As demand for commercial space continues to increase globally and the way in which people work evolves, the fit-out market is having to rapidly adapt. A number of distinct trends are emerging, with a marked shift towards denser, more agile spaces, and an emphasis on staff well-being and sustainability. The industry seems to be on an accelerating disruption curve, highlighted by a number of distinct trends, which are discussed below.
Urban space is at a higher premium than ever before in most major cities, so we are seeing a shift towards denser commercial spaces. Both clients and developers want to maximize the use of space. The trend towards hot-desking and activity-based working (ABW) is prevailing in recent commercial fit-outs, as density increases and flexible working becomes more popular. Hot desk facilities typically account for 20% of the overall floor space in recent developments, as desk ownership begins to become a somewhat antiquated concept. ABW provides freedom of choice in how, when, and where people work, recognizes that people need a variety of work settings to help them to be more effective and engaged. In the North East of the US, for example, Linesight has been implementing ABW for a number of clients. While it is not a ‘one size fits all', it leans towards 100% unassigned seats (and sometimes less depending on the sensitivity of the information the groups deal with within the organization). By analyzing the building occupancy through desk sensors, the actual seats per head required for spaces can be accurately determined. Technology is following suit in terms of agility, with desktops often being replaced by laptops in new fit-outs, and Voice over Internet Protocol (VoIP) replacing desk phones in some circumstances. Instant Messaging (IM) services, such as Skype for Business, etc. are helping in this regard. Significant overhauls of IT systems may need to take place for ABW to work effectively, but there are potential pitfalls if the technology is not put in place or available.
In locations where vacancy rates are particularly low, ABW may be a necessity, as a move is likely to result in increased rents. This means that many tenants are waiting to see out their current leases, and/or focusing on maximizing the efficiency and flexibility of their existing space. This is evident in certain parts of Australia, with Sydney and Melbourne at their lowest vacancy rates (4.6%) in almost a decade.
However, it is worth noting that in certain locations, such as Dubai, a correlation exists between office space and employee permits (i.e. 9sq.m. of office space is required per one worker visa). In such instances, evidently, hot-desking will not work. Further, the Middle East Council for Offices (MECO) has published the Best Practice Guide 2015 Version 2, where it states that standard office accommodation in the region has a higher Floor Space Ratio (FSR) than that of more developed markets. A range of one person per 10-14sq.m. is typical in the Middle East. On the other hand, future requirements will likely shift towards Western standards of higher densities, as efficiency is given more importance by occupiers.
The trend with regards to desk design has been a move away from the L-shape towards a smaller 1600mm design. This, in conjunction with a shift away from breaks between desks to create a continuous, collaborative workspace, facilitates these denser office spaces. There is a shift towards non-desk workspace, which can deliver efficiency savings, as a proportion of staff are not in the office at any given time, and such spaces can accommodate those that come and go.
Hot desk facilities typically account for 20% of the overall floor space in recent developments.
While sustainability and environmental impact are not new considerations in commercial fit-out, they are certainly becoming increasingly important. Looking specifically at Europe, a new European Directive, Nearly Zero Energy Building (NZEB), is to be introduced in 2019, which states that any commercial lease space must be producing 20% renewable energy on-site, and by 2020, this will be the case for all commercial space.
In terms of global certifications, LEED (Leadership in Energy and Environmental Design) has taken the place of the BREEAM (Building Research Establishment Environmental Assessment Method), with LEED Version 4 as the current standard. Interestingly, Dubai is leading the way in terms of LEED certification, as the city with the highest proportion of ongoing commercial projects that come with an LEED certification, at 81%.
Natural cooling requirements vary by region, from 1/10 in Australia to 1/8 in Ireland, and denser in some co-working spaces. In Dubai, for example, 80% to 85% of a building’s energy consumption relates solely to air conditioning, and the commercial sector alone accounts for 38% of the UAE’s energy consumption. However, in line with other regions, there is a big push within the UAE for improved efficiency, with new regulations being introduced as part of the government’s plan to reduce water and electricity consumption by 30%.
We are seeing renewed importance being placed on the provision of additional ‘end of trip’ facilities in newer developments. These include bike storage, which is particularly important in cities where bikes are becoming all the more popular as a means to travel to work, shower facilities for those who bike or run to work, and parcel hotels for deliveries as a result of staff online ordering. In the United Arab Emirates (UAE), there has been a ‘work to play’ trend emerging, with a number of new office blocks including gyms in an effort to meet the expectations of millennials of a better work life balance.
The overall emphasis in all of these facilities is on staff welfare, and these are the types of facilities now expected and demanded by tenants. For landlords, these facilities are often a key differentiator in attracting new tenants. This is evident in the emergence of the WELL Building Standard, developed by the International WELL Buildings Institute (IWBI). WELL prioritizes better health and wellness outcomes for employees, in order to improve employee productivity, engagement and retention. It is closely modelled on LEED, but focuses exclusively on occupant health. The demand for WELL is increasing in Europe, on the back of its use in the US.
The competitiveness of the commercial fit-out market varies hugely geographically, and even within regions. For example, in Sydney, it is a highly competitive market, as many older commercial properties are being converted to residential facilities or demolished. What was previously considered Grade A space is now being vacated by larger organizations, as there is a mass move to the premium spaces available in the new Barangaroo precinct. Conversely, in Brisbane, there is vacancy in the market. Both markets require landlord investment, but for different reasons – in Brisbane, potential tenants have plenty of options available to them, while in Sydney, landlords need to ensure that they can still compete at the top end of the market.
Elsewhere, the shift towards Class A space is ongoing. In New York, for example, a number of high-quality commercial spaces are cropping up, such as Hudson Yards, and 1 Vanderbilt, which will be the city’s second tallest tower. In Dubai, where more than 70% of office space is Grade B or Grade C, there is a marked increase in demand for Grade A space that is well-specified and contains premium facilities. This is particularly true in the Free Zones, where multinationals had put expansion plans on hold due to the 2016 market contraction. However, with the lack of Grade A space available, there is a trend towards ‘build to suit’, particularly in areas well served by the metro service.
Ultimately, there are a number of key trends emerging with regards to the Commercial Fit-out sector. While there are regional nuances, comparisons can be drawn across the globe as the market continues to evolve.