Real Estate Gazette Series - New Zealand - ‘More than’ real estate? Workplace communities

Uncertain business confidence, increased competition, fluctuating space requirements and a strained construction market mean real estate must work hard and operate at the highest and best use. This includes achieving the highest rental, ensuring it remains fit for purpose and stacking the odds in occupiers’ favor so you can be “more than” real estate. It’s also about adopting smart design and maximizing income streams.

This article highlights how these goals are being realized in New Zealand, using DLA Piper’s new Auckland office location in Commercial Bay, owned and developed by Precinct Properties, as an example.

This is not a description of the future for working; this is the right prescription for working right now.

Commercial Bay results from a policy of concentrated ownership that enables control of wider precinct development. The new office tower and 100-shop laneway development integrates with Precinct’s four existing office towers, creating a centralized commercial hub. This brings together a world-class office environment, end of trip facilities, public transport, international retail, public spaces, a luxury hotel and hospitality into one connected community on Auckland’s waterfront. 

When thinking about these communities, it’s important to consider the various trends, issues and opportunities involved in such developments.  

Worker centric

Millennials will comprise 75% of the global workforce by 2025^.1 They are already influencing office design, as businesses want to retain their talents and they will soon become societal decision makers. They are seeking workplaces that encourage collaboration and social interaction along with seamless digital connectivity. Crucially, they don’t just want a balance of work and life, but a blend of the two.

83% of Commercial Bay’s pre-committed tenants surveyed wanted to be part of a community of interest within the precinct.² That is despite many of them being in large organizations with active social networks. 

“Experience workplace” is as important as “experience retail”.³ The retail, leisure and shared space facilities at Commercial Bay have been shaped for the businesses within the development. Placemaking will further integrate the community with business and social connections activated through regular events. 

As a flow-on, all businesses can offer a wider community to their workers to attract and retain the best talent, promote efficiencies and create opportunity. This delivers a bigger pool of targets to landlords, increases demand, defends against vacancy risk and drives rental growth. By mixing a group of assets that provide complementary economic benefit, real estate can generate better income diversity and reliable returns through the property cycle while providing workers with the experience workplace they want.

“This is not a description of the future for working – this is the right prescription for working right now.

Resident customer base 

Commercial Bay’s retail is supported by more than 10,000 customers working directly above it. This is further facilitated by a dedicated digital platform connecting workers to events, special deals and groups for sport, social and professional interests. Physical and digital connectivity are key. The physical store, however, still has its place. Statistics show that 50% of online sales happen within seven days of visiting a store ⁴ and 83% of catchment customers are lost to a brand when a store closes.⁵ This applies beyond retail, with all businesses within a community benefitting from on-site demand or brand awareness.

Be flexible: Additional income streams

Innovation is redefining space requirements, with space becoming an active service rather than a passive investment. Buildings need to be as flexible as possible, for as many occupiers as possible. Flexibility involves both the physical premises and the way space is contracted.⁶

Commercial Bay is no exception, integrating serviced suites, vertical campus arrangements and flexible leasing with the provision of property, facility and business development services facilitated by the landlord direct. This includes a meeting suite level with auditorium for events, training and seminars which can be rented by the hour. Businesses can elect to rent the essential core space and bolt on additional flex or swing space as required. This generates collaborative networking and development opportunities and enables owners to activate less desirable floors, with the potential for multiple income streams far higher than a single lease.

Landlords can embrace flexibility directly or through third party operators to gain additional revenue streams, defend against competitors, nurture new businesses and build a more dependent relationship with tenants. This can also realize savings through the building communities’ greater buying power (e.g. embedded networks, 5G, fiber). And flex space can adapt quickly. On Auckland’s North Shore, Smales Farm’s co-working B:HIVE facility can change partitioning overnight to meet demand fast. 

The growth of flexible workspaces in New Zealand has been limited by premium CBD offices operating at close to 100% occupancy. Despite this, the sector has doubled in the last three years to 117 facilities ⁷ and is expected to double again in the next five years. If rents or vacancy rates change, this will be faster.

65% of US enterprise companies plan to incorporate co-working into their portfolio by 2020 ⁸ , 30% of the UK’s corporate real estate is predicted to be flexible by 2030, and Europe’s flexible office space is expected to grow 30% year-on-year over the next five years.⁹ Traditional CBD occupiers will move out of the CBD if flexible arrangements are not offered.¹⁰ And it’s not only landlords: international hotel company Accor intends to implement 1,200 co-working spaces within three years in its hotels. Property owners need to embrace flexibility and be proactive disruptors rather than fear being disrupted.

The importance of food

Food and beverages are an anchor. Commercial Bay has dedicated 25% of its retail space to food and beverages, acknowledging continued spending growth in this area and ensuring the customer base stays on site. 40% of shopping center visitors base their choice of center primarily on dining options available, with 12% more sales being generated from those who eat.¹¹

24/7

Working, living and playing in one location allows businesses to take advantage of a 24/7 lifestyle. The tenant mix must be curated to ensure the created community remains active and enticing 24/7, unlocking added value. Hotels, notoriously unfeasible in their first few years, add a co-location benefit to neighboring commercial and retail outlets. Enabling complementary/ co-dependent occupiers and connected platforms maximizes opportunity and increases collective demand. Commercial lobbies become more akin to co-working members’ lounges. 9-5 weekday offers become vibrant mixed-use environments attracting evening and weekend use by introducing a diverse range of users and activating the wider community with events.

Overriding purpose

Any community should be purposeful, and tailored to the highest and best use of the site or businesses it wants to attract. This may include partnering with outside stakeholders. Commercial Bay partnered with Auckland Council and Auckland Transport to help trigger the City Rail Link and significant public space initiatives, for example. The advantages possible through public/private collaborations cannot be underestimated, especially in the transport, infrastructure and housing sectors.

Smart non-rentable areas

All income streams should be considered, including joint mail or print rooms, cycle parks, lockers, wellness facilities, cycle workshops, personal shopping services, membership apps and data capture services. If it can’t facilitate an income stream, can it operate in less space?

A smart loading dock systems allow deliveries to be booked via van size and then GPS tracked to provide ETA projections that jigsaw deliveries around each other.¹² Arrivals and departures are validated via app, saving processing time, moving deliveries faster through the dock, limiting congestion and increasing security. Using such systems results in significant space savings and also increases safety.

Valet parking and automated cycle stacking can deliver similar results, improving efficiency and reducing the amount of non-rentable space. For those who drive, a barrier can recognize your license plate and text you a space for the day, or for as many hours as you need. This allows non-rentable areas to be used more efficiently, reduces the space required and opens up further retail, hotel and public use potential.

Reduce the income gap

Smart design includes smart construction. Modular and off-site construction methods can enable more certain fit-out times and be less disruptive. In Commercial Bay, hotel bathrooms and some food court installations are being constructed off-site to gain the benefit of parallel programming. With elongated program times it may also be worth considering fixed CPI increases prior to commencement.

People mean data

It is also important that communities are measured and monitored so you can institute a cycle of continuous improvements. The more timely and relevant the data that an owner can legitimately gather, the more this data can be used to help shape a more successful community.

Digital platforms can, for example, be integrated into a building to monitor performance or measure collaboration and demand to help inform and shape highest and best use. Real estate should be considered collectively and actively managed to unlock its full value, with a view to exciting the increasingly demanding workforce. Active management will likely require a larger asset team, but developing and delivering on such relationships are essential in uncertain times.