Featuring Jessica Ryper & Angelo Pavanello
Thursday 15 July 2021
Hello and welcome to Talking Property with CBRE. A podcast in which our team of experts, our clients and industry specialists share insights into the way we live, work and invest through the lens of commercial real estate.
I'm Angelo Pavanello, Head of Advisory and Transaction Services, Occupier in Victorian and South Australia and I'm your host for today's episode.
In this episode, we set out to answer the question to stay or to go? The traditional workplace has seen significant change in the last year, leaving many tenants reviewing their workspace needs and many landlords reviewing their offerings. Over the next little bit we will break down what to consider when reviewing individual workplace non-negotiables, requirements and objectives. Throughout the discussion, we will unpack what it means to assess your individual requirements and quickly discover that there is no right answer. We aim to arm you with all the tools you need to make informed and sound decisions for your business.
Joining me today is Jess Ryper, Associate Director with our Project Management team here at CBRE. Jess with her extensive experience in delivering complex and large-scale office projects, as well as a unique perspective on what's required to deliver a workplace project.
Welcome Jess, thanks for joining me.
It's great to be here. Thanks for having me.
As you know, in the last 12 months, there's been a lot of conversation around the future of work, the need for offices and traditional workspaces. We've seen many organisations, both large and small, reassess their workplace needs. Some moving to a more flexible model or sub-leasing unused space and others in the office full time or in the lookout for new accommodation.
So Jess, to start us off today I thought we should take it back to the beginning - the assessment phase. Having worked on many workplace relocation refurbishment projects before, I'd love to hear your opinion on what you believe informs the assessment stage of a project life cycle. What are the main drivers for companies reviewing their accommodation requirements and determining if their current facilities can support this?
Thanks Angelo, well the purpose of the office is largely being reconsidered as a result of the COVID-19 pandemic and our extended period of working from home. What we're seeing across the board is a stronger emphasis on coming to the office for collaboration and connection rather than just the focused, concentrated work and so the office really needs to be a destination of choice. It needs to be a reason for employees to leave home and come to the office. In considering accommodation options and whether staying put is right for your business, it's important to consider what the building is providing for its tenants. So, for example, existing buildings may need to be upgraded.
Building design and architecture has advanced significantly over the years with new technologies, greater sustainability targets and a greater focus on human health and wellbeing in general. Of course, building design is continuing to change. Particularly right now as building design responds to COVID. So as an example, we're seeing more touchless technology being introduced but in existing buildings, we often see that services upgrades are required so such as energy efficient lighting, old offices may still of fluorescent lighting and we need to upgrade those LEDS. Mechanical upgrades so air conditioning, we're seeing a requirement for higher densities and higher level of fresh air and similarly amenities providing for higher densities as well as ensuring bathrooms are designed with consideration to diversity and inclusion. We also see an improved mobile coverage and communications need to make the latest design standards and also in terms of security. Our clients are wanting to have more integration into the base building security systems on a more seamless system as well, so no cards and easy interface with mobile technology. Similarly, for building management systems clients are warning more visibility and control and integration into that system. We often have a request for occupancy sensors to be installed in to fit out, allowing businesses to record and use data for developing efficiencies within the business
Yeah, this is certainly becoming more and more important, with many companies introducing flexible work arrangements and a hybrid of working, whereby you're going to get a lot more people in the office on those Tuesday, Wednesday, Thursdays. So that's where just has touched on the higher densities on those days, whereas the start and the end of the week, not as dense. So capturing all that information with those data points will best support the need to justify more or less space.
Absolutely, so the other big consideration is around the user experience and how this could be enhanced through architectural upgrades and introduction of precincts. So it's not just about the building or the office. It's about what's around that building and providing more than just an office for tenants. So again, coming back to that point, it needs to be a destination of choice.
That might be in the form of sports facilities, business lounges, spaces which home can't offer. So your wellness facilities and end of trip. We’re seeing them have more hospitality experiences on a variety of food and beverage offerings. People want to come into the office and still get done, their day to day bits and pieces. So it's what is around the office that they can get done, that they can't do it home. So we work with our clients and the consultant team to, identify these business needs so that we can determine what physical requirements that the building requires and to assess whether the existing building or new building can provide for the future, as well as whether the landlord will commit to delivering those upgrades. So we assist the tenant representative like yourself, Angelo in negotiating the required base building upgrade works on programming them with the landlord.
