May 2005 The Future Office EXECUTIVE SUMMARY Australia s ageing population, combined with slowing population growth will create a skills shortage. Companies are going to have to make quality decisions around attracting and retaining quality staff. When planning for demographic and generational changes, there is a strong need for HR, IT, and Real Estate to work closely together. Although traditionally a HR responsibility, Real Estate plays a major role in staff satisfaction. If a workplace is well located and designed, employees will work more efficiently and ultimately have higher levels of satisfaction. Baby Boomers, Generation X and Generation Y have very distinct working styles. Organisations need to develop real estate strategies to meet the needs of the three generations. Demographic and generational change will means changes to where we work, how we work and what we work in. Over the next 10 years a high proportion of workers will work outside the traditional office environment either at home, on the road or in other public spaces such as cafes. With the rise of Generation X to the top of organisations, and their preference for inner suburban living, the CBD will remain relevant as a location choice for the majority of companies. The introduction of Generation Y into the workforce will speed the advancement of technology and enable employees to work anytime, anywhere. Alternative workplace strategies (AWS) are not new concepts, but are gaining increasing popularity, and rather than a one size fits all approach, are being tailored to different working styles.
2 The Future Office Campus style developments are challenging the traditional office building, with their ability to offer flexibility and create a community workplace. CBD office buildings need to upgrade their offering to compete. Workspace ratios will decline over the next five years with open plan environments, smarter technology, hot-desking and hotelling. Developing a new workplace, encouraging new ways of working and locating to a place that is more attractive to employees does not always lead to cost reductions. However, even a modest reduction in staff turnover as a result of alternative workplace strategies can result in substantial cost reductions. If staff turnover is reduced by just 1% through AWS, significant savings can be realised, equating to around $50 per sqm rental savings. INTRODUCTION Australia is undergoing significant demographic change the population is ageing, population growth is set to slow and the birth rate is declining. This change is extending into the workforce with Baby Boomers moving towards retirement, the shift of Generation X into the executive ranks and C-suite and the emergence of Generation Y. Organisations will have to make quality decisions on how to maximise performance from an increasingly diversified workforce. Furthermore, shifting demographics will have significant implications on the built environment and the virtual network. As the population ages there will be a war for talent given Australia is facing its lowest unemployment levels in 27 years. Organisations will need to develop a work model, physical and virtual, which contributes to the attraction and retention of employees. This paper looks at the impact demographic change will have on property, and more particularly the workplace. Strategies for coping with change are discussed and a look at how a company may handle changing demographics is outlined. Figure 1: Population Growth - Australia, 1975-2035 Population (No.) Forecast Growth (%) 30,000,000 1.8% 25,000,000 1.5% 20,000,000 15,000,000 10,000,000 5,000,000 Source: ABS 0 1972 1974 1976 1978 POPULATION (NO.) GROWTH (%) 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 1.2% 0.9% 0.6% 0.3%
The Future Office 3 Figure 2: Population by Age and Sex, 2005 and 2035 Male Age Female 80-84 70-74 60-64 50-54 40-44 30-34 20-24 10-14 0-4 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 2035 2005 Source: Australian Bureau of Statistics DEMOGRAPHIC CHANGE IN AUSTRALIA Slowing population growth and demographic change Population growth creates opportunity and economic growth. With growth there are more people to buy goods and services and correspondingly there are more people to work in industries that produce goods and services for domestic and overseas markets. While population growth creates opportunity, population decline in a growth economy creates problems. Fewer people means fewer development opportunities (less retail space, fewer new dwellings), and it also means there are fewer people at a working age to support an ageing population. Australia s population growth is set to begin to slow by the end of this decade when growth is expected to dip below 1% per annum. By the middle of this century, growth will be minimal. Australia s ageing population is well documented and is already of significant concern to policy makers. At present, around 13% of Australia s population is at retirement age (65+ years), however within 30 years this will increase to around a quarter of the population. This means significant pressure on government services such as health services and social security. Government policies Supporting our ageing population will become a major issue as the proportion at retirement age increases dramatically. This has already had significant government focus. There are a number of measures the government can focus on to ensure that the aged will be supported: 1. Increase taxes for the working population 2. Encourage welfare recipients to return to work 3. Increase the age of retirement 4. Increase migration 5. Encourage family friendly policies that ensure women with children return and remain at work Through the commissioning of the Intergenerational Report, the Federal Government has put in place a number of initiatives to encourage people to stay at work longer. The policy is designed to increase workforce participation of those over the retirement age. This is to be achieved by training, encouraging more flexible work practices and financial incentives. The major plank of the policy is the Mature Age Worker Tax Offset. Those who remain in the workforce past the age of 55 are entitled to a tax
