Friday 29 Mar 2024
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This article first appeared in City & Country, The Edge Malaysia Weekly on May 30, 2022 - June 5, 2022

As the Covid-19 pandemic enters its third year, most companies in Asia-Pacific have shown a clear shift towards embracing real estate strategies that recognise that the virus is here to stay. As flexible working patterns become the new normal, prioritising the development of agile portfolios and real estate strategies is important, according to CBRE’s “Spring 2022 Asia-Pacific Occupier Survey — Crafting the Post-Pandemic Office” report released on May 11.

The survey, which was conducted from March to April this year, suggested that the majority of Asia-Pacific office occupiers are implementing their post-pandemic real estate strategies.

Two main approaches to flexible working were highlighted, namely hybrid working and office-first, with hardly any companies planning to adopt a remote-first method. “The most popular option is hybrid working, selected by nearly 60% of respondents, which involves staff splitting their time between working from the office and home. Around half of the occupiers that adopt hybrid working, however, want their staff to spend most or all of their time at the office, with the remainder expecting an equal mix,” the report said.

One-third of respondents, many of which were Asian companies, plan to retain an office-first approach, whereby employees would need to primarily work from the office. CBRE stated that the majority within this subset will still permit some remote working under certain circumstances, which is defined as “just-in-case hybrid working”.

“In countries like the US and Europe, the Middle East and Africa (EMEA), more companies tend to prefer hybrid working, with the total reaching 70% of respondents in each region. Only 19% and 10% of the US and EMEA respondents respectively opted for office-first working, significantly lower than the rate in Asia-Pacific,” the report said.

According to CBRE, the number of occupiers expecting their staff to work fully from the office increased to 38% in this year’s survey from 26% in the previous year. Assuming the direct adoption of hybrid working and no change in headcount, this indicated a reduction of 10% to 15% in office demand, compared to the slightly larger contraction of 15% to 20% extrapolated from last year’s survey.

These findings align with the recent on-the-ground findings by CBRE’s brokers who have observed only a limited number of leasing deals involving the large-scale reduction of office space. Instances of subleasing and surrender space have also decreased this year and more companies have been relocating to a slightly smaller office while increasing their investment in interior fit-out and upgrading to a high-quality building.

According to CBRE, expectations of office attendance appear to be higher in Asia-Pacific. While 38% of respondents in Asia-Pacific expect their staff to fully work in the office, only 5% or less in the US and EMEA expect the same and about half of the respondents anticipate an equal mix of office and remote-based working.

“Although 92% of companies adopting hybrid working provide employees with formal guidance related to working schedules and eligibility, companies are still tweaking these measures and carefully formulating detailed regulations on where and when staff should be working. As such, some firms continue to rely on heads of business units or line managers to informally agree and monitor working arrangements with their individual teams.

“This is where about half of the respondents allow managers and employees to agree on when they should work in the office; a third mandate a fixed schedule of when staff should work in the office; and another third provide workers the freedom to choose. When more data and information related to hybrid working is available, companies are expected to be in a better position to refine these policies into a more systematic approach,” the report said.

The report also noted that the most prevalent model of flexible working in the post-pandemic era is “guided hybrid working”, which is characterised by both office-based and remote-based work governed by a set of corporate guidelines and policies. This is followed by “just-in-case hybrid working” as the second most popular option, which involves an office-first approach combined with some flexibility to allow remote working when necessary.

Around 10% of companies, mainly Asian firms, intend to retain a pure office approach, whereas a very small minority of 9% plan to pursue an employee-led hybrid, remote-first and pure remote strategy.

CBRE reckoned that there is no one-size-fits-all strategy, even for individual departments or business lines within the same company. While back-office functions may be more suited to working remotely, client-facing roles or business-critical operations are still best undertaken from the office.

“A high degree of divergence is also expected across geographies, depending on the local working culture and availability of a sustainable home environment for work. It is important for companies to evaluate different models and understand how employees wish to work before coming up with a solution,” the report said.

Flexible working and seating

The survey suggested that only 28% of companies retained fixed seating arrangements in 2022, well below the 58% of firms that did so prior to the pandemic, with the adoption of Activity-based Working (ABW) anticipated to gain further momentum in the coming years.

