Business Insights | The Office Reset: What’s driving the next workplace evolution?

For years there has been a growing trend of Premium office assets pulling ahead of the broader market as occupiers prioritise quality, location, wellness and experience. 

Fiona Denison, Head of Asset Management, Office at Charter Hall says managing a portfolio of office buildings has more in common with working in hospitality than ever.  

Above and Beyond 

“I tell people that running a portfolio of office buildings is like running a hotel, there's just desks not beds, because the experience has completely changed over the years. And it is, thankfully for all of us that do dwell in office buildings, far more experiential than it's ever been,” Fiona explains. 

“The evolution of the office has been happening for a couple of decades as a place of experience and somewhere to come that is way more than just coming into a desk every day.” 

Fiona notes the improvement in experience in Premium office space, in part driven by tenant expectations, is pushing up rents.  

“When you are fundamentally overlaying a lot more experience and amenity into a building, then it costs more to go there,” she says. 

“We're not seeing any pushback on that cost from our customers, especially those that are trying to attract and retain the best talent in the marketplace now. We hear all the experiences in an office are now part of the ‘armoury’ to attract the right talent into a business and have that talent stay long term into a business as well,” she adds. 

Fiona says it’s becoming more common for Premium buildings to feature everything from Pilates studios, basketball courts, pickleball courts and even ice baths to help stand out from the pack. 

“While I don't think it's essential to have an ice bath in the building … the expectation of the end of trip and wellness amenities from our customers is the most heightened I've seen in our portfolio. It's all these little ‘over and aboves’ now that will be some of the deciding factors as to where a company will want to house their talent.” 

Innovating Experience  

Matthew Brown, Head of Office at the GPT Group, says they have an ‘experience first’ philosophy and more than ever we think about office as a service rather than a commoditized product and ourselves as a service company.   

“Tenant customers and their employees really want to feel part of a vibrant community in the buildings that they occupy. So, ultimately, it comes down to the landlord helping to curate that community,” Matthew explains. 

“One of the other major factors that tenant customers are looking for is wellness. They want their employees to leave the office better than when they came into the office. And so, as a landlord, you really need to think deeply about how you can offer wellness and experience in the buildings that you own and manage,” he adds. 

Matthew notes, looking around the world at the end of COVID, necessity drove innovation in markets like London and New York and this has had a positive impact on office demand in those markets.  

“What we're seeing in those buildings where they've driven innovation, is higher levels of occupancy, and, ultimately, that's translating into a better forward return for owners. So, I think it's really important to think about where the market is heading and adapt your buildings accordingly,” Matthew says. 

“The key thing is to have an active dialogue with your tenant customers and listen to them about what's driving their business and what is attracting their employees to their business. Really, it's all about a partnership with those tenant customers to provide that level of service and amenity that they're looking for in the buildings that you own and operate,” he adds. 

Forever Fitouts  

As part of delivering elevated service for clients, Andy Collins, Executive General Manager, Office at Dexus, says a fresh approach via ‘Forever Fitouts’ is helping reduce costs and friction from traditional leasing.  

“We see an opportunity to reduce the capital intensity of owning offices as well as reducing the environmental intensity and the waste that comes from this ‘one and done’ approach to office fit outs where every tenant insists on doing its own fit out in its own way that works for them for five to seven years and then gets thrown out. It's hugely wasteful. It's wasteful financially, and it's wasteful practically,” Andy explains. 

“We think a better way of delivering fit outs is the turnkey model. And, look, speculatively built fit outs are not new, we're not the only ones doing them, but looking at the core markets over the past 12 to 24 months, more lease transactions have been done for fitted out space than for clear space.” 

Andy notes the forever fit out approach is a way of building enduring fit outs that can work just as well for the second or third tenant as they do for the first. 

“These spaces can respond to changes in preferences during the leases and between the leases such that there's less downtime between the leases and lower incentives over time. So, this is really all about creating a performance gain for us and then for our investors in a financial and environmental context, and I couldn't be more excited about it,” he says. 

Andy says this is something Dexus has been thinking about for many years and already have runs on the board. 

“The first pilot we've completed at 1 Bligh Street with the Clean Energy Finance Corporation as our customer and that space has been co-designed by us with Woods Bagot and with CEFC. And so, you know, that space exists, it's alive and kicking. 

“I can't wait to see the experiment expand and continue to produce data points that will allow us to prove our hypothesis that better quality offices built in a way that anticipates the changes in preferences can derive better performance both financially and environmentally,” he adds. 

Opportunities of AI 

Looking at opportunities for the sector, IFM Investors’ Head of Property Amanda Steele says one of the areas of focus should be new ways of working and the potential for innovation through technology and AI.  

While there have been questions about exposure and risk with AI, in terms of how many floors will be empty because AI will replace jobs, Amanda says it’s not what is being seen in the market.  

She notes B and C grade assets in the submarkets are being impacted with administrative type roles being offshored or replaced with AI, but there is also growth.  

“I think you'll see the growth in office space being taken up in Prime and A grade stock with great amenity because there are more and more companies that can see the opportunity of AI,” Amanda says. 

“From IFM's perspective, we're investing heavily in having our team skilled in how to use AI and really understanding the opportunity that it provides. The reality is those that are using AI well also know that you have to have a human in the machine. 

“I think that creativity can't be replaced by AI. And so, the more we have that critical thinking and the ability to imagine different futures, that's where AI can't compete with the humans,” Amanda adds. 

Listen to the full podcast episodes The Office Reset: Part 1 and The Office Reset: Part 2  for more insights.