4 The Future Office rebate of up to $500 per annum. More than 750,000 mature age workers are expected to benefit from the initiative at a budgeted cost of $1.04 billion over four years. Encouraging welfare recipients to return to work has also been an initiative undertaken by the Federal Government. The Work for the Dole program has now been running since 1998, while more recent initiatives mooted have included cutting benefits to single parents once their children reach school age. Family friendly work policies (such as paid maternity leave, flexible hours, affordable child care) to encourage women with children to return, or remain at work, are still a relatively new initiative in Australia. At present, has had only a limited impact on increasing participation rates. As Australia s policies towards woman at work come into line with other industrialised countries, it is expected that this will make greater inroads over the next 10 years. Australia has historically relied on migration to increase its workforce and although increasing the level of migration may be not be popular politically, within 15-20 years, society s acceptance of migration is expected to have changed significantly. However, we will increasingly find ourselves competing with other major industrialised nations to attract skilled migrants. Increasing the taxation paid by the working population to support the ageing population would not be a popular political move, particularly given the recent Government tax cuts and significant pressure from lobby groups to lower the top marginal tax rate in line with our OECD competitors. As there are fewer people at a working age, firms with the ability to attract and retain staff will have a competitive advantage. The ways to do this are numerous and include increasing pay levels, providing a clear career path and providing better conditions. These are both issues that are handled by the HR department in most major companies. Real Estate however can also play a major role. If people are happy in their working environment and find their workplace conveniently located for amenities they require (eg childcare) with easy transport access, and are offered flexibility, then they will be more likely to stay loyal to a company. The impending skills shortage Fewer people at working age will lead to a skills shortage. Already, this is apparent in many trades such as bricklaying and welding. Longer term, these skills shortages are expected to become more widespread. To maintain the current level of people at working age to non-working age, it is estimated that there will be an employment shortage of 1.7 million people by 2034.
The Future Office 5 Table 1: Life and Work Styles by Generation Baby Boomers Generation X Generation Y 1946-1961 1962-1976 1977-1991 Aged 43-58 Aged 28-42 Aged 13-27 4.45 million People 4.41 million People 4.16 million People Life Privileged youth Generation Xcluded? Privileged offspring Free/Cheap education Education costs rise Education costs soar Many educated Even better educated So far, the best educated Free time increasing No free time Free time decreasing Nervous of change Used to change Change is good Highest wealth Highest income Highest potential Technophobes Technology as the next big thing Technologically savvy Can t understand youth Understand youth Are the youth Families downsizing Growing families Yet to have families Work Heading to retirement Heading to peak earning years Heading to the workplace Slow and steady to the top Get me to the corner office now Promote me or I m going Loyal to the end Why should I be loyal? Independent contractors At the top Heading to the top Would like to be at the top Made the rules Hate the rules Break the rules Used to being at work Would like more flexibility Demand more flexibility Easy jobs Mass downsizing Easy jobs Source: Jones Lang LaSalle HOW DOES EACH GENERATION WORK? Understanding the work styles of each generation can assist in ensuring real estate remains relevant for both today and tomorrow s workforce. Broadly, each generation has quite distinct work styles and these are summarised above. Baby Boomers The oldest Boomers are now heading into their 60s and it won t be long until many retire. Up until last year, they were the dominant generation in the workplace but this has now changed and Generation X are increasingly taking over the reins. One of the defining characteristics of the Boomers was the relatively good times they grew up in. Australia in the 1970s was a time of low unemployment, free education and generous welfare benefits. Once you had a job, most Boomers would have been reasonably confident that they would remain in that job for life. Slowly and steadily, the Boomers have now made it to the top. Although overall, they are now on the downward slide in terms of average income (income peaks at around 45 years), they still dominate most senior positions and many are hesitant to hand over control to Generation X. A key problem for many Baby Boomers in the workforce is that now many are increasingly becoming out of touch with latest improvements to technology and changing attitudes to work. They are generally less educated than their younger peers and are facing the realities of getting older. The Boomers are used to being the dominant generation and this is changing in both society and the workplace. The Boomers are likely to work far beyond the typical retirement age of 65. This will be partially driven by the impending skills shortage, however many Boomers will have to work to support their lifestyles. Quite simply, many Boomers will have insufficient superannuation to support their lifestyles and are likely to live a lot longer than previous generations. Whilst some Baby Boomers will move into retirement, many more will continue to work on a consultative basis to support their lifestyle requirements well into their 70s.
