Tag: office space

Behind Sandton’s empty offices

By Alistair Anderson for Financial Mail

It’s 4pm on a Thursday, and 10 people are kicking a ball around a football pitch in the business hub of Sandton. It’s not this that is unusual; it’s that they’re doing it on the roof of their building — the R4bn, 87,000m² Discovery head office.

1 Discovery Place is something of a wonder. More than 5,000 people work in the financial services group’s head office. Other than the rooftop football pitch (and running track), its state-of-the-art features include a gym, restaurants, bicycle storage facilities, and a parking system that directs drivers to vacant bays. It’s said to be so expansive that a Boeing 737 could be suspended in the west atrium of the building without touching sides.

But the development of buildings such as this — arguably the most advanced office space in Africa — belies the parlous state of commercial property in Sandton.

The business node is home to many of SA’s large corporates, including FirstRand, Investec, Growthpoint Properties and Sasol, as well as multinational law firms such as Hogan Lovells, Bowmans, ENSafrica and DLA Piper.

 


It’s the most highly valued commercial hub in Africa — an “office city” that attracts commuting professionals. But it’s currently experiencing its worst office vacancy level in more than 20 years.

Will Harris, the CEO of commercial real-estate software and data services provider Gmaven, says 21.8% or 455,837m² of the total rentable 2-million square metres of Sandton office space is standing empty.

That’s about three times the 7%-8% level that analysts consider to be healthy, and almost double the 11% national vacancy estimate of the SA Property Owners Association (Sapoa).

The exact figure for Sandton office space varies, depending on who is collecting the data. Sapoa’s latest office report, released at the end of December, puts it at 18.6%, while global property services group Jones Lang LaSalle (JLL) has it at 16.8%.

The variance is a frustration for those in the sector, says Harris, given that “data is the oil that the commercial real estate industry runs on”. In part, it’s a result of how those collecting the data define Sandton and the vacancy factor.

Gmaven is the only one to explain its demarcation of Sandton (see map): the polygon that includes Sandton Central, Parkmore, Morningside, Barlow Park, Simba, Atholl, Wierda Valley, Chislehurston and Sandhurst. By the company’s measure, this 510ha area contains 282 office properties.

In turn, it defines vacancy as office space that is either vacant at present, or will be available in the next three months. (This corresponds with the minimum industry average of three months to finalise a lease agreement.)

Based on these measures, Harris concludes that one-fifth of Sandton office space is standing empty — and that excludes an additional 1,980m² that he says will become available three months from now.

The office market is going through changes as companies are starting to require less space per employee
But while the exact figures vary, there’s general agreement that office vacancies are on the rise.

JLL SA research analyst Omphile Ramokhoase, for example, points to a rise “from a low of 9.9% in 2016 to 16.8% at the close of 2018”.

Experts also agree that the vacancy rate in Sandton outpaces that of comparable commercial nodes. Sapoa, for example, puts the vacancy rate (as a percentage of the area available for leasing) at 11.8% for the Cape Town CBD and 9.5% for Umhlanga Ridge in KwaZulu-Natal.

The problem stems from weak economic growth and a glut of developments, coupled with corporate consolidation and competition from new commercial nodes.

In many ways, the property sector is a barometer for the health of the economy. So, given stagnant growth, it’s hardly surprising that Sandton’s office vacancy level is north of 20%. In fact, the last time vacancy levels were this high was in the late 1990s, when interest rates were around 24.5% and GDP growth was weak (SA’s economy grew at just 0.5% in 1998).

SA’s economic boom in the mid-2000s prompted large property groups such as Growthpoint and Zenprop to plan an assortment of developments in Sandton. By the time the 2008/2009 global financial crisis hit, it was too late for developers to pull the plug — so a large supply came on stream in the late 2000s.

This lag between real estate planning and actual development means the reality of SA’s stagnating economy is evident in rental numbers, if not in the number of new building developments coming on stream. Besides, says Growthpoint CEO Norbert Sasse, many landlords and developers have created buildings in Sandton with a 10-to 20-year view in mind.

