Commercial Property Planning to move office? Think “Flexibility”

Looking to move premises? Then the word to remember is “flexibility”. Our work-a-day world is changing in every way, including the way we think about office space. And given that most organisations lease rather than buy the buildings they occupy, flexibility is the order of the day.
Why flexibility? Because the average enterprise life cycle is growing shorter, the ways in which people interact with their office are changing and it is increasingly difficult to predict where business will be five years out. And on top of that, employees’ priorities change, they are looking for different things and keeping people happy and productive is the key to success.
A British survey on Workplace Satisfaction (see story page 56) reveals that an individual’s work environment has big impact on employee efficiency and morale. Many managers, according to the survey, will forgo either portion of the remuneration package or annual leave in return for an improved work environment. Unfortunately, too few organisations marry up expectations with delivery, often because they are locked into unforgiving lease arrangements, don’t plan ahead, look to save every dollar they can on premises and don’t bother to consult with employees.
And with organisations changing – merged, bought, sold, upsized, downsized, outsourced – the accommodation needs change too, sometimes over night. As Rob Bird, Colliers Auckland commercial leasing manager points out: “The cheapest rent is not necessarily the best solution. Look for office space with the flexibility to quickly and cheaply change the way tenants occupy the space and, flexibility in leases to grow or shrink their space in response to business drivers at the time.”
To play the commercial property market game successfully you need to understand the rules and the playing field. At present the investment market in all main centres of the country is “the strongest it has been for decade”, according to Colliers’ director of commercial sales Peter Herdson. The demand for lease space, on the other hand, is “reasonable” according to Layne Harwood, Auckland manager of Barfoot & Thompson Commercial. Other agents call leasing demand in Auckland, Wellington and Christchurch “steady”.
Having said that the leasing market is not as buoyant as the property investment market, cheap deals with give-away extras are not easy to come by, particularly in the smaller end of the office space market. In Wellington, according to DTZ general manager Phil Kerslake, tenants are mainly looking to move away from low grade buildings into better premises with good building management, effective services and quality co-tenants.
Office rents are, according to property marketers, “flat”. Kerslake says that effective rentals have increased because incentives have reduced and therefore face rentals have improved little. Bird agrees saying that the shortage of quality space means tenant incentives have reduced. “Tenants who move to more efficient floorspace, designed for lower churn, may pay slightly more in rent but their total business costs can be lowered through lower staff turn-over, higher productivity and increased staff morale.”
Given the shortage of quality space, Bird suggests enterprises planning to move start their premises search early. “In the current market if you leave [the search] until the last minute there will be fewer options or the deal will be financially less attractive.”
Kerslake agrees there is “flight to quality” and generally there are no great incentives on offer. “The free rent period has diminished. Perhaps on particularly large and appealing tenancy prospects landlords will incentivise, but not for smaller tenancies.”
None of this discourages tenants from looking for packages to ease the cost of transition. “They look for assistance with rents, fit-out and tax incentives, says Harwood. He identifies key non financial issues tenants are looking for as:
* Security – access systems, toilets on the floor as opposed to stairwell, access to car parks after hours for female employees.
• Air-conditioning that works and is adequately serviced.
• Lifts with minimum waiting times and which provide comfortable service.
• Floor plates that are efficient and able to be subdivided cost efficiently.
If organisations are looking to upgrade – if not to A-grade buildings because of the high premium they attract, at least to B-grade premises – is there drift into or out of central business districts (CBDs)? Yes and no, except perhaps in Wellington where the answer, according to Kerslake, is always “no”. Wellington is CBD kind of town. The attractive harbour and associated amenities keep CBD space in high demand – “at present”, he adds.
In Auckland, and to some degree Christchurch, there is more movement into and out of the CBD but, according to Harwood the drift either way is relatively even. On the other hand, he points to the move by two large corporates, TelstraClear and Tranz Rail, out of central Auckland and Wellington respectively to Smales Farm on the northern side of the Harbour Bridge.
And the 130-acre Albany Centre even further north of Auckland CBD is proving increasingly popular with enterprises looking for large and small floor plates, high tech connections, tailor-made accommodation solutions, landscaped surroundings and people-focused amenities and services.
So far the Albany Centre has developed 70,000 square metres of retail and commercial space, housing tenants previously located in other parts of Auckland, including the CBD. Major commercial tenants include the North Shore District Courts, the ASB Bank’s C-drive customer service and technology centre, Nike, Perron Developments, lawyers McVeagh Fleming, technology company Solution 6 and all the major banks including HSBC’s major new commercial branch.
But, says Collier’s Bird, the strong demand for CBD property has never fallen away. “But tenants are moving around to find larger floorplates.”
What, at least from current market demand perspective, constitutes an environmentally desirable building? The answer, as DTZ’s Kerslake puts it; “There are no ‘one-size-fits-all’ design solutions. Workplaces should reflect an organisation’s values and individuality but also consider the needs of staff, from physical well-being to social and motivational factors,” he adds.
In his opinion office design needs to reflect range of related factors including:
• Meeting people’s increasing employment flexibility needs. Employers of choice today are flexible in the interests of work/life balance needs. Mutual benefits can flow from measures such as desk sharing and home working.
• The need to plan offices. Design wise, offices are often ‘accidents of history’ and as such are operationally inefficient and counter productive. Use professional designers.
• The need to structure and fit out offices to meet the organisation’s specific needs and values. Creating ‘home environment’ of sorts will underpin the benefits of increased time and location flexibility. Offices are being designed to function better from communication, innovation, creativity and teamwork perspective. Establish rest and relaxation zones.
• The need to put the interests and expectations of people first in accommodation decision making. The ability to hire and retain skilled knowledge workers and to optimise productivity are key drivers in the move to new office design priorities. But the tenancy briefs provided by most New Zealand organisations are basic and seldom take these factors into account. Other factors that should be taken into account include creating community, collegiality and teamwork and, more relaxed workplace atmosphere to compensate for the longer time key people spend at work.
The golden rules for leasing are straightforward, according to Harwood. Negotiate flexible lease terms; have control over rental growth; ensure quality services; security and make sure you are leasing from good quality owners/manage