Yeah, great summary Jess and with those items it’s our job is to create the suitably worded lease clauses that address each of those matters. Ensuring responsibility is clear on who does what and when to avoid any misunderstanding or future conflict. So we can best understand potential restrictions of an existing space, what are your options if a tenant is happy with the location but might require more from the base building and current office to align with the ongoing operational needs?
Sure, there are some restrictions or considerations that a client needs to be aware of when considering whether to stay put and undertake a fit out refurbishment . The main three being design, programme and business continuity. So from a design perspective, the fit out design could be restricted to the existing constraint to the building. So an example of that might be a large furniture and joinery tables, workstations etc. They all need to be able to fit into the existing goods lift.
Similarly, introducing new voids and stairs, they're subject to the structural capacity of the building and what can we actually put into that building and what can we fit into the goods lift if we're bringing in steel for staircases. Of course, our design consultants will always push the boundaries and provide innovative solutions to address those constraints, but it is something that needs to be considered for a refurbishment.
From a programme perspective, we often find churn programmes are often longer and that's due to the requirement to stage the construction works so often noisy works are needing to be undertaken out of hours or disruptive works out of business hours and there can be a loss of efficiency in the trades needing to work floor by floor so that we see that extend the programme out abit.
We also need to factor in construction works, time to relocate and then being able to continue with construction on those relocated floors. As a result of this longer programme, we often see construction costs to be a bit higher and that's due to those afterhours works, the extended site supervision to cover those extra weeks or months, whatever it may be on the programme.
As a result of the longer programme, construction costs are often high are due to those afterhours works and the extended site supervision, whether it's weeks or months in the programme. So CBRE aim to minimise stages of construction to limit the impact to staff and minimise those relocations.
Actually I've got an example having worked with the government department in this very sort of predicament whereby they love their existing building however, there were no vacant floors in the building that the landlord could offer for churn. So they had to go and consider doing a floor by floor refurb and churning around that within their existing floors which doubled the programme. So that really deterred them it resulted in them relocating to a competing building altogether. Whereby all the staff got to benefit from a new work space from the moment they moved in over a three week period rather than if they try to churn in their existing building, the first group of staff would have benefited and then the last group 12 months later, which would have caused a bit of conflict internally.
So on that point, just how important is the programme schedule to the success of a project and what are some of the impacts a strong programme have on the business?
The delivery programme is really critical as it has a direct impact on the business continuity and of course, the bottom line. So our aim is to always minimise disruption to the business and its employees and running a tight programme is in a really important part of this. Similar to your example with your government client Angelo. We recently assessed in option for a churn programme and we determined that staging the programme to hand over two floors of the time instead of one would say three months overall. So, plus the added benefit of minimising disruption to the client, it also meant for a reduced cost in construction.
So making these assessments early not only impacts on the overall delivery time of a project, but also the business continuity and business continuity isn't just about minimising the relocations, it's about also ensuring that the key functional areas remain operational. So things like main communications room and having access to the staff breakouts and amenities is really important, making sure that they're available on the floors that are still in occupation. If they are the floors that are being constructed, that we've got temporary solutions in place and of course, business continuity is about ensuring that quiet enjoyment during those works so minimising the noise, the dust and the traffic management to limit the impact on the people still occupying the building. These constraints can only manage through good programming and design for a successful project delivery. However, as I said, working through these at an early stage when you have the ability to negotiate with the landlord is key and no doubt you've had many conversations with both tenants and landlords on this topic Angelo?
Yes, yes, definitely and once a tenant has decided to renew and reward the landlord with a new long term lease, it's pretty rare that these items don't get addressed, and they continue their prior, longstanding relationship or partnership into the future. So they're all items that everyone can work around to ensure life continues, as usual.
From a contract point of view, it's really important to be clear up front on what is the responsibility of the landlord versus the responsibility tenant. Some commercial clauses we would suggest or include in our negotiations, would be;
- defining the hours of works whilst the tenant business operations continue
- no rent or out going to be paid on the floors or the areas which are being refitted or refurbished
- tenant preferred contractors, rather than being forced to use landlord approved contractors with your preferred crew no doubt there's some longstanding relationships and better trade rates on reliability with those groups that you'd like to use
- access to utilities, water, light and power, for example, during fit outworks understanding, who is responsible for paying those utility rates. That particularly comes in play when it's for a new development, as utilities need to be connected to the base building pride to the fit out construction commencing and ensuring separate metres are installed sub metres or defining clear delineation of when the base building accounts need to be switched over to the tenant's responsibility so there's no gap.
