Reconfiguring the Office of the Future

The office is a very dangerous place from which to view the world, especially when we invest in things that largely happen outside them. Smart investors see things on the street long before they are reported on Wall Street.

In a ‘normal’ non-Covid year, I’d give roughly 100 keynote speeches about technology around the world. When I travel, I make it a priority to spend time watching people. Shifts in consumption patterns are there for any keen observer to spot, once we decide to pay attention. It informs my keynotes and even some of my investment decisions, Peter Lynch-style.

In the first quarter of this year I’ve been to CBDs around the country delivering my take on the post-COVID economy to large corporations located in high-rise buildings. Such events are now organised around what are colloquially called ‘office days’. This is ironic given the most noticeable shift in the post-pandemic world is the way we work.

While office vacancy rates are hitting the 10 per cent mark nationally, the occupancy rates are significantly lower than what’s reported. My eyes told me the real numbers. It’s there for anyone who’s bothered to take a look — floor upon floor of empty high-rise offices. Cubicle farms once filled with white-collar workers pecking away at their keyboards now look at least half-empty.

My observations are backed up by research from the NSW Treasury Innovation and Productivity Council (of which I am a member) in their Remote Work Insights Report, flagging only 50 per cent to 60 per cent of staff returned to the office once lockdowns ended. What we are witnessing is the end of the corporate office, or at least the one we currently understand.

The Independence of Labour and Location

The history of human labour is defined by the tools of the period. The spear, shovel and spanner demanded labour be on location. Silicon is different, however. For the first time in human history, labour and location can be separate. While this has been possible for quite some time, it took a pandemic to compel companies to question whether the corporate office should exist at all.

It’s especially relevant as 41 per cent of workers now regularly work from home and the Australian Bureau of Statistics counts 64 per cent of city workers as information professionals. The market is clearly voting “yes” to hybrid work. If we are in the office only half the time, it stands to reason that at least 50 per cent of the office space around Australia needs to be reconfigured to suit the future of work.

The Great Reconfiguration

This shift away from CBDs hosting cubicle farms will have wide economic impacts that cannot be understated. Already, we are already seeing modern offices designed to look like homes and homes resembling offices. In our houses, we’ll have ‘gourmet offices’ to match our gourmet kitchens and bathrooms. Of course, they will need to be fitted with VR rigs and in-home recording studios, with technology as good as or better than what can be accessed in city offices. The digital era will recreate the golden age of craftspeople. Work and home will be the same place, because so many of us are becoming digital craftspeople.

To attract and retain staff, workplaces will need to be redesigned to become spaces where people will actually want to spend time. Similar to modern co-working spaces and technology campuses, work offices will need to offer kitchens and areas for eating and chilling out, complete with soft furnishings to exude a welcoming vibe. This means cities will have to go through a great reconfiguration. High-rise buildings will need to undergo refitting en masse, in order to retain and attract tenants.

Cloud-Based Asset Utilisation

The challenge to refitting is that spaces will become more expensive, both to furnish and with fewer staff members per square meter. If office real estate already has a very low asset utilisation ratio, it is about to worsen, unless it is reinvented. This is where true cloud operations will become a vital corporate staff strategy.

If the technology installed in an office is neither bespoke nor owned by the tenant, then it can become a flexible asset. These offices can be rented out days, or even hours, at a time to other workers whose tech tools and information are entirely cloud-based. Work can be done wherever the person happens to be.

This allows a new type of yield possibility for offices beyond a co-working space. It would be more akin to Airbnb or Uber for both the landlord and the lease holder. Hybrid work wouldn’t just be convenient - it could open up an entirely new office real estate market.

Even with these shifts, I’m betting we’ll have more office space than we need. It’s also possible that many offices could and should be converted to residential towers to improve housing affordability for younger cohorts of Australians.

Modular Buildings

Much of the technology we use today is modular. It easily changes shape and function, based on the needs of the end user and how they interact with the tech itself. It will be valuable for real estate owners to adapt this approach to buildings. Offices with movable walls and adjustable spaces facilitate different use cases by additional tenants during office hours and weekends. I know it sounds fanciful. However, as the cost of electrification, automation and the internet of things decreases exponentially, these possibilities exist for courageous and visionary real estate entrepreneurs and office managers.

The Energy Imperative

It isn’t just the people component of offices spaces that will need to be reinvented. The work-from-anywhere philosophy gives our cities a chance to rethink the source of energy to power our buildings. Car parks have the potential to morph into battery farms. Collective rooftops in cities could be repurposed as solar and wind energy micro-grids, kicking off a long-overdue start to the ZEB movement where building equals powerplant.

Shaping our Portfolios

All of this points to a simple directive for investors. We need to carefully review our real estate portfolios. Our cities are about to go through an epochal shift, as the corporate office industrial complex will never be the same again. We’ll see a regional renaissance, as corporate workers have greater flexibility in where they live. This will redistribute the geography of work, while housing affordability remains a major issue. Our buildings will need to change their shape to match the shape of work. When this happens, it’s vital we assess the need to change the shape of our portfolios to match the zeitgeist.