onto the amber travel list, it is so reassuring to see London coming back to life.
I stayed at a busy Corinthia Hotel in Whitehall for a family wedding last weekend and, were it not for the mandatory masks as we moved round the hotel, the streams of people enjoying the sunny bank holiday weather with friends and family seemed so ‘normal’. In Covent Garden it was difficult to get an outside restaurant table and there was even queuing outside Zara.
It is interesting to see how the landlord and tenant relationship is adapting to changing attitudes and the challenges of the last year. When I interviewed James Raynor, CEO Grosvenor Britain & Ireland for my podcast at the end of last year, we discussed a new Grosvenor initiative that struck me as very unusual for a landlord. They had set up a fund to selectively invest in and support tenants.
This seemed to signpost a new type of collaborative landlord and tenant relationship that was markedly different from the historically adversarial relationship we have been accustomed to. Raynor said, ‘ for some time we’ve been thinking that the relationship between landlord and tenant is an evolving one, and that the historic relationship may well have been ‘we’ll sign a 25 year lease and then we’ll see you in 25 years’, and I just don’t think that that works anymore, particularly on the retail side of things where the relationship has to evolve itself into a partnership really and therefore you need to be more open to different ideas of what the nature of the contract is going to be between the two parties.
And that’s all quite new and so as a result I think it’s quite exciting now’. He explained that the pressures of lockdown presented a good opportunity to say to certain tenants, ‘well, look we can maybe help your business grow and therefore we can be really a partner in the broadest sense of the term.’ He added at the time, ‘we’re six months into doing this but we’ve found that it’s really made us think long and hard about our own understanding of the tenants to become clear that we have to be much more customer-centric as a business.
I think as an industry I wouldn’t say that we are particularly customer-centric and I think we really want to make sure that we are and we can be seen as a sort of landlord of choice in a way. And so hopefully we will be spurred to do more and more innovative things because notwithstanding the history and heritage of the company, I would like us to be perceived as quite an adventurous, forward-thinking, progressive business as well.’
Some six months later, Grosvenor have announced the exciting news of their first equity investment in one of their tenants. They are taking a minority stake in Mayfair-based luxury British fashion designer Roland Mouret (one of my favourites as it happens!) to help kick start a new phase of growth after the challenges of lockdown. The investment is a first for a UK property company. The tenant investment fund enables new and existing tenants with ideas and diversification strategies to grow their business, through a range of partnerships from equity to debt. According to the announcement, Grosvenor have c£5 million of transactions in the current pipeline.
It remains to be seen if other landlords follow suit as in every sector of real estate it seems that a new collaborative and more customer-centric relationship is needed if our industry is going to thrive in a post-Covid world.
The future of a more customer-centric workplace was under the spotlight this week when I had the opportunity to moderate a panel of international experts on the future of the workplace as we emerge from lockdown, as part of Toronto’s Virtual Drastic Summit. My panellists were Annie Rinker, Director at Hines and expert in flex space, (Houston, Texas), Wayne Berger, CEO of IWG Americas, (Toronto, Canada), Tica Hessing, Human Geographer & Workplace Strategy Manager at Cushman & Wakefield (Sydney, Australia), and Jonathan Wasserstrum, CEO and Co-Founder of SquareFoot, a new type of commercial real estate company that helps companies find their new offices. (New York).
Focusing on what the workplace will look like, Berger talked about the need for ‘a third place’ and other workplace options and the ‘phenomenal transition from centricity to ubiquity’. Rinker thought the next 18 months would show what the ‘new normal’ looks like. She is already seeing a realignment of space with dedicated workspace shrinking and more shared spaces and amenities. As work patterns shift, she said, corporates will have to take an active management role to ensure opportunities for interaction when workers are in the office, are not missed.
Hessing, speaking from Sydney where they have already been back in the office for about eight months, said they are still struggling to get people back, especially on Mondays and Fridays. She mentioned the importance of the ‘co-creation’ of strategy by managers with their teams in order to agree on a work strategy and the need to skill up managers to cope with hybrid working.
Wasserstrum headlined with a provocative comment saying ‘most people want to be in the office most of the time. People do their best work there. For collaboration at its best it’s in the same room and you won’t convince me otherwise!’ He added that it was ten times more important to be in the office together if you are building a company. Berger agreed that it’s human nature to want to be in a place where there is level of vibrancy and that people want separation of home and work and to go somewhere accessible. He believes that the office of the future will be will be a destination and more employee-centric than ever before.
Echoing Rinker’s comment, he sees ‘dedicated workspace becoming a thing of past.’ In terms of expectations on the time it will take to change, he quoted Bill Gates, ‘we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.’
We discussed whether the employer or the employee will be making the decision on where to work. Rinker pointed out the relevance of who is paying for it. If the employer puts a hard line in the sand that employees have to be in the office every day then it will be difficult to recruit as they can get flexibility elsewhere. Berger’s view was that people will only lose enthusiasm for the office if they are made to come back to the office to work where it’s not necessary.
Rinker said that coworking, which has thrived through active management, providing amenities and creating an experience provides valuable lessons for property management. Flagging the need for more collaboration space particularly in lobby areas, she added, ‘property management is now part of the hospitality world and any property manager not thinking along these lines will no longer be relevant’. Berger brought us down to earth pointing out that the level of capital required to provide the requisite facilities will limit the provision of top class amenities to the top tier developers like Hines.
He expects to see more partnering between landlords and coworking operators as flex needs economies of scale and a good operational platform. Berger added that flex is still only 2% of global office workspace so there is room for growth.
Looking to the future, Rinker commented that the younger generations have higher demands so we will have to consider generational differences, which will shift how we consume office space. She said that the older Generation Zs will be taking management roles and then in 10 to 15 years the Alpha generation (born since 2010) will come into the workplace. Her final comment was, ‘they’re a wild bunch’ and how they perceive the working environment will be significantly different!
And, big news in the world of Generation Z e-commerce as Etsy, the New York-based creative marketplace announced that it is acquiring for $1.625 billion Depop, a London-based marketplace targeting millennial and Generation Z consumers with a new take on preloved social shopping . The deal is an endorsement of e-commerce business models, specifically targeting younger users as some 90% of Depop’s users are under the age of 26. Last year saw both a spike in e-commerce, and also a boost for smaller creative businesses as people opted to shop locally and support independent businesses and the circular economy.
Finally, corporates are under pressure to consider their role in society. The Institute of Directors (IOD) survey of more than 700 directors, which hit the press this week, shows the majority believe that their primary purpose is not solely to make profits but also to recognise the impact of their decisions on the environment and the community.
A coalition of over 500 companies, supported by B Lab UK, the non-profit organisation behind the UK B corporation movement, have signed a proposal which asks the Government to deliver a new contract between business and society through a proposed ‘Better Business Act’. The mission is to change UK law to “make sure every single company in the UK, whether big or small, aligns the interests of their shareholders with those of wider society and the environment”.
These proposals, which would apply to all UK incorporated companies and not just those, such as certified B corporations, which have already committed, through their articles, to use business as a force for good. As yet, despite receiving some backing from MPs of both parties, it is unclear how the Government will respond. Despite pledges to ‘build back better’, the Act has not made it into the latest Queen’s speech, the Government’s legislative agenda for the year ahead.
It remains to be seen whether the Better Business coalition can keep up the pressure and affect change requiring directors to not only take decisions that go beyond the bottom line to consider the “triple bottom line”.
Susan Freeman is a partner at Mishcon de Reya