The occupier mindset: How occupiers' shifting priorities will have a major impact on the market

• The businesses we surveyed believe that the pandemic is having only a medium-term influence on their real estate strategies
• 56% of our survey respondents expect an increase in and broadening of, the amenities provided within their workplaces over the next three years
• There is a clear expectation for landlords to proactively make office space safer

Our global (Y)OUR SPACE survey of occupiers shows that the Covid-19 pandemic is likely to have a medium-term influence on real estate strategies and portfolios.

Initial “flash” findings from our second global occupier survey, to be launched formally in our (Y)OUR SPACE report in the Spring, point to some key dynamics shaping occupier behaviour and strategy over the next three years.

The seven insights below are central to understanding the customer in a post-Covid-19 market.

1. Real estate still matters

Despite recent hyperbole suggesting the death of the office, our global occupier clients continue to see real estate as a device that supports, facilitates or portrays business strategy. They identify a wide range of strategic agenda items that real estate supplements, but key among these are corporate brand and image (48% of respondents), employee wellbeing (40%) and increased collaboration (36%).

The position of wellbeing in the strategic agenda has advanced significantly since our last survey in 2018. It will fuel a further flight towards amenity-rich offices that support physical and mental wellbeing. It will also create a strong focus on safe office space, with health and safety joining wider notions of well-being as a dominant business concern.

• 90% of global occupiers regard real estate as a strategic device
• Completely – 33%
• To some extent – 57%
• Not at all – 10%

“The bulk of our survey respondents believe that the pandemic is having only a medium-term influence on their real estate strategies.”

2. Covid-19 is seen as a medium-term influence on occupational strategy 

The maelstrom brought about by Covid-19 has been all-consuming. The lock-down of entire economies, punctuated by periods of more limited re-occupancy, have rightly dominated our focus. Despite this, the bulk of our survey respondents believe that the pandemic is having only a medium-term influence on their real estate strategies although it is also clear that the virus has led to an increase in real estate cost saving targets for the majority (61%).

The market implications of this view are that we expect to see occupiers continue to “buy time” with continued re-gearing and renewal activity as they focus on dealing with the operational challenges brought about by the virus and avoid rash knee-jerk strategic responses which may prove more damaging longer term.

Covid-19 will:

• Alter our real estate strategy forever – 22%
• Be a medium-term influence on our real estate strategy – 56%
• Have no significant influence on our real estate strategy – 22%

Read: Re-gearing points to deferred demand

3. HQ relocations will be the exception rather than the rule 

Evolution rather than revolution will shape occupier behaviour, their portfolios and market behaviour. This is true when thinking about HQ offices. Only one-third of our global respondents see the relocation of their HQs over the next three years as being “definite”, “very likely” or even “fairly likely”. Among those for whom relocation is a possibility, the dominant drivers are either the achievement of distinct cost savings or the need for a response to changing workstyles and associated changes in the quantity and quality of space required.

36% of respondents believe it fairly likely, very likely or definite that they will move their core offices within the next three years.

4. Amenity-rich space will be top of mind 

A central finding of our original (Y)OUR SPACE research was the growing appetite amongst occupiers for amenity-rich spaces that supported an enriched workplace experience.

This has been pivotal to the flight to quality evident in the London market over the last three years and will be central to the appeal of offices as more hybrid workstyles take root. Indeed, 56% of our survey respondents expect an increase in and broadening of, the amenities provided within their workplaces over the next three years.

The rise of facilities supporting mental wellbeing was something we highlighted in the original (Y)OUR SPACE report. We believe sanctuary spaces will become a more discernible feature of best-in-class office buildings.

In our view, the next amenity wave will be around education as businesses get to grips with an extensive upskilling and reskilling agenda.

The top three amenities required by global occupiers are:

1. Facilities that support mental well-being – 56%
2. Cycle storage and facilities – 55%
3. Drop and collect parcel facilities – 53%

5. There is some way to go in the adoption of accredited green buildings 

Despite growing recognition of the relationship between global carbon emissions and commercial real estate and a rising environmental, social and governance (ESG) agenda, the mitigation strategies being developed by global occupiers appear to be mixed and relatively immature. Although there are clear examples of emerging best practice, 49% of the global occupiers surveyed have less than 10% of their global portfolios holding an environmental accreditation such as BREEAM, LEED, DGNB or Green Star. Moreover, 75% either have no target in place to increase their accredited space or are unsure if such a target actually exists within their business.

“There will be a need to engage and educate end-users on the practical and financial benefits of ESG.”

As the supply side of the market is driven towards greater investment in sustainable and accredited buildings through the ESG agenda, there will be a need to engage and educate end users on the practical and financial benefits of such buildings.
What proportion of your global portfolio has an environmental accreditation?

• Less than 10% – 49%
• 10-25% – 21%
• 25-50% – 14%
• 50%+ – 16%

6. Greater awareness of the benefits and opportunities of sustainable real estate is required 

Our sixth finding is further strengthened by the fact that four in ten of our survey respondents have an overarching and publicly stated net zero carbon emissions target in place, with the bulk of those (75%) having a target date of “by 2030”. Presently, there appears to be only limited connection between these broad corporate targets and the potential positive contribution of real estate towards their achievement. For example, only 25% of respondents believe there is complete recognition of the role of real estate in delivering against these targets. For the bulk of respondents, broader sustainability considerations are viewed as being of only moderate influence in determining real estate strategy over the next three years.

How influential will sustainability considerations be in determining your real estate strategy and portfolio over the next three years?

• The key influence – 11%
• Somewhat influential – 72%
• No influence – 17%

7. The customer has some frustrations that need addressing 

The Covid-19 pandemic has significantly or slightly increased landlord interaction for two-thirds of our surveyed occupiers. There is a clear expectation for landlords to proactively make office space safer, particularly through more regular cleaning and HVAC maintenance, but also via the greater adoption of building technology.

More broadly, our survey shows that 90% of respondents have frustrations as customers in global real estate markets and have identified areas that need attention in order for the creation of stronger, more effective customer relationships that underpin income generation and retention.

The top three frustrations of occupiers as a customer in global real estate markets are:

1. Inability of landlords to offer flexibility – 35%
2. Lack of innovation in product and service offering – 26%
3. Poor service delivery – 17%

Our take on the findings

After the challenges of 2020 and the ensuing debate over the future of the office, our survey shows that occupiers still see real business benefit from real estate. But there is also an acceptance that the form and function of the office will evolve at an ever faster pace as the pandemic recedes.

“London’s future offices will need to be more customer-centric.”

It is clear that London’s future offices will need to be more customer-centric, reduce environmental impact and utilise technology (and the data it generates) to fully respond to the range of emerging agendas that will shape occupier requirements at both a portfolio and asset level. London is exceptionally well placed, as our research demonstrates.

View our videos:

The office as a strategic device - Part 1

London Office Leasing - World Post Covid 

Part 3: Exposure & Pricing 

Read: The plan for London’s most responsible tower yet