CBRE observed a significant variance in workplace configurations across different industries. While the financial sector will undergo the strongest shift away from fixed seating, companies in this industry will also adopt a policy of targeted mobility to accommodate the specific needs of critical and non-critical functions.

Although ABW will be the norm within the tech sector, the report stated that some companies aim to allocate a certain number of fixed desks for employees in functions such as research and development. Some law firms are also introducing unassigned private offices for confidential work that can be reserved by the staff while companies in the life science sector are mostly pursuing hotdesking as they require the fewest number of fixed desks.

Consequently, companies will be able to increase their employee desk sharing ratio by adopting flexible seating. CBRE pointed out, however, that achieving this will require the introduction of supporting technological and operational solutions as well as obtaining the approval and participation of employees.

“When considering ‘Me’ space, occupiers were divided on whether to increase or reduce workstation size. However, there was a clear consensus in providing more soundproofed spaces, including phone booths, to accommodate meetings and phone calls, the duration of which has increased since the pandemic,” the report said.

As for “We” space, respondents identified collaborative space for unscheduled catch-ups and communal space for socialising as the two types of space for which demand is expected to increase. Larger spaces for formal meetings, meanwhile, are likely to see weaker demand as more meetings adopt a hybrid format involving smaller groups in the office being joined by multiple individuals dialling in from other locations.

CBRE said that occupiers are expected to increase their allocation to “Me/We” space, including designated areas for project teams and smaller meeting rooms. This type of space has sufficient flexibility to also be used as “Me” space when focused work is required in certain locations.

Zooming into the Malaysian office market, CBRE | WTW chairman Foo Gee Jen said that there will be some refining on the workplace elements in balancing both “Me” and “We” space. 

“The survey suggested that most of the respondents in Malaysia are expecting their staff to return to the offices early this year to create a more flexible ambience as well as adding new features such as an onsite café-pantry, and relaxation and wellness areas. Increased flexible and private spaces for individuals were on the top of the list for future office spaces.”

In terms of physical attributes, survey responses indicated a need for flexible office solutions with supporting services provided by landlords. “Reflecting the shift towards hybrid working, flexible and open space that can be easily reconfigured in particular, will be sought-after. Other must-haves include private space for phone calls and online meetings, a flexible or shared office space or provider within the building and good access to public transportation,” the report said.

The report added that it is also necessary for landlords to enhance indoor air quality and incorporate green building features and operations to meet occupiers’ requirements for a healthier working environment. While there is still demand for food and beverage, fitness and concierge facilities, these are now minimum requirements for most large occupiers.

Focusing on wellness and sustainability

About 61% of respondents have implemented measures to improve employee health and wellbeing, with a large number also prioritising resource usage and waste reduction.

While initiatives related to green buildings and leases remain popular, many respondents found it difficult to adopt such measures in their existing properties. “This drives a wave of flight-to-quality to modern, high-quality green buildings, supported by a greater willingness on the part of many leading landlords to agree to green leases with tenants,” the report said.

Although 40% of respondents have already implemented or are planning to implement the use of renewable energy, CBRE said that the adoption varies across the region as it depends on the local electricity grid’s availability. Solar panels were incorporated by some landlords into their buildings, but the energy generated remains small compared with the total overall consumption.

The report noted that more than 20% of occupiers are not considering adopting energy audits, pollution reduction measures or net zero targets. Nonetheless, as more markets set decarbonisation targets and legislate stricter ESG reporting and disclosure, these areas will increase in importance. 

Ultimately, occupiers should develop more comprehensive and holistic ESG programmes to comply with carbon emission and energy efficiency requirements in the medium to longer term.

ESG is also something to look out for in Malaysia, Foo highlighted. “About half of the respondents were interested in ESG that may affect the demand for office spaces in the future. ESG is a long-term proposition, which will require perseverance and persistence, thus a lack of government encouragement in rewards or opportunities will hinder the implementation of ESG. This is where the government’s encouragement must come with proper guidelines and transparent implementation for ESG players.”

Meanwhile, companies in the financial sector are experiencing some difficulties in reaching sustainability goals, especially regarding green buildings, green procurement and pollution. This is due to the large size of many bank portfolios whereby they tend to occupy space in central business districts or older financial districts where green building availability is limited.

