For the past three years, Generation Z has been entering the workforce.
Over the coming decade, millions more young adults, born between 1996 and 2010, will begin employment, with new challenges and opportunities. Companies involved in the working ecosystem now have to cater for four generations – all with unique needs, desires and approaches to work.
Millennials have already influenced seismic change. Traditional structured working has moved towards flexible contracts, while a growing trend towards self-employment and smaller businesses has seen the rise of WeWork and its competitors, notwithstanding recent controversy.
People are dramatically changing the way they live, work and play – with ramifications right across our industry. The success of build-to-rent, for example, has demonstrated demand for flexibility and service, but also the attraction of renting from institutional landlords.
Today’s unpredictable economic climate is also influencing dynamics. Fixed costs, restrictive covenants and long-term financial commitments have become prohibitive for many firms. Alongside this, businesses have become more sensitive to sustainability and wellbeing, which are now boardroom-level issues recognised to affect business performance.
Occupiers demand speed of execution, flexibility in tenure and environments focused on aesthetics, atmosphere and service. They want space that maximises productivity and can be quickly scaled up or down with their growth. According to CBRE’s survey of European office occupiers, 59% would pay 10% more for high-amenity serviced space and 30% see smart building tech as a factor in building choice.
Slow to react
The office sector, however, has been sluggish in its response. Despite flexible offices dominating headlines, they still only comprise around 5% of London’s occupied office stock. Providers often lack control of the fabric and infrastructure of buildings, meaning those who cannot afford newly refurbished space can suffer from poor environments. There are also issues of poor company visibility, cramped offices, shared facilities, privacy and substandard environmental conditions.
Gen Z will bring fresh challenges. They have grown up in a tech-led world and seen the advent of the gig economy; nearly 40% of them rate work-life balance as a top priority; and environmental, social and governance criteria is at the forefront of their decision-making. According to BusinessGreen, 86% of Gen Z and millennials say they would stay at a company longer if it reported on its environmental impact.
Owners of real assets need to remain proactive as society evolves. To take control of the supply chain, increase productivity and maximise occupier retention, we need to disrupt and recast the landlord/occupier relationship, understanding individual needs and catering for each step in a company’s growth journey. This is not unlike the evolution of the fund management industry. Historically, long leases were signed and filed away for 25 years. Today, proactive management is needed.
As we welcome a new generation of workers, we need more than sticking-plaster solutions offering ‘beer in the fridge’ services or flexible leases. Landlords should help occupiers manage social and environmental impact. Research on our 245 Hammersmith scheme, for example, reported £28m of social value to the local community.
There is a clear gap emerging for traditional landlords to create a product that can revolutionise the way we work. Legal & General’s Capsule, launched in 2018, offers high-quality, ready-to-occupy office space. It is providing a more direct and personal service and improving user experience by offering managed traditional space.
Traditional landlords, unlike many serviced newcomers, have the power to control and influence environments. The impact of temperature, air quality or light conditions has been established, with the potential to increase productivity by as much as 10%. Of course, optimal conditions for law firm employees will be different from those of architecture practices.
Differentiating environments within multi-let properties, using data to validate outcomes, is an exciting next step. We have begun monitoring this through our new ‘Mercury’ initiative, where we are transforming our levels of occupier engagement, working closely with partners such as JLL.
Over the coming years, the working landscape may no longer be recognisable. Owners of office space need to do more than just retrofitting a serviced offering. Proactive management is needed to flex with fast-growing tech unicorns, while also supporting companies trying to transform obsolete business models. Assessing environmental impact will be essential, as will a host of tech-based solutions.
These changes are within the grasp of established landlords. Modernisation may have been forced on the office sector but those willing to adapt are well placed to disrupt the disruptors.
Bill Hughes is head of Legal & General Investment Management – Real Assets