6 The Future Office More flexible arrangements need to be built into organisational policies to cater for this group. The challenge will be to help Boomers feel comfortable with technology advancements and working remotely. They also need to help Boomers break the habit of the 9am 5pm workday and accommodate their aspirations of status and the corner office in an open-plan office environment. Generation X The attitudes of Generation X to work marked a big change, particularly compared to the relatively conservative Boomers. The early 1990s saw a structural shift with the advent of mass downsizing meaning that this certainty was broken. Firms were no longer loyal to their employees and it became necessary for employees to consider their careers and jobs beyond the firm within which they were employed. Many Generation Xers were either in the early stages of their careers or entering the job market when major changes began to occur and this explains the significant lack of loyalty, particularly when compared to their more steady Boomer peers. Now that Generation X are heading to the top of organisations, there is likely to be significant change in the way companies are organised and run. As well as being far less loyal to the organisation, Generation Xers are less comfortable with the rules that have been largely developed by the Boomers. Generation Xers are in a far greater hurry to get to the top of an organisation. Referred to as front-loading by Richard Florida, many Generation Xers want to satisfy their career objectives before settling down and having a family. This in part explains the increase in average age of child birth but also explains why many senior people in organisation now have young families, a considerable difference to what happened with the Baby Boomers. The demand for child care has increased significantly and is now a key want for Generation Xers in the workforce. The hours that Generation X keep are also far more irregular than their Boomer peers. This is problematic in some workplaces where the traditional 9-5 prevails. Generation X are more likely to prefer to work hours that suit their way of working. This can include not working Monday but instead working Sunday, to working from 11am to 7pm every day. Obviously this does not suit all workplaces but this flexibility is highly valued by Generation X. A different attitude to hierarchy has also been driven by Generation X. With their rush to get to the top, many have rejected hierarchical structures within companies, preferring flatter structures that recognise ability over length of tenure within the company. Generation X is entering into peak earning capacity, but many are doing it with young families. The challenge to attract and retain Gen X-ers is to build in work/life balance and flexibility to enable them to achieve their career goals, whilst still connecting with their families. Generation Y Generation Y has taken working characteristics of Generation X but made them more entrenched. There would be very few Generation Ys who would begin working for a firm with the expectation that they would be there for the rest of their working lives. In fact many Generation Ys are permanent employees of an organisation but exhibiting the characteristics of an independent contractor. Many consider that if the company does not look after them, they will simply change jobs. Technology is another area where Generation Y differ significantly from their older peers. Having grown up with technology, they are far more comfortable with its use. They use technology to work differently and to take advantage of the flexibility it offers. The attitude to the environment differs significantly across generations with Generation Y showing the most significant environmental concern. Generation Y expect corporates to be environmentally responsible, in stark contrast to many Baby Boomers who would be far less likely to consider it an important issue. One of the key challenges in keeping Generation Y in the workforce is the ability to maintain and develop the corporate culture whilst dealing with their significant lack of loyalty. Generation Y is just entering the workforce and bringing with them the concept of working anytime, anywhere. The need for mobility and flexibility are paramount.
The Future Office 7 WHERE WILL WE WORK? Working outside the office The ability to work from home, on a bus, in a café and on a client s premises has been available to a limited extent for some time now. The benefit to corporates of this increasingly mobile workforce is that occupancy costs are significantly reduced. With less people in the office full time, less space is required. The following table demonstrates some of the reasons corporates take the decision to implement AWS: A key problem with this strategy is that it has generally not been widely taken up by workers. There are many reasons for the low take up including: The perception by managers and peers that people working away from the office are not working as hard; Difficulties working away from the office because of technology constraints; Insurance requirements making the cost of employees working away from the office too prohibitive for some companies; No suitable place to do work away from the office; Inability or difficulties working away from the office because of job type or a need to be in the office for meetings, client contact, staffing issues; Lack of desire to work away from the office for various reasons including young families restricting working from home and a preference to be around a social network. The first three factors restricting people from working away from the office are likely to be resolved over the next 10 years. The perception that people working away from the office are not working hard is likely to change significantly particularly as the more flexible Generation Xers make it into senior roles. In the same respect, the advancement of technology will make it easier for people to work away from the office. Insurance is another factor that in a competitive market could be expected to be rectified over time. Practically, working away from the office will not suit all people all the time. Most people will come into the office at least some of the time with options available to work away from the office whether that be working at home, at off site serviced offices or at a café. An example of a company that is enabling people to work from outside the office is Sun Microsystems with Table 4: Examples of AWS Benefits Sought Priority EDS Ernst & Young Microsoft Proctor & Gamble 1 Cost reduction Worplace productivity Workplace effectiveness Cost reduction 2 Space efficiency Cost reduction Space optimisation Work-life balance 3 Improved work Attracting and retaining Customer experience Giving employees environment employees tools needed to do their jobs effectively Source: Jones Lang LaSalle
