Digital wellness – the next big thing

• Digital connectivity is a top-three consideration for landlords
• An opportunity remains for London to improve its competitiveness by addressing the number of ‘not-spots’ and ‘digital deserts'

Digital connectivity is an element of the built environment that isn’t necessarily visible, but plays a considerable part in unlocking the true potential of a workspace.  With digital connectivity being named as a top-three consideration by landlords and investors in our Landlord and Investor Survey for the next 12 months, we investigate its importance and links to workplace wellbeing. 

Interconnectedness

Being digitally connected is an expectation both at home and in the workplace. The advent of the Digital Era has fuelled an insatiable demand to be connected 24/7. One manifestation of this is IHS Markit's prediction that the number of IoT devices around the world will rise to 125 billion by 2030, from 27 billion in 2017.

Enter WiredScore

Wired Certification is a measure of a building’s digital infrastructure and overall accessibility. This does not typically feature overtly in the equation for determining rents, or indeed the value of commercial real estate. However, with the technology sector dominating leasing activity and serviced office space increasing in popularity around the world, digital connectivity looks set to play a bigger role in commercial real estate valuations in the future. 

London’s digital infrastructure could be better

In an assessment of 63 cities across the UK, just over half of all buildings were found to be connected to ultrafast broadband, rising to 77% in London, according to the Centre for Cities and Thinkbroadband.com. However, connectivity is not evenly spread across the capital. 

Mapped: average download speeds across London (based on latest available data - 2016)

Source: CDRC, Knight Frank 

The other side of the equation is that in the interim period, while stock is upgraded, there is an opportunity for commercial buildings under development to command rental premiums over their poorly connected counterparts. 

Worker productivity impacts

The threat of building obsolescence through poor digital connectivity is real and one that could have a direct impact on the value and saleability of a commercial asset.

With poor digital connectivity, workers’ ability to remain productive may be diminished and with it, a business’s propensity to renew a lease, or indeed expand in situ may well be compromised. 

The bottom line is that being connected digitally isn’t something that is currently factored in building valuations explicitly, however with a culture of hot-desking becoming increasingly common, it seems inevitable that the digital connectivity rating of a property will start to play a greater role. 

Our reliance on cloud computing and mobile technology has meant that internet downtime is a major risk for businesses, with implications ranging from missed deadlines, to loss of revenue and reputational damage. 

This dependence could be particularly relevant for owners, if evidence emerges to prove that robust digital infrastructure within a building can create additional income and rental uplifts for landlords. 

For now, digital infrastructure due diligence remains restricted to a handful of occupier groups, such as the technology-media-telecoms (TMT) sector.

More recently however, the wider benefits of digital connectivity are being realised as landlords and developers come to better understand its impact on performance and productivity. 

As the industry starts paying more attention to how people behave in their offices, there has been a trend towards wellness, and more increasingly, digital wellness. The impact of digital downtime on productivity is something that is only now being understood. 

Digital wellness and negative emotions

Research carried out by YouGov Galaxy in Australia, commissioned by Lendlease, showed that workers who experienced bad digital connectivity had an increase in negative emotions. And since internet outages don’t just affect one person in the office, these emotions can become widespread within a business very quickly, thereby impacting overall business productivity. 

The vast majority (98%) of respondents to this survey aligned with the idea that digital connectivity enables higher personal productivity at work.

Worker productivity and satisfaction have always been factors monitored by businesses, but as the world of work changes, they are beginning to separate the best buildings (and employers) from the rest. We now know that 40% of millennials envision leaving their jobs within two years, according to Deloitte’s 2018 Millennial Survey. 

Workers who experience bad digital connectivity have an increase in negative emotions

For employers, this means they need to ensure they are doing the right things to attract and retain talent. One way to achieve this is to create an environment where workers can collaborate and remain productive.

So while the 'greening' of work spaces, introduction of agile working environments, outdoor terraces and gym facilities are quickly becoming mainstream must-haves for businesses and indeed developers are provisioning for such amenities far earlier in the design process than has been the case historically, digital infrastructure and its link to workplace wellbeing remains an obvious piece of invisible, but increasingly valuable infrastructure.

Is there a connectivity premium?

The answer is: it depends. Research in 2019 by Radius Data Exchange shows that buildings with at least a WiredScore accreditation command a rental premium of 4.7% over similar comparable neighbouring properties. 

The research looked at 65 office buildings in Central London, where space had been let in the last five years. In the City Core and West End, the ‘digital premiums’ stood at just 0.3% and 1.6%, respectively. However in other locations, such as the City fringe (9.2%) and Southbank (15.2%), there are higher digital connectivity premiums. 

We believe, therefore, that high-quality digital infrastructure can be a useful differentiator for landlords, albeit recognising that the benefit will be greatest away from core markets in the centre of London.  

From an investment perspective, the benefit, or indeed the appeal of digital connectivity ratings is perhaps less clear. The opportunity we feel lies in upgrading a building's connectivity credentials, which will bring with it a digital connectivity rental premium for the right occupier.

Alternatively, due diligence around the digital connectivity ratings of a building may help achieve a premium at sale, or indeed a discount at acquisition, particularly whilst connectivity remains so divergent across London. 

*Recent research by PowWowNow