Workplace strategy: Words with Pete Carstairs, General Manager Research, Investa Office

Through talking with many of Australia’s leading workplace strategy practitioners, Shiro Architects aims to understand how to create workplace-design briefings that satisfy the needs of occupants, owners, investors and developers of commercial office space.

Here, we speak with Pete Carstairs of Investa Office about the challenges this massive Australian commercial property owner faces in adapting to post-global financial crisis changes in the ways in which work is performed, driving new expectations on the part of its customers, the tenants.

About Investa: Investa describes itself as a leading owner of investment-grade office buildings and receives rental income from a tenant register comprising predominantly government and blue chip tenants. It has total assets under management of around AU$7 billion, with 39 investments under management located in core CBD markets throughout Australia.

It used to be about employers offering a job, now it’s the other way around, you have to fight for talent, and I think that is really influencing everything that goes on in a workspace, and it’s changing all the time.

What is your job?
Traditionally, my role focused on understanding the outlook for rental growth, vacancy rates, yields, tenant incentives across the locations we invest in, guiding forecasts and the shape of our leasing strategies.

This has changed in the last two years, and one of the drivers has been the way the office market landscape has changed around the needs of tenants.

How is what Investa does evolving?
The old model used to be that we’re the landlord in a very commoditised business: we have space, do you want it, here it is, and we’ll talk to you in a few years.

But technology is enabling people to work anywhere, you’ve got more people working from home, and more people working from places like this [cafe].

You also have the ability for people to stay connected with their colleagues, even if they are not actually located in the office, and the blurring of work, home life and social life is changing the kind of product we need to offer when we are managing office buildings.

If you look at academic research into the workplace over a 10 to 20-year period, there was a time when academics were implying that there would be no demand for offices in the CBD precisely because everyone would work from home, or everyone would work from regional hubs, and it was all over for institutional owners of property in CBDs.

But, that hasn’t happened because there is a huge push for centralisation, and that is a global factor, and nothing to do with Australia.

Our company owns some really great real estate and … the difference will be if you can really deliver the best customer service experience [that delivers] that bit extra on your rent and [greater tenant] retention.

That is the space we are playing for right now.

How is this manifesting?
First of all, the occupants are more demanding of the services they want, so increasingly our business is becoming more like a hospitality type service provider.

To attract investment into our managed funds, the critical factor in outperforming our peers is to retain our tenants, because the [rental income] downtime on a large amount of space can sometimes be six months to a year.

Really, our strategy is to move our focus from it being all about the commodity to actually changing how we view customer service in our business.

And that means changing the kind of people we hire, changing their [performance metrics], and changing how we actually deliver that service to the tenants.

We have recently launched our tenant portal [which is] like a social media platform for a building that enables you to tap into services in the surrounding areas, and you don’t even need to leave your desk to order coffee from your desk, or get your dry cleaning done.

You’ve got a virtual concierge, and all these kind of services that are very much what you might have thought you’d have in a hotel five years ago.

It’s all about the broader value-add proposition, and increasingly that will mean different kinds of space that employees can work in.

It is coming out very loudly and clearly from our customer base is that they want flexibility, they want more flexible space, they want more of everything.

They want more amenity, they want more value-add services, they want this, they want that.

What do you think inspired the wave of activity based working that is breaking now?
In Australia, for a lot of the larger corporates, particularly the banks, the stars aligned when they had major leases expiring at the same time, just as we were going through a major market downturn, so they were making these decisions about their workplace at a time when there was a lot of uncertainty.

When you move headquarters, you are usually there for at least one or two lease terms, and these can be 10,12 or 14 years, so you don’t get these opportunities very often.

It just happened that a lot of the major banks had their expiries come up during the [global financial crisis] and my belief is that one of the big drivers for them toward activity based working for them was saving money on space, and that was the right thing to do at the time.

At that time, they probably drove densities a bit hard, but if I was putting myself in the position of the CFO’s role in an uncertain world, this would have been an opportunity to drive costs down.

Although it’s almost the holy grail of all of this, I think it is very hard to measure office productivity, and that one of the hardest things is valuing the output of an office employee.