8 The Future Office their iwork concept. Sun has developed a system whereby work places (whether that be the office, home, café), technology, support and best practices are combined to increase worker productivity, decrease overheads and reducing commuting time. Sun estimates that the system can save them US$50 million per year in operating expenses. A slightly different system has been set up by Regus and Servecorp, serviced office operators. Both companies offer a drop in service whereby workers can work at their serviced offices anytime on a fee per visit, or annual charge, basis. This has assisted companies with large sales forces to utilise working space outside the core office. At present, the ABS estimate that around one million people work from home. Most of these however own their own business with less than 300,000 working from home because of formal arrangements with their employer. CoreNet Global estimates that by 2010 only 40% of all work will be done in corporate facilities. The remaining work will be done at home (40%), and in other public spaces such as airport lounges (20%). This will have significant ramifications on the amount of floorspace required by organisations, as well as the way in which people will be expected to work. The CBD vs The Suburbs In recent years, suburban office markets, particularly in Melbourne and Sydney have experienced strong demand from corporates. So much so that in some markets, net effective rents are almost the same in the suburbs as they are in the CBD. Does this mean most corporates are rejecting the CBD and inner suburbs in favour of the suburbs? It is likely that this decentralization has been in part driven by cyclical trends. Over the past seven years, domestic growth in the economy has supported businesses that typically locate in the suburbs. Examples include major retailers, construction companies and manufacturers. These companies typically locate in the suburbs for a variety of reasons including a requirement for a lot of car parking and wanting to be close to relevant sites. The CBD and inner suburbs will continue to be the first choice for many corporates in most cities it is still the centre of most transport networks, is the seat of state government, is the main administrative centre and still has the highest status, particularly for national and international firms. Another driver will also be demographic trends. Generation X show a marked preference for living in inner urban areas and this is driven by a desire to live close to where they work. To attract the best and brightest Generation Xers, locating in the outer suburbs would not be a logical strategy for a major corporate. By the recent decision of Shell to relocate their headquarters in Melbourne from the CBD to the inner city suburb of Richmond. Shell wanted to achieve a different working environment and felt that relocating to a new building allowed them to achieve this. Given their previous location and staff demographics an inner city suburb was chosen as the optimal location. Other companies face the same issue. Several hightech groups have found themselves with legacy sites in the outer suburbs. Often the buildings and fitout are old and the location does not easily reconcile with the modern image of the corporations. As the locations are not easily access and the workspace does not meet employees expectations. Location and access are becoming increasingly important. Generation X are rebelling against long commutes and seek to live close to work. Generation Y s environmental concerns make a location that is well serviced by good public transport preferable to one that requires a long commute by car. This bodes well for the vitality of CBD locations, as well as suburban locations well serviced by public transport and amenities.)
The Future Office 9 HOW WILL WE WORK? Technology Technology advances continue to influence the way people work and this has obvious implications for property. Already laptop computers, mobile phones and wireless technology have meant that people are more mobile and they can work from just about anywhere. The benefits of technology are only just becoming apparent in some organisations, although much of the technology has been around for some time. One of the difficulties has been that changes in technology also means changes to the way people work and development is less fast-paced than that of the technology. Give a Boomer a laptop computer and you risk it being permanently located on their desk, in the same way a desktop computer is. Generation Y however are more likely to pick up the computer and work from home, another office, another desk or even in a café. The different ways that each generation uses technology extends beyond laptops. With ready access to video-conferencing, webcasting, PDAs and mobile phones with MMS, the technology savvy Generation Y can have intermittent contact with their colleagues without ever going into the office. Having grown up with technology they are more comfortable with using it. This presents a difficulty in instilling into these employees the organisation s culture and values. As the number of Boomers in the workforce declines over time, it is likely that the benefits of technology will become more apparent. The workforce will become more mobile and within the office, people will become more adept at moving around within the building, i.e. hot desking. Technology advancement will have a significant impact on the requirement organisations have for their real estate. It will mean people will be able to work anywhere at anytime, not just in the office, and hence occupancy costs will be reduced. Office buildings will require additional investment in infrastructure such as wireless technology while companies will need to ensure that their employees are equipped with the latest technology. Office/open plan Open plan has been winning the argument against enclosed offices in most organisations for some time now. The benefits of an open plan environment include: Greater interaction between staff; More cost effective workplace design, including lower workspace ratios;