- Finally, the churn space option, so what alternate space does the landlord control within the building or perhaps it's a larger landlord that's got a portfolio off options in that city that can be offered. That way, you can get access to more of your existing floors to be refitted and reducing that programme and the costs like what Jess touched on earlier.
So my last question for you, Jess, is if the location and the building you currently operate from doesn't meet the future working requirements, what options are available to you?
Yeah, again, it comes back to the future way of working that suits the business. For example, we've had some clients consider whether satellite offices are more appropriate for the future of the business rather than one large head office. We've also had some clients realise through working from home for so long that business lines, which previously were heavily dependent on the office infrastructure, can actually operate more flexibly from home or elsewhere with the right technology and support. So an example of this might be a call centre that was heavily reliant on the technology and the infrastructure that was in the office. But they've found alternative solutions with headsets, etc and people can actually do those types of jobs from home.
So the business needs may therefore mean that different types of accommodation options need to be considered or different space requirements. Some options that are relocating tenant may consider could be fitted spaces to save on capital expenses, co-working space, a new purpose built office, whether in a new building or another existing building. So from a programme and business continuity perspective, it can often be easier to manage programme when moving from one building to the other. You don't have those challenges with business continuity and the relocation of the churn that you do in an existing building as construction is often able to be delivered in handed over in one stage. There's also a minimal impact to business continuity as relocation and the cut over process can occur over a shorter period or an easier period with the one relocation. Of course, there are many different types of projects and programmes, and it really does depend on what site you're moving to, whether it's a new or existing building as to how easy it is to manage those stages in construction. But as I said when it's a moving from one building to the next, it can often be a lot easier.
Just on the point that you made earlier about the utilities and making sure that the contractual details really outlined to delineate the responsibility, I have actually had an issue on a project before where we've had a client that was relocating to a new building and was an integrated fit out and they got their fit out contractor on site and we didn't have any power to commence our construction because base building had cut off the power to the floors as they transitioned over to handing to the tenant and it meant that outfit out contractor at too really quickly try and get metres installed and power on floor to start the construction. So dealing with those things early in that leasing negotiation phase really does help and minimise those types of issues that can occur. So that was a really good point.
In terms of the newer combination leases, I think it's also really important to touch on ensuring that expansion and contraction options are available to future proof for business change. No, this isn't a new concept, but I'm sure, Angelo, you're having many conversations right now around expansion and contraction. Given the COVID-19 pandemic and the different needs of businesses and what kind of space they require. So many businesses in the last year of have boomed, you know, your online retailers that just needing a lot more space because in high demand but then there are the other businesses that have realised that that flexible working is actually working for their business, and they don't need as much space. So considering that from a design perspective is really important, so if you do have expansion and contraction options in your lease, it's really important for our designers to take that into consideration and locate business infrastructure such as again the main communications room and those key critical business elements in the core lease floors, so that if you were to expand or contract, we don't need to relocate those elements which could be costly or create abortive works. Another example of that would be stair voids. If your business is looking likely, that contraction will happen, understanding what the requirements are for filling in those voids or avoiding putting voids in those contraction floors. We know that make good costs for removing stairs and filling and voids can be quite costly.
So that's probably it on the design and programme perspective. But sometimes the driver to relocate is also a cultural decision. We often hear that the best way to create a cultural change in the business is to shift the physical environment so that comes into play for our clients as well. So the decision to stay or relocate can be a challenging decision for a client as it has many considerations financial, physical business needs, future planning, cultural etc and it's our goal to simplify this process with clients and achieve the best outcome for the tenant and the landlord to support a successful long term relationship.
Fantastic. Thanks for your contribution today, Jess and thanks to you all for listening to Talking Property with CBRE. If you enjoyed the show and want to check out more, visit cbre.com.au/talking-property or subscribe through Spotify and Apple podcasts. You'll find episodes on placemaking, real estate market outlooks, disruption in the industry, creating resilient assets and many more.
Until next time, thanks.