Occupancy costs a challenge says survey

5:00 AM Wednesday May 24, 2017 True Commercial

Property analysts’ survey shows that ‘millennial’ employees prize attractive working environments. Photo / Supplied

Companies are finding it hard to develop strategies that attract and retain staff — and reduce occupancy costs at the same time.

A new occupiers survey by global property analysts Cushman & Wakefield, which has a New Zealand alliance with Bayleys Real Estate, has found tensions between company leaders and those responsible for making corporate real estate decisions.

John Church, Bayleys’ national director for commercial and industrial, says executives charged with making corporate real estate decisions are being charged by chief executive officers to attract and retain staff and help enhance employee productivity.

“At the same time, they must continually find ways to reduce occupancy costs,” Church says. “The overriding challenge is to balance these two goals, which are often in opposition to one another.

“Too often, attempts to advance corporate strategic goals through real estate decisions must take a back seat to cutting costs. There is a sizeable gap between occupier aspirations and occupancy realities when it comes to committing to relocation and/or expansion.”

Previous studies by Cushman & Wakefield show that talent management and innovation are priorities for most CEOs, so it’s natural to suppose that corporate real estate strategies would be aligned with these goals. Instead, occupancy costs top the list of real estate priorities.

The concerns of their CEOs may be an aspirational goal for most corporate real estate executives, but in reality they remain focused on cutting costs.

While cost remains the key location criteria for 28 per cent of survey respondents, a number of other factors are rising up the agenda. The survey found that the majority of occupiers prefer to base themselves in urban areas that offer strong transportation infrastructure and the opportunity to engage talent.

Central business districts remain the most sought-after hubs for occupiers, with 64 percent of respondents choosing either CBDs or creative urban environments for their offices.

Suburban business parks continue to attract a sizeable portion of occupiers, with 24 per cent opting to locate within these markets.

However, there remains a fine balance between closeness to production sites and working environment. If the latter is simply not attractive enough for ‘millennials’, locating within suburban areas may become a barrier to recruitment and retention of talent, if suitable facilities and infrastructure are not in place.

The survey also found that many companies believe their workplace practices fall short of providing a “great place to work” or an ideal environment for attracting innovative workers. Only 63 per cent of respondents said their companies dedicate less than 25 per cent of space to collaboration, although this varied by industry, for example 47 per cent of financial services firms but only 8 per cent of industrial sector firms.

Property Council chief executive Connal Townsend says low vacancy levels in the office sector has somewhat shielded New Zealand from such tensions.

“Most occupiers would probably be aware that the availability of A-grade and prime real estate stock is relatively low. In our main cities, there is high demand for space, tipping the scales towards the asset supplier. You might assume with the Christchurch rebuild there would be more tenancy available, however, the assets that are coming on to the market are merely replacing the buildings that were lost. In Wellington, the Kaikoura earthquake has further reduced supply in the market, making it tougher for tenants, as there is not the stock to choose from.

“Nevertheless, there are opportunities for the supplier of assets to better match tenant aspirations. In Auckland and Wellington, developers are working with anchor tenants in the design phase of a project and landlords are improving existing stock to meet needs and deploying strategies to ensure tenants stay put.”

Townsend says asset managers around the world are taking cues from the hotel industry and moving towards high-level customer service to attract and retain quality tenants. “And tenants expect a property manager to have a high level of visibility and be extremely responsive. They want to be located next to amenities such as supermarkets, bars, cafes, and restaurants,” he says.

Church adds that there has recently been increased demand from tenants for sustainable buildings, accompanied by the expectation that these buildings will have environmental features, such as a Green Star rating and/or the National Australian Built Environment Rating System NZ (NABERSNZ).

True Commercial - John Church%2c Bayleys.jpg (1) True Commercial - Connal Townsend Property Council NZ - cropped.jpg

John Church, Bayleys & Connal Townsend, Property Council.