10 The Future Office Less hierarchy in organisations; Discouraging division of labour. Typically, arguments against open plan tend to focus on noisy disruptions from other workers, as well as the need for privacy. There has been recognition of the requirement for both public and private spaces in the office footprint. With advancements in technology, it will be easier to move from one area to another. A key challenge will be ensuring that open plan is designed appropriately. Ensuring areas of the business that require quiet are situated away from those that benefit more from constant interaction with each other is essential. The space must also take into account the importance that Baby Boomers place on the office as a status symbol, combined with the difference in work styles. National Australia Bank has found that since the move to their new offices at Docklands, email useage has been reduced. The move to open plan has ensured that people interact rather than relying on email. Although most organisations now embrace open plan, there has been some swing back to providing offices, particularly for more senior positions in organisations. Professional services companies such as Accenture and Ernst & Young now provide offices to more senior members of staff but these offices have the ability to become multi-functional. The way of the future may not be purely open plan office but a mixture of both open space and offices a configuration that works for each individual organisation. Hot desking Although the idea of hot desking (and associated methods including hotelling and motelling) has been around for some time, it has still not been widely adopted by most companies. The idea originated because at any point in time, an average of 60% of workstations are unoccupied. By implementing hot desking it is hoped that this proportion is reduced substantially and the ratio of workplaces is reduced from 1:1 people to desks to 1.5:1. It is likely that hot desking will not be suitable for all staff members. Many office roles do not require people to move around a lot and hence a designated desk would make sense. For those that are frequently in meetings, on the road and in the office less frequently, hot desking is suitable. In most cases, those types of roles that involve significant time out of the office (e.g., sales force, financial planners, residential valuers) generally do not require a designated desk. Hot desking will become easier with continued improvements in technology. If employees can easily pick up their computers without the hassles of undoing several cables and going through the usual shutting down process of a regular computer, they will be more prepared to move around. Already many organisations have a simple two cable structure to laptops making it easier to move. Demographic change will also play a role - with Generation Y in particular more likely to use the technology to facilitate mobility. Humans are territorial and this is likely to be one of the main factors that prevent some people from hot desking. Again, the ability to accept change being more apparent in younger generations is likely to drive the acceptance of hot desking. If hot desking is implemented in an organisation, the most obvious benefit is that workspace ratios are reduced the extent to which this happens depends on the type of organisation, as well as the success of the hot desking procedure. The success of implementing it will depend on the booking process for desks and meeting rooms. The management of facilities also becomes important and personal storage must be provided. There will be little success in implementing hot desking without significant investment in technology. WHAT WILL WE WORK IN? Traditional office The vast majority of the workforce is housed in traditional office buildings. The sheer size of this stock, location and critical mass of buildings will ensure that the traditional CBD office building will remain relevant. As such, corporates will be restricted to a degree on the choices they will have around location and style of office environment. However, a
The Future Office 11 high percentage of CBD traditional office buildings are ageing and do not meet the requirements of today s organisations. In Sydney the average age of CBD buildings is 28, in Melbourne it is 31 and in Brisbane it is 25. Major changes will have to occur to existing stock to bring it up to the expectations of corporates. This will include: Continued refurbishment to match tenant expectations; Implementing sustainability principles into buildings to match community and tenant expectations; Adjustment to buildings to comply with the disabilities act; Upgrading of security in line with government and community expectations; Improve power and telecommunications infrastructure to take into account bigger capacity requirements by tenants and new developments such as wireless technology. Existing buildings will be driven by the need to accommodate a more flexible workforce in a structure that is not designed to be overly flexible. Improved technology, such as wireless technology, can allow more flexibility in a fixed environment. A recent example where a building has undergone significant refurbishment to reposition its offering against new buildings in the market is 15 William Street, Melbourne. A key outcome of the refurbishment was the high energy rating that was obtained for the building bringing it in line with more recent