“Occupiers in Mainland China had more difficulties implementing these wellness and sustainability initiatives, with about 40% of respondents from this market finding it hard to pursue such objectives. China plans to reach peak carbon emissions by 2030 and become carbon neutral by 2060, lagging behind other countries in the Asia-Pacific such as Australia, South Korea, Japan and Singapore, all of which aim to become carbon neutral by 2050. India’s target for carbon neutrality is 2070,” the report said.

Despite indicating strong demand for ESG-compliant buildings, CBRE said less than 30% of respondents currently house a majority of their portfolio in such properties, a proportion well below that in Europe. Occupiers consider ESG-friendly buildings an essential criterion for a new office. With limited availability being a key factor, there are considerable opportunities for landlords to develop more green buildings to cater to growing demand.

As more ESG-compliant buildings are expected to be completed in the coming years, CBRE said that most occupiers believe they should not have to pay a green premium to relocate such properties. 

“Only 9% of respondents will be willing to relocate to ESG-compliant buildings at a higher rent, a percentage that was even higher among respondents in markets with relatively low ESG-friendly building adoption. Occupiers remain cost cautious as they seek benefits and savings from the more efficient use of energy and utilities in ESG-friendly buildings.”

Gradual return to the office

With the further relaxation of social distancing measures and permitted increases in office capacity, over half of companies have started bringing staff back to the office, either on a full- or part-time basis.

“Companies in Asia-Pacific are finding it less challenging to bring staff back to the office, with over 50% already having seen employees return as at 1Q2022, as compared with about 40% in the EMEA and the US. The pace of the return to office in these regions, however, will pick up in the coming months and is likely to match that in Asia-Pacific by summer time,” the report said.

Mainland China, Taiwan, Japan and South Korea have led the return to office, although several cities in China, most notably Shanghai, saw the introduction of strict lockdowns in early 2Q2022 following an Omicron-driven surge in Covid-19 infections.

“Office attendance in Singapore, India and Australia is anticipated to improve gradually in 2Q2022, with Southeast Asian markets set to follow in the second half of this year. New Zealand and Hong Kong expect an organic return to the office, with the latter already reporting an increase in office attendance following the relaxation of pandemic-related restrictions in early May this year,” the report said, adding that smaller home sizes and extensive mass transit systems in Asia-Pacific have helped support the return to office.

In addition, CBRE said that close collaboration between senior staff and line managers is necessary to create a culture of transparency under which information related to office attendance, infections among employees and cleaning schedules can be disseminated.

“Other steps to attract employees back to the office include providing an enhanced workplace, with next-generation video conference technology and social events. Many occupiers also plan to strengthen Covid-19 protocols such as mask wearing, meeting room capacity and social distancing,” the report said.

Positive office demand outlook

Occupiers are showing more positive sentiment towards the long-term outlook for office demand. About 47% of respondents plan to increase the size of their real estate portfolios over the next three years.

Many companies have scaled back their expectations of space reduction due to the adoption of hybrid working. 

“This is where only 23% of respondents intended to decrease the size of their long-term real estate portfolios, a substantial reduction from 46% in 2020. Many are also using this opportunity to upgrade to better locations and higher-quality buildings. With many Asian companies having completed major expansions in 2021, the recovery of office demand will be driven by multinationals in 2022, with 59% of respondents planning to expand this year,” the report said.

CBRE opined that, however, sentiment among non-Asian companies continues to diverge, with about 30% of firms expecting to continue to pursue a policy of portfolio optimisation over the next three years. 

Meanwhile, expansion for Chinese occupiers is anticipated to moderate following a phase of significant expansion in 2021. Their intention to grow is also affected by the uncertainty under Mainland China’s zero-Covid policy.

The survey showed that respondents expect flex space to account for 17% of overall real estate portfolios by 2024. 

“As the flex space industry continues to evolve to meet occupier requirements, a broader offering including on-demand meeting space and customised private suites will be available. Firms in the tech sector are expected to be the main users of flex space, with business services, finance, retail and life sciences companies also set to include flex components in their portfolios to a far greater extent than ever before,” said CBRE.

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