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    Gain profitability by going healthy and green

    Part 1 of a 2-part article on sensor-based space analysis


    Boxers work hours in the gym to develop the quickness and skills needed to avoid and block punches. After all, an experienced boxer can generate as much as 5,000 newtons of force—or more force than a half-ton exerts on the Earth’s surface—with a single punch. From a business perspective, a boxer’s preparation offers several key lessons.  Successful businesses continually seek a competitive edge and have the discipline to maintain a strategic vision even in the toughest of times.

    Owners confront the challenge of maintaining profitability


    Although property owners may not want to step into a boxing ring, the property management industry has absorbed punch after punch. Surging interest rates, inflation, and wage pressures have elevated the level of uncertainty for the office market. In turn, the threat of a recession accompanied by declining sales has harmed confidence and prompted corporations to cut operating expenses. Along with these factors, layoffs have dimmed the chances of filling office spaces, creating a domino effect that leads to downsized office footprints and the elimination of underutilized spaces.


    The new reality of hybrid and remote work has caused office occupancies to drop to less than half the number seen before the pandemic. Although some companies have mandated a return to the office, many executives say that the role of the physical office has changed. Others see that centralized office spaces do not fit their vision of a modern workplace.


    Results from the 2022 Ernst & Young Future Workplace survey illustrate the change in work patterns. Many companies and employees have embraced working from home, either permanently or two to three days per week. 75% of executives contacted by Ernst & Young do not anticipate using a central physical office in the near future while 72% indicated that they have a hybrid remote/in-office approach. Another report by Korn Ferry reinforces these findings, with results that show that 49% of responding professionals will turn down a job offer tied to a full-time office mandate.


    Other factors also impact the traditional office environment. Companies have either moved to four-day work weeks or have begun to implement the work week change. As firms reevaluate their need for office space and determine the best methods for utilizing those spaces, they keep close tabs on any resources flowing into unused space and often opt for smaller offices.


    Vacancy rates have climbed as leases expire, while operating costs continue to increase. All of this creates a dilemma for property owners. Maintaining profitability occurs either by charging higher rent or by attracting tenants. With decreased occupancy, though, building owners may lack the incentives and desire to remodel older buildings or build new office complexes that attract new tenants and support higher rents.

    A new workplace paradigm has emerged


    Attitudes about the workplace have changed. Of the executives surveyed by Ernst & Young, only a very small number of companies have reported that 90% or more of their employees have returned to the office.


    As a result, the target audience for leasing office spaces has changed. Tenants have reassessed space and quality needs and have begun to migrate from class B and C buildings to class A facilities. Because high-quality alternatives exist, older buildings that lack amenities or that have older fluorescent lighting or poor ventilation systems will struggle to attract and retain tenants.


    The change in target audience also includes the type of firms that seek an “office-first” approach. Large finance firms, technology companies, and professional services companies have a greater likelihood of implementing an office-first/hybrid workplace. Property managers seeking to attract the new customer base should plan for accommodating the needs of core professionals who deliver client- and customer-facing services.


    Certainly, tenant expectations about comfort, safety, and location haven’t changed.  Yet traditional practices for attracting and retaining tenants have lost appeal. Very simply, tenant preferences have shifted. Values, lifestyles, and convenience are priorities for prospective tenants who have a greater awareness of their impact on the environment and a desire to contribute to society. With convenience redefined through connectivity, laptops, smartphones, apps, and other technologies, tenants want access to portals and apps that grant control over lighting, ventilation, heating, and cooling for individual office spaces.


    Managing all the changes within the commercial real estate market is difficult. Although leasing totals dropped during 2022, the hardest times are around the corner.  Because of the long-term nature of leasing cycles, the largest declines in leases will happen during 2024 and 2025. For property managers, the prospect of a larger decline in leases should spur innovative solutions.


    Investing in achieving WELL Building certification yields benefits


    As buildings empty out, no one can predict when or if the pre-pandemic demand for office space may return. However, demand does exist—but in a very different way. Tenants want newer, better-equipped buildings that combine aesthetic appeal with a best-in-class infrastructure dedicated to employee well-being. While companies seem less willing to return to older office buildings that have deteriorated, they may request more space and pay more for newer Class A-level offices that offer more amenities and provide a healthy environment for their staff.


    Companies with the best chance of weathering the current adverse conditions have realized that employee well-being connects to reduced operating costs, greater productivity, and higher levels of performance. These companies indicate that they plan to invest in technologies that monitor indoor air quality, lighting, and environmental conditions.


    Korn Ferry’s study shows that commitment to sustainable practices is an important factor as well, contributing to improved productivity and the ability to attract talent. Many customers and employees refuse to engage with businesses or report to office spaces that lack sustainability goals. Property managers can respond to the growing demand for sustainable practices by prioritizing practices and technologies that align with the internationally recognized WELL Building Standard.


    The WELL Building Standard links office design, policies, and built environment strategies to health and well-being outcomes. Office spaces that meet the requirements of the standard connect the physical environment to employee health. The guidelines for registering buildings as Well Core Projects establish a pathway for owners to implement features that improve the quality of air, water, and light in tenant-occupied spaces.

    Seize the opportunity for creating value


    Avoiding a knock-out punch depends on a property owner’s ability to adapt and deliver the benefits that tenants prefer. Value creation through sustainable practices moves past energy, utility, and maintenance savings. Instead, the highest financial value now occurs through upgraded workplaces that invest in the health and well-being of occupants. An investment in lighting and daylighting, indoor air quality, thermal comfort, and ergonomics enhances the occupant experience and improves the financial performance of the property.

    About the author

    Headshot of Peter Duine, Global Subsegment Director for Offices, Signify
    Peter Duine is Global Subsegment Director for Offices at Signify. He joined Philips 28 years ago as an engineer in the Research Laboratories. Peter moved to the lighting division 16 years ago as an optical engineer, and was a pioneer in developing light engines and drivers as systems for general lighting applications.

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