developments. plates, coupled with greater vertical integration through the use of stairs and voids are seen as an effective way to promote greater flexibility, allow teams to expand and contract without the requirement for a re-stack of multiple floors. Their ability to create situations where staff interact more is considered beneficial to promoting company values and cross fertilisation of business and ideas. It also boosts morale, reduces absenteeism and improves efficiencies. National Australia Bank moved into their new facility at Docklands in 2004. N@D (National at Docklands) was designed by James Grose (Bligh Voller Nield) to be a place for a truly collaborative working day and to operate as a community. According to media reports, National Australia Bank has already calculated some benefits. Intra-staff emails have been reduced and early post-occupancy surveys show 80% of staff feeling engaged, which compares to a world average of 22%. Campus Style Developments There has been marked shift by some large tenants away from tower buildings to campus style developments. Recent examples in Sydney are Optus committing to North Ryde and Lend Lease at The Bond. In Melbourne National Australia Bank has relocated to a purpose built campus facility in the Docklands and AXA has just announced their intention to relocate to a new development with 5,500 sqm floor plates, also in the Docklands. This is being driven by a desire in large organisations to promote informal interaction between employees and create a community workplace. Larger floor
12 The Future Office Initiatives such as hot desking, ensuring employees are mobile enough to work outside of the workplace, the move to open plan and smaller technology such as flat screens all lead to a long term decline in workspace ratios. At the same time there has been a recognition that an open plan, flexible environment needs to be supported with a higher level of facilities such as meeting rooms and quiet spaces. As more people share the same desk, the additional space required to make an alternative workplace work effectively also rises. It is generally thought that a decline in workspace ratios will occur because people are squashed into workplaces. In reality, this is unlikely to occur. Workplaces in a traditional office where everyone has a dedicated desk generally become uncomfortable when workplace ratios dip below 15 sqm per person. To achieve ratios of 15 sqm and below, the initiatives outlined above would need to be implemented. Space requirements There are two factors that contribute to workspace ratios. The first is structural change and this includes a move to open plan office space and hot desking. The second is cyclical change, where space requirements change according to economic cycles. The first type of change is widely acknowledged firms are becoming more efficient with their office spaces over time. The second type is less well documented but is evident in most Australian office market cycles. When times are good, firms will typically respond by taking more space than is immediately necessary in anticipation of future hires. This pushes up workspace ratios. When times are not so buoyant, firms will typically use up this space and not take any additional space. In this respect, workspace ratios become cyclical. Overall, there is no doubt however that workspace ratios are set to reduce further over time. FACING THE WORKPLACE CHALLENGE Attracting and retaining staff With the lowest unemployment rate in years, the competition for top talent is tough. It is also expensive. Remuneration specialists estimate that it costs 2 ½ to 3 times a person s salary to replace them, which does not include the intellectual capital that also walks out the door Traditionally HR has been seen as responsible for retaining staff by ensuring appropriate remuneration, relevant career plans and opportunities for more flexible working arrangements are available. Real Estate has not been viewed as crucial to attracting and retaining staff, however increasingly there is a role to play. An attractive working environment that affords employees flexibility, easy access, quality infrastructure and the social interaction they need can be a key criteria for job selection and retention. Increasingly employers are using their workspace to make a statement of the culture of the organisations and to act as a differentiator for both clients and employees.
The Future Office 13 Handling an intergenerational workforce Similarly to attracting and retaining staff, handling an intergenerational workforce has also been viewed primarily as an HR responsibility. In many companies, a range of initiatives have been developed to attract and retain valuable older members of staff by offering them training programs, ensuring they are not passed over for promotion because of fewer tertiary qualifications and offering them flexible hours. Again, Real Estate can play a role. Considerations for Real Estate are: Location of staff and segmenting different generations with different working styles; Technology support with laptops only given to mobile workers and not just senior staff who do not work outside of the office; Offering Boomers career breaks to achieve work life balance; Offering flexible work hours to staff with young families such as Generation X; and Offering staff flexible long service leave. Combining Human Resources/IT/Real Estate When planning for demographic and generational change in the workplace, there is a strong role for HR, IT and Real Estate to work together. CoreNet refer to this as IRIS (Integrated Resource and Infrastructure Solutions). By doing this, organisations will have more success in handling an intergenerational workforce, retaining and attracting staff and making sure that the workplace runs more efficiently and smoothly in the future. It will be the role of Human Resources to put in place policies and flexible employment contracts to cater for the different generations. IT will be required to connect all employees including those in the office everyday, part time workers, home office workers and those who want to work anywhere at anytime. Real Estate