According to JLL SA’s analysis, there was 984,000m² of premium-grade (P-grade) office space (rented and vacant) in Sandton by the end of 2018 — up 34% from 2017. And the expansion is not over yet. Ramokhoase puts the office development pipeline for the node at an additional 100,000m².

The result, she says, has been slower aggregate rental growth — though P-grade office space has proved more resilient, with an average vacancy rate of 6.4% in the fourth quarter of 2018.

Corporate consolidation has also had an effect. Discovery, for example, left five buildings vacant when it moved into its single head office early last year.

Similarly, law firm Bowmans and Old Mutual moved into larger single buildings, leaving vacant space behind. And the new companies taking up office space in Sandton have not grown to a size where they can command significant office space.

Then there’s the issue of competition. Experts say Sandton is under pressure from new nodes such as Midrand’s Waterfall City, and smaller nodes such as Rosebank, which have less traffic and cater better for pedestrians.

What it means
The last time vacancy levels were this high was in the late 1990s, when interest rates were at about 24.5% and GDP growth was weak

At the premium level, average rental in Sandton is holding its own at R225/m², according to Gmaven. This is lower than Rosebank’s P-grade average of R238/m², but higher than that of Cape Town’s business nodes, which are at R209/m² for Claremont and R182/m² for the CBD.

But at the lower levels, Sandton’s rentals are mostly down. A-grade office space is an average R145/m², against R181/m² in Rosebank, R148/m² in the Cape Town CBD and R169/m² in Claremont. By the square metre, B-grade office space is an average R123 in Sandton against R134 in Rosebank, R108 in the Cape Town CBD and R140 in Claremont.

Harris says investors and developers are keeping a keen eye on Sandton, because it’s a commercial hub — and that’s unlikely to change in the immediate future.

Some developers are already confident that office vacancies will ease in the next few years, as economic growth picks up again. This explains the number of new residential developments in the pipeline, including high-end development The Leonardo, and Acsiopolis, a 20-storey luxury apartment building in Benmore. Legacy Group, which has developed The Leonardo, says a large number of office workers have bought luxury apartments in the skyscraper.

But until such time as there’s an improvement, Keillen Ndlovu, head of listed property at Stanlib, advises that landlords need to be bolder and more creative with space they cannot fill.

“Unless we see good economic growth, it will take time to let most of the office buildings,” he says. “We believe that some opportunities exist for conversion into residential, self-storage, co-working and flexible office workspace. The office market is going through changes as companies are starting to require less space per employee, and hot-desking and/or ability to work from home will pick up over time.”

One of the buildings Discovery vacated when it consolidated — 155 West Street — is being repositioned to take advantage of this changing world of work. Its owner, Redefine Properties, has let 10,000m² to flexible workspace provider WeWork on a 15-year lease that starts in September.

It’s the second such deal for WeWork, which has also set up office space in Rosebank.

Studies show people who work in co-working spaces are on balance more satisfied, better performers and find more meaning in their work than those working in traditional offices.

What’s so special about co-working?

Linda Trim, Director at FutureSpace, says: “Co-working spaces attract diverse groups of people such as entrepreneurs, remote workers, independent professionals and people from large companies who work together in communal setting.

“This seems to be create a special alchemy of contentment.”

Trim cites a study in the Harvard Business Review by researchers Garrett, Bacevice and Spreitzer which found that people working at co-working spaces were not just more satisfied and productive than those in regular offices, but were also much more engaged in shaping their and their company’s future.

“But perhaps the most important factor that the research uncovered was that these people where thriving at work because they saw their work as more meaningful that those in regular offices.”

Why are there such differences?

Firstly, unlike a traditional office, co-working spaces consist of members who work for a range of different companies, ventures, and projects. “Because there is little direct competition or internal politics, they don’t feel they have to put on a work persona to fit in,” Trim noted. “Working amongst people doing different kinds of work can also make one’s own work identity stronger.”

