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Are we thinking outside the building?

Sodexo's Integrator team is helping clients to work safely and effectively under Covid-19 restrictions. However, every organisation will have to deal with the impact of behavioural change and cost challenges that will have a far greater effect on the next normal. Mike Stephens, business analysis director, Integrator, Sodexo UK & Ireland explains.

Mike Stephens

Above: Mike Stephens, business analysis director, Integrator

Many are predicting that a significant number of socio-economic norms will change for good following Covid-19 - an impending ‘structural break’ from the past - a shift in the way we live our lives and how economies operate. “Structural breaks render obsolete many existing patterns of behaviour, yet they point the way forward for some companies and at times even for whole economies”, (R P Rumelt 2020, McKinsey & Company). Such a break will mean hard times; debt, recession, austerity, difficult decisions and inevitable change.


stages graph

So, at a time when most organisations see Stage 1 behind them and are planning to enter Stage 2, do you have the capacity and availability of data to plan for Stage 3 as well? Inevitably it will arrive. Even if your best planning suggests that home working will return to 2019 levels, it’s inevitable that costs savings will be sought.

Stages 1 and 2 can be managed and navigated through extra effort and goodwill, but each stage will only be successfully navigated through widespread data modelling. What becomes Business as Usual must be evidence/data based for auditing purposes.

A recent McKinsey report states “Thanks to the richness of available behavioural data, select real estate leaders will use analytics to generate fact-based insights on local epidemiological and economic scenarios, what is happening to competitive assets around a property, and the impact of the crisis on individual tenants. These perspectives can inform highly targeted decisions, rather than a one-action-fits-all-tenants approach”.

Now is the time for a real estate and property strategy – not a revised portfolio plan but a robust diagnosis of the challenge and a single aligned position on an overall approach. 

Change please
Think about it…. everything will change. Especially as the transitionary period where there is no steady state, may last for years. Expectations of consumers have shifted permanently. The cost of returning to what we knew in 2019 will be seen as retrograde and it will not be countenanced. Any capital investment will be towards removal of technical debt that support overall business cost savings.

So, change will be constant and during that period of uncertainty, despite government missives, we can expect consumer behaviours to impact the demands on all parts of our society, the businesses that service them and then the portfolios that accommodate them. More densely populated properties will be affected more than those less so. Consider these points:

  • Will a consumer that frequented a Shopping Mall be comfortable returning to enjoy the full retail experience?
  • Will a corporate office worker see the benefits of going to the office to be much lower than the risks faced in getting there?
  • Will the corporate worker demand larger but more enclosed workspaces?
  • Will a sports fan want to sit or stand 500mm from another?
  • Will a music fan want to visit a concert where sanitation and food hygiene had always been average/good at best?
  • Will we continue to see a nervousness in people visiting hospitals for non-Covid related appointments?
  • Will a diner want to go to a bar or restaurant without questioning the preparation and service?
  • Will a student like to enter a lecture in a room that other students had just vacated without Personal Protective Equipment (PPE)?
  • Will organisations that deliver services to Justice organisations see their ‘business’ reduce as prisoners are freed to avoid increased transmission rates?

....or might they all choose to continue to do what they have done for the past six weeks and structurally break their behaviours as consumers?

It’s all in the mind, not the building
Way ahead of placing hazard tape on the floor or in lifts and deploying hand sanitiser, the business you provide a property estate for is undergoing a structural break. 

The impact of this behavioural shift (fear and societal obligation) will have far reaching consequences on your Estates Strategy (and Business) that start before the person even considers ‘going back to work’. “More than 75 percent of consumers globally expect the impact of Covid-19 on their routines and finances will be felt for more than two months, and about 50 percent expect the duration to be for more than four months.” say (McKinsey & Company).  

The chart below shows the decline in optimism as time progresses.

chart

The report also describes expected reduction in household incomes and commensurate reductions in discretionary spending with “Most European consumers (including those in Italy, Spain, France, and the United Kingdom), in addition to Korea and Japan, are less optimistic and, as a result, expected to spend less”.

Back in the estate’s world, the workforce presenteeism culture where people felt obliged to be seen in the office, that was prevalent just six weeks ago has now been replaced by a virtual presenteeism, so there will be no motivation to ‘return to work’ in that area. Workplace presenteeism accounted for a proportion of your property utilisation, whereas digital presenteeism is just ‘working from home’.

Will the motivation to return to the workplace be met through physical interaction with colleagues? Not if travelling to work presents a risk. Can that risk be removed by meeting ‘offsite’? Possibly but hey look, that’s just changed your Estates Strategy too.

Apps that track your Covid ‘status’ will also need to be contended with. Your policy might request an employee returns to work, but their app might advise them differently.

The costs of operating your portfolio could be up to 15% of your balance sheet. Seeing no return or value against that cost cannot be masked, but that is only half the point. The way organisations operated workplaces was well established with policies and procedures, risks assessments (and their mitigations) and insurances were understood and managed. Now all those risks and insurances need to be revalued. It might be worth dusting off the Health and Safety at Work Act again and seeing how your obligations as an employer need to be reviewed.

Complexity
This topic gets very complicated very fast. Much of the basic ‘return to work’ thinking in Stage 2 is that there is a 1:1 relationship with building and tenant, not true. How do you deal with another tenant in the building you work from that has a lower return to work standard/threshold than your organisation?

In China intercity travel is restricted and testing/quarantine is enforced. Would such steps be considered travelling from Edinburgh to London for example?

If these considerations affect your employees, they will also affect your customers. Can your business, let alone your Estate Strategy, cope with the impact of all these matters that haven’t even started to address the ways of working once you are in the building.

The concept of ‘work’ has evolved faster in the past two months than at any point in the past two decades. There had been a glacial move towards more flexible use of buildings. However, better designed buildings ensuring higher attraction and retention rates was not a widely adopted approach and only very recently was workplace wellbeing being used to measure and manage workforce productivity levels etc. Any progress on these matters, however slight, needs to be rethought.

OK What's the answer?
As McKinsey states: “In the medium to long term, the changed behaviours forced upon the industry will have likely altered the way consumers and businesses use and interact with real estate. The critical question is which of these changes will stick. Throughout, acting quickly and smartly will help determine the fate of players not only in these challenging times but also as the industry emerges from the current crisis and inevitably reinvents itself.” 

In the perfect storm of cost cutting and new consumer behaviours, CFOs will become frustrated with Estates functions that cannot model how Property costs need to adapt. Investment decisions especially associated with digital first products and services will need to be forensically justified. 

Equally maintaining the trust of employees and your customers will be challenge but must remain a priority. Many organisations will not be able to exploit their data and grapple with all these moving change dynamics. Providing any certainty will need to be based on sound management and modelling of data – especially external trusted data that can be used to map across your business data (People and Productivity) - and lastly your property data. 

About the Author: Mike has been a leader in managing ICT in the Built Environment for over 30 years. More recently he specialises in Property Technology (PropTech) and Property Insight & Intelligence.

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Sodexo’s Property Integrator creates and manages property solutions that improve Quality of Life. We support every stage of our clients property lifecycle – from capital projects through to workplace strategy and everything in between. To find out more about the property integrator please contact our business development team

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References
1 Commercial real estate must do more than merely adapt to coronavirus
2 A global view of how consumer behaviour is changing amid COVID-19
3 Post-lockdown life in Wuhan is a warning to the world

May 12, 2020

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