Can ‘experiential real estate’ draw workers back to the office?

COMMENT: The Covid-19 pandemic proved that, if we so wish, we have the technology to complete many tasks from the comfort of our sofa. While this ability isn’t new, the pandemic resulted in a rapid increase in usage, and although this has trended back down in recent months, levels of working from home and e-commerce are expected to settle significantly above pre-pandemic levels. Many will not want to stay in their living room or home office forever. But it is likely they will need a more compelling reason to leave home as frequently as they did in the past. For owners of real estate, this poses a challenge. Landlords are increasingly looking to meet that challenge through the provision of experiences within their buildings. Done successfully, the ability to meet these sensory and social needs should trump the convenience of staying at home. Experiential real estate is already well established in the leisure sector and increasingly in certain segments of the retail market. The attraction is partially driven by the growth in social media, as the most successful models do not simply offer entertainment but also provide a platform for visitors to share their experience online. This trend is relevant primarily in the prime segments of the retail market, but in the same way experience is critical across the leisure spectrum, we believe that it will start to permeate the rest of the retail sector and other use types in different ways. Back to the office This topic is increasingly pertinent for owners of offices as well as business leaders. Encouraging people back to the office is proving difficult. The upshot has been that the office is increasingly viewed as a collaboration space rather than pure “work” space and that the experience must be superior to that at home. Occupiers and their employees will make a judgement on the quality of office space based on the reception and arrival experience in the same way that visitors judge a hotel on its lobby and service. This change in approach is at the heart of our refurbishment of Forge in Woking, illustrating what experiential real estate will mean for the office sector. To facilitate collaboration, the asset has strong connectivity throughout, significant communal, co-working and social space located in the atrium and an onsite coffee shop. For employees within the building, there is access to natural light across the floorplate, premium end-of-trip facilities including a cycle ramp from reception to basement, changing facilities with lockers and drying rooms, and a multi-use studio. In addition, the asset uses the Smart Spaces app to provide a seamless experience when booking meeting rooms or communal spaces, as well as providing occupancy information, such as the availability of showers, and information about community events. The app also offers users the ability to personalise their work environment, allowing them to select their preferred temperature and lighting settings.  Using this type of technology to manage assets will become increasingly common. Not only does it enhance the user experience, but it also enhances the ESG credentials of the building by enabling the usage of the asset to be tracked, allowing measures to improve energy efficiency to be implemented. The risk of doing nothing Delivering this new style of office space exposes landlords to several risks. First, it requires a high level of capital expenditure that needs to be costed correctly; second, this approach is much more operational in nature; third, rapidly evolving technology may shift current trends, increasing the risk of obsolescence; and finally, there is not a one-size-fits-all approach. The space must have character and meet local demographic and locational needs. All these issues must be considered and researched in detail. If not, there is a high risk of investing significant capital and delivering space that does not meet future requirements. However, given the structural changes in the office sector, the risk of doing nothing is greater. Investors that can deliver tailored product well aligned to end user needs should have more success in attracting occupiers and reducing voids. As average lease lengths shorten and occupiers favour increased flexibility, this becomes increasingly relevant.  Over the next five years, we expect to see rapid rental value polarisation between sustainable, high quality, service-led space, and secondary service-bare product. To capture growth, investors must consider how their assets can be adapted to provide a tailored experience for occupiers. The future office has already arrived. Tim Munn is chief investment officer at Mayfair Capital