Secondly, meaning may come from working in a culture where it is the norm to help each other out, and there are many opportunities to do so. The variety of workers in the space means that coworkers have unique skill sets that they can provide to other community members.

Meaning may also be derived from the essence of co-working coworking: community, collaboration and learning. “It’s not simply the case that a person is going to work; they’re also part of a global social movement,” Trim added. Co-workers often say that having a community to work in helps them create structures and discipline that motivates them.

Thirdly, they also have more job control. Co-working spaces are normally accessible 24/7. People can decide whether to put in a long day when they have a deadline or want to show progress, or can decide to take a long break in the middle of the day to go to the gym. Said Trim: “They can choose whether they want to work in a quiet space so they can focus, or in a more collaborative space with shared tables where interaction is easier.”

Even though the co-working movement has its origins among freelancers, entrepreneurs, and the tech industry, it’s increasingly relevant for a broader range of people and organisations.

“In fact, co-working can become part of your company’s strategy, and it can help your people and your business thrive. An increasing number of companies are incorporating co-working into their business strategies,” Trim concludes.

Make your office better in 2019

If looking around your office at motivational posters from 1988, psyche-ward green walls and rows of people slumped at rows of desks makes you want to run screaming for the exits, don’t worry, help is at hand.

Isla Galloway-Gaul, MD of Inspiration Office, says that despite so much evidence of the massive productivity and health benefits of more relaxed, people friendly spaces, many offices in South Africa are still quite dreary.

“But the good news is that it takes very little to make an office a much happier place to be. It’s a good time for business to use the new year as an opportunity to make offices charming to the eye rather than just utilitarian workplaces.”

Here’s how:

1. Make it feel like home

“There has been a huge movement toward the ‘home away from home’ style of office design called resi-mercial, a combination of residential and commercial design inspiration,“ Galloway-Gaul noted.

Employees need a work space that is separate from home but that doesn’t mean work can’t be comfortable and welcoming. Soft seating, coffee tables, bar height tables, kitchens, TVs all help to make people feel they are in a friendly place with familiar facilities.

2. Open the seating plan

We are all familiar now with the world’s biggest tech firms like Google, Amazon and Cisco Systems showing off all the super hip things they do for their employees. “Luckily you don’t need billions of dollars to break out of the work place mould,” said Galloway-Gaul. The lower cost concept of coworking brings an open seating plan and office structure that encourages cross-pollination of ideas, employees, and events in larger buildings. Instead of the same employees seeing each other every day, coworking spaces allow them to mingle with employees from other companies and used shared resources like gyms, canteens and conference rooms that smaller companies couldn’t afford alone.

3. More…. oxygen…please!

Trees, plants, and all things green not only bring some much needed vibrancy to normally bland, dull cubicles, but they bridge that gap between indoor and outdoor. “Plants not only look good and increase productivity they improve air quality and improve wellbeing. They also meet our human tendency to want to connect with nature, known as biophilia,” added Galloway-Gaul.

4. Embrace downtime

Bosses develop nervous ticks when you tell them employees need downtime during the work day. But they do. It’s good for their brains to take a break and relax.

If you can’t afford a water slide and a paintball hangar in the cafeteria, keep it simple. Said Galloway-Gaul: “Put a video game console in the break room or an old pinball machine in the lobby. Schedule theme days. It’s important to have fun with it.”

5. Hire a cutting edge architect – or plan B

A cutting edge architect comes from Sweden, wears black framed glasses for effect, sports a honey-coloured beard and wears a plaid shirt – and charges by the minute. But plan B can be effective too. Even a few quirky adjustments to the seating arrangement, furniture and lighting can make the work-space feel cool and unique in a way that excites employees to come in each day. It also fosters creativity.

6. Mix things up

While number 6 is not strictly an office improvement, it’s certainly a working life improvement. “While not everyone has the freedom to work at home, everyone should be given the opportunity, at least on occasion. The relaxation and freedom it offers suits many people. And it makes the office look a little bit fresher on your return,” said Galloway-Gaul.