What you can save on space is easy to figure out on a spreadsheet, but what is not so easy to figure out is what you could lose in productivity from a poorly designed space.

To what degree could activity based working be just flavour of the month?
It’s amazing how fast fashion changes in property, but in management fashion changes too.

I believe that some of these newer activity based working type workplaces have been very good at promoting collaboration and those encounters within teams of people who may otherwise never have bumped into each other, and that is good.

But, I think that they have lacked enough quiet, focused workspace and there is a lot of research out there that shows actually knowledge worker employees need access to quiet space to get work done.

There is research that highlights that some of these more collaborative workplaces are very good for the extroverts in the organisation.

But, actually in a lot of in technology companies in particular, a lot of the value is the guy in the corner who is working on his idea.

They get drowned out and they need time to sit in the corner and do their thing and then it is up to the organisation to figure out how they give them enough time to create their stuff.

To be honest, I am one of those guys, I have to write research papers.

I think the next wave of these projects will actually take more space and they will have that collaborative space, and they will have a very large cafe area, but they will have areas that people can book for quiet time as well, and more of it.

That is the way it is going to be because I think the next generation of workers, they are going to be used to that because all the unis are doing it.

Speaking to key decision makers at some of our larger clients, I think they are increasingly seeing that.

So, how are these changes influencing the workplace choices of the employee?
When the smartest guy in the class is looking for a job, he’s weighing up, it’s a nice place to work in, well designed, in the city, close to bars, and all my friends are near, check. It’s close to where I live, check, and oh, great, I can tap into all these value-add services, great, go for a run at lunchtime, tick, tick, yup, that works for me.

It used to be about employers offering a job, now it’s the other way around, you have to fight for talent, and I think that is really influencing everything that goes on in a workspace, and it’s changing all the time.

We have about a million sq m of space, so we have a lot of tenants to observe.

I think for any business, managing your culture has to be a number-one consideration, because without that you are going to die.

You will always see some parts of a larger organisation that have parts of their operation out of town, in places such as business parks, because it’s cheaper.

But, particularly in knowledge-intensive industry, if you want to attract the best and the brightest staff, you have to be in the CBD, because that’s where they want to be.

Increasingly, where we’re moving to is companies not focused on the cost of the real estate anymore, which is probably 10 per cent of total operating costs, but rather focussed on productivity. If you are in a service-based industry, your staffing cost is probably 50 per cent, and therefore people represent your largest investment.

So, really if you are losing staff because they don’t want to work in places like Ryde, you have to work out what that costs.

There is also some compelling academic research that shows that having your own desk on which to have a photograph of your wife and kids does have productivity benefits, as does having space to collaborate, so I think it really depends on thinking about the mixture of roles and the type of business you are in.

I fundamentally believe that the organisation where no one has a desk and everyone is hot-desking is really stupid.

It might work, depending on what sort of business you are in, but generally, I think there might be some people in the organisation who are there all the time and need to crank out work at their desk, so maybe they should have a desk.

But I think really being smart about it means there needs to be a balance [and it] comes down to the integration of design, and figuring out what really the business actually does.

How much influence does what you do exert over tenants, and where is the market moving?
This is all interesting for us as, our building is the host of all of this, but a lot of the time we have very little control over what goes on within the tenancy wall.

But we are increasingly seeing opportunity in club space or flexible space that might be shared by several organisations within a building, or several buildings.

I think the next wave of collaboration may be that more companies will have that activity based working space, but it possibly might not be in their own organisations.

I think the best example of that is within Fintech [finance and technology] startups, and business accelerators. Probably the biggest change in that is represented by Stone and Chalk, a not for profit organisation, supported by a number of major corporates, including KPMG, and some of the major banks.

In that space, there will be people from KPMG and Macquarie Bank working in amongst all of [these technology specialists] to benefit from the kind of X-factor creativity going on in that space.

Other large corporates, such as Telstra, have launched start-up incubators recently, so it is a growing trend.

How is innovation driving Investa’s response at that smaller scale?
I think the big opportunity is that we want a way to market to the potential tenants directly.