will have the task of providing space that attracts all staff, allows promotion of the culture and values of the organisation and incorporates the many different and varied ways of working. Michael Joroff is senior lecturer at the Massachusetts Institute of Technology s School of Architecture and Planning. He believes that in 20 years, corporate real estate as a separate function will no longer exist but will be replaced by strategy groups dealing with HR, organisational development, physical places and IT. As yet, this is yet to occur formally in organisations but there is no doubt that all parts would have played a role in companies that have moved to campus style developments such as National Australia Bank and Lend Lease. DEALING WITH CHANGE How might a company deal with generational change from a real estate perspective? As a simple illustrative example, consider Company X. Company X is a financial services firm with a staff of 120 people. Over the past five years, the company has experienced rapid growth, increasing staff from 20 people to the current level. At present, the company is located in the outer south-eastern suburbs of Melbourne, in the same premises it has been in for the past eight years. To accommodate growth, the company has used a mixture of taking more space in the ageing office building that they occupy, as well as reducing workspace ratios significantly. The workplace, which is located over two floors, consists of enclosed offices along all outside windows, with open plan in the centre of the building. Company X do not think that their existing space conveys the type of image they want to portray to their customers. In addition, they are finding it difficult to attract younger staff. They would like to develop a more modern workplace but do not want to alienate their more senior staff, who are happy with the work environment many live close to the office and like having their own offices. Car parking is also an issue around a quarter of all staff frequently have to visit clients and need convenient parking. After detailed discussions with senior management, human resources and IT, the following characteristics of Company X were found: Most of the senior staff are in the sales team and they occupy the offices. They are frequently out of the office and most of the offices are empty at any given time. Most senior staff live close to the office. Staff satisfaction surveys amongst junior staff are low. The average time spent at the firm by younger staff members is eleven months. Most junior staff do not live locally and all drive to work.
14 The Future Office Many of the senior members of staff have laptops but they are generally not taken out of the office. Based on these discussions, Company X decided to move to a smaller workplace closer to the CBD. The following action items were decided upon: All sales staff would be provided with a laptop and associated technology to ensure that they could work away from the office. A small number of desks would be set aside so that the sales staff could drop in when required. As the sales staff would be dropping in only occasionally, the large amount of car parking in the old facility was no longer required. The car park requirement was reduced from 80 car parks to 10 car parks It was found that the only benefits of locating in the outer suburbs were being close to the homes of senior members of staff, as well as having cheap car parking. As most of the senior members of staff were in the sales team and now working off site, the benefit of being close to them was no longer significant. Similarly, the car parking requirement was reduced. It was decided that to attract and retain younger staff, a more central location was appropriate. Open plan would be implemented for all staff to ensure a less hierarchical structure. Quiet rooms would be provided. Overall, the space savings through an open plan configuration and reductions in carparking costs were off-set by the higher rental costs associated with an inner suburban location. Nevertheless the company found that they achieved substantial real bottom line financial benefits from the relocation due to a sustained reduction in staff turnover. Once implemented they found that staff turnover, which had been running at around 25% per annum decreased to around 20%, still quite high but a significant improvement. Not only did the company benefit from a more stable workforce but they avoided substantial hiring and training costs. This resulted in a real saving substantially outweighing the increased occupancy costs. At Jones Lang LaSalle we have found that additional costs of a more attractive building or location, even if quite significant can be more than off-set by the savings from a minor reduction in staff turnover. For example, for an average company with 15sqm of space per person and an average staff replacement cost of $75,000 per person, a 1 percentage point reduction in staff turnover, from say 25% to 24% per annum can produce savings equivalent to a $50 per sqm in the rental costs. This perhaps surprising finding suggests that a company can afford to spend an average of $50 per sqm more on rent if it believes that as a result there will be even a minor one percentage point reduction in staff attrition. Alternatively it could afford an additional $350/ sqm in fit out costs (assuming a fitout life of seven years and before discouting) to achieve the same improvement in staff retention. The lack of a co-ordinated approach between Real Estate and HR, is highlighted by accommodation costs often being considered separately from HR costs. The equation often disregards the benefits in savings on hiring because they are not seen as related to the costs of real estate. Thus a real estate executive who is charged solely with delivering real estate cost savings may ignore the benefits which a higher rental or more expensive fitout can have on reducing the total company costs through increased productivity or reduced staff turnover. The importance of adopting a whole of company perspective in such decisions is vital if the company is to derive maximum benefit from its real estate.
The Future Office 15 ANZ Case Study Making your life choices work 27% of ANZ s workforce is 45 and over. ANZ were also aware that 50% of retirees kept working in either a part time capacity or as self employed but more often not with the company they had retired from. The total cost of replacing staff of experienced staff can be 2-3 times the replacement cost, plus there is the loss of corporate experience. To meet this challenge ANZ has launched the career extension programme entitled to provide flexibility for workers to remain with the Bank and recognise that Experience Counts. The programme is designed to give choices to employees to extend their full time career with the Bank or continue working with more flexibility to achieve their desired life balance. The programme centres around 3 choices: Rejuvenate Provides flexible leave options additional unpaid annual each year (lifestyle leave) double long service leave at half pay the ability to take an extended break and return to the workforce. Rebalance More flexible working hours through job sharing telecommuting working on specific assignments at mutually agreed hours from home flexible work arrangements allowing part-time or full-time work on a cyclical, seasonal or other flexible basis for a fixed or continuous period. Reshape Designed to allow a gradual approach to retirement reducing work commitments as a project winds down take a position with less high pressure demands take a position with a greater emphasis on knowledge and experience sharing. The programme has the endorsement of the CEO John McFarlane and is supported by career advice through specialised seminars and access to People Capital consultants, dedicated websites and financial planning advice all designed to help employees achieve the desired work/life balance and extend their careers. CONCLUSION Changing demographics are already impacting upon the workplace however this is going to become more pronounced over the next decade. In ensuring corporates can retain and attract staff, they need quality advice around the demographic characteristics of the workplace. In handling this change, HR has traditionally been the major player however Real Estate and IT also play a vital role in providing a complete solution to this complex issue. With the different ways each generation works, the location of the workplace and how the workplace is designed are important in ensuring that a company can reduce staff turnover and attract top talent. In choosing the most appropriate location for an office, and the corresponding design, it is not enough for real estate to do this in isolation. HR and IT need to be included in the decision making process to ensure that the office will result in increased staff satisfaction and that the technology used will be appropriate for employees. Generational differences are only one aspect that differentiates working styles. Within each generation there are of course differences in behaviour that depend upon such things as personality types, socioeconomic background and income. Differences in the types of industries that people work in can also significantly influence the workplace and where offices are located. Understanding the most appropriate workplace for a company requires a detailed understanding of the types of people that work in that company, as well as the type of people it wants to attract. When this is done, the future office will be a place that truly fosters a collaborative working environment.
16 The Future Office ABOUT THE AUTHORS Nerida Conisbee Nerida joined Jones Lang LaSalle in early 2004 as Head of Research for Victoria. She has 10 years property research experience and has consulted to most major property developers, owners and managers over this time. She is now involved in comprehensive market monitoring, applied research and consultancy, covering all major commercial markets in Victoria. She also participates in broader geographical projects for clients as part of the Australian, Asia Pacific and Global research teams. Nerida is a member of Generation X and is trying desperately to front load her career. Michael Greene Michael joined Jones Lang LaSalle in 1990 and is now National Director Corporate Solutions in Melbourne. Michael s role is to develop strategic direction and to develop high level occupancy strategies for key clients of Jones Lang LaSalle, coordinate the implementation process and to negotiate large and complex transactions including build to suit developments. Despite being a Generation Xer, Michael exhibits some Boomer characteristics in the workplace including his long tenure at Jones Lang LaSalle. Graham Coutts Graham Coutts heads the firm s Strategic Consulting team and has over 25 years experience in development consulting and corporate strategy work in Australia and Asia. His focus is on the alignment of real estate strategies with overall business goals and the role that the workplace plays in enabling organisations to meet their business objectives. Graham has a first class honours degree from Cambridge University, mastering in Geography and is currently undertaking the Executive Year of the AGSM MBA program. Although chronologically a baby boomer Graham embraces new technology with the enthusiasm of a Gen Y and has long since given up any aspirations for a corner office.
ABOUT JONES LANG LASALLE Jones Lang LaSalle is the world s leading real estate services and money management firm, operating across more than 100 markets around the globe. The company provides comprehensive integrated expertise, including management services, implementation services and investment management services on a local, regional and global level to owners, occupiers and investors. Jones Lang LaSalle is also the industry leader in property and corporate facility management services, with a portfolio of over 843 million square feet (79 million square meters) under management worldwide. LaSalle Investment Management, the company s investment management business, is one of the world s largest and most diverse real estate money management firms, with approximately US$26 billion of assets under management. Jones Lang LaSalle has over 45 years of experience in Asia Pacific. With over 8,800 employees operating in 28 markets across the Asia Pacific region, the company s team of experts is uniquely qualified to give the quality advice needed for making quality real estate decisions. Today s increasingly complex markets challenge the decisionmaker. Your success depends on the quality of your decisions. As the global leader in real estate services and money management, Jones Lang LaSalle is uniquely qualified to give the quality advice needed for making quality decisions. Innovative solutions and the world s leading intelligence put clients in the best position to make the right decisions.
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