So, with the smaller guys, one strategy is that we are actively looking at how we can have incubators in our buildings for smaller tenants to help them on their journey so they become larger.

We want to hold their hands at every step of the way, so it’s good for them and it’s good for us, and we become like a business partner that manages their real estate, letting them get on with whatever it is they do.

You just have to look at any other industry type and see now technology has changed them, and it’s going to happen in our sector as well.

We need to become a service provider, as that easy economic model of being a rentier is over, of saying here’s the space, it costs this much, shake on it, see you later, is dead.

How is the complexion of tenants that call Sydney home changing?
We used to have LinkedIn in our portfolio but when they expanded rapidly, they outgrew the building they were in and we were unable to retain them.

Now, a number of those IT groups use Sydney as a key strategic centre in the Asia-Pacific region.

You’d ask why Sydney, but because they are now competing with the investment banks and everyone else for the very brightest talent, and globally, Sydney has a reputation as a nice place to live, so that’s why they are here.

LinkedIn moved to No 1 Martin Place, where historically you would have thought investment banks would be the most likely occupier, but these days that is the kind of space the tech companies want to occupy as well, because they are competing with the banks for talent.

They want to be in the city, they want the amenity of bars, they want towels in the changing rooms, and they want bike racks, because it comes down to wanting to attract the best talent and that is the amenity they expect now.

Sydney is a finance and insurance city, with all the associated services, but tech has added another string to Sydney’s bow.

However technology tenants are still a relatively small part of the market. Where we have seen a lot of activity is in the small business sector — tenants that occupy less than 1000 sq m of space. We see this sector as a massive opportunity to provide good service to them, to take out all the hassle of managing their office space dilemma to let those guys get on with doing whatever they do.

If I was going to describe Investa’s strategy in a sentence, it’s making their life easier so they stay with us and grow within our portfolio.

If we can deliver that, we will outperform, and it’s about figuring out the kind of services that they need and providing it to them.

We were invited to an activity based working office recently, and (Shiro Architects design director) Hiromi Lauren described it as looking like a “children’s day care centre”. What’s your observation?
We are absolutely in the toddler stages of activity based working, and in 10 years’ time it will be interesting to see if there is a trend back to more offices.

They may be shared, and you can book them, but this is constantly going to evolve, and a lot of it will depend on technology that isn’t even invented yet.

I’ve seen it on YouTube that you may be able to come into a meeting as a hologram, but you can imagine in a few years it’s going to happen.

We are looking closely at the Internet of Things, as there are a lot of potential applications in property for that.

We’ve thought about some of the possibilities in that it could help understand how workplaces are actually utilised, so for example you want to see foot traffic and all those sort of things.

That tech will be built into furniture at the fitout, and it will allow for companies to understand how their employees are using the space, not least for worker well-being.

As a researcher, it’s kind of scary that all this data is going to be everywhere, but it’s too late to change it now. It is fascinating to know how to optimise buildings, and yes, there are huge potential applications for offices and for learning generally.

What can you see coming next?
The next phase relates to new thinking around activity based working and the needs of organisations that use it.

I don’t like the term itself, but I fundamentally believe that we are only at the very start of this journey.

I think it will be very different in one organisation to another, so what works for a bank isn’t going to work for a property company, and that in turn isn’t going to work for someone else.

I think one of the good things about working in [my role] is that I get to go through a lot of these spaces and you see ones that work well, and some that haven’t worked well, and if they don’t work, it’s expensive from not just the cost of the space, but also in lost productivity.

See also:
How To Use Social Technologies To Enhance Your Workplace Design Briefing
Relocation: New thinking on workplace design briefing

In The Urban Developer:
Beyond Activity Based Working
What Is Workplace Strategy, And Why Is It So Important?

About Shiro Architects
Workplace strategy is where building design, modern technology and new ways of working come together to deliver the future of work. Through dedicated research, we aim to understand how to create workplace-design briefings that satisfy the evolving needs of occupants, owners, investors and developers of commercial office space. For organisations looking to use relocation to kick-start change in the ways their teams think and learn, we champion the use of sense-making workplace social technologies applied to this purpose.

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