7. Party like it’s 2999!

After hours parties and opportunities to relax and unwind are important to developing a creative, inclusive environment where everyone feels comfortable. “It’s also important for people to get to know their colleagues in a more sociable setting,” Galloway-Gaul concludes.

The office you choose for your business has a direct impact on your employees, your clients, and of course your bottom line. But getting this incredibly important decision wrong could mean devastating consequences.

Linda Trim, director at workplace design specialists Giant Leap, says that picking the ideal work environment is a complex, time-consuming process.

“But if you can avoid these six common mistakes, there’s a good chance that your next office will deliver the commercial benefits you’re looking for.”

1. Forgetting about future expansion
All business owners have their sights set on growth. But all too often, they choose their office space based on their current business needs.
Says Trim:” It’s important to think about the future when leasing an office. If you’re signing a medium or long-term deal, your options could be very limited if your business grows but your space is inflexible. You might end up having to lease a second office, which is not usually a cost-effective way to do business, and can undermine team cohesion and culture.”

2. Not thoroughly checking the condition of the office
It’s not enough to simply walk around an office and quickly assess its condition. You need to check everything carefully. And you need to ask a lot of questions.
Will needed repairs be carried out before you move in? Are there sufficient power outlets? Is the office wired for data? Are all areas of the office space heated and air-conditioned?
“Only when you’ve carried out a thorough inspection should you consider signing a lease,” Trim advises.

3. Underestimating the importance of design
Some business owners think that, as long as the space is big enough, any old office will do. But studies actually prove that well designed spaces help increase productivity and creativity.
“If you want to take your employees to be happy, it’s critical that you look for offices that were thoughtfully designed to engage modern workers,” says Trim. Good design for example includes good lighting, ergonomically friendly furniture and tailor made areas for different work functions.

4. Making leasing decisions based on price alone
Every business owner wants the best possible office deal they can find.
But cheaper doesn’t always mean better. “And, in many cases, choosing the least expensive option can end up costing you a lot more over the long run—particularly when you think about the impact a less-than-ideal office can have on employee engagement,” Trim warns.
“When choosing an office, there are many factors to consider: how close the space is to public transportation, the image of the building, the safety of a neighbourhood, the availability of nearby top talent, what amenities like gyms are available, and more. Overlook any of them and you may end up regretting your decision.”

5. Thinking only about desk space
Very few businesses these days keep their employees tied to their desks all day.
Productive teams get opportunities to relax in leisure or communal areas. And group working is usually more effective in breakout areas—away from desks.
Says Trim: “Consider how your business operates and how your employees go about their daily duties. While desk space is important, there are other open areas that your business will probably need for meetings, collaboration, and inspiration. And they will need quiet areas too for focused work.”

6. Not negotiating terms
Landlords and leasing agents often know when someone doesn’t have much experience in business. Some of them tend to quote artificially high prices at first. Others initially withhold special incentives and inducements.
“If you don’t haggle over the price or ask questions about incentives, odds are you won’t be offered the best deal possible. Go into the process with knowledge of the local office rental market and don’t be afraid to push back a bit,” Trim concludes.

Move over co-working: pro-working is here

Think of pro-working as co-working’s mature older sibling – one who is better dressed and much more sophisticated.

Linda Trim, director at FutureSpace, says, “Pro-working is rapidly growing in popularity with professionals and businesses worldwide that want a shared workspace that meets their polished image.”

She adds that pro-working has introduced a new kind of shared work spaced that is more advanced than co-working and which focuses more on services than just the space, much like a five star hotel.

“There is now a clear and growing distinction now between co-working spaces which tend to cater to freelancers, and pro-working offices which offer a more formal, luxurious environment with facilities to match.”

In the past few years, many long-established and professional businesses became conscious of the benefits that sharing a work-space has to offer: reduced cost office space; collaboration; networking; and exchanging skills and knowledge.

“The problem they faced was that many locations on the market just didn’t fit with their identity. They were utilitarian and geared towards freelancers as well as more informal startups and lacked services like the latest technology and formal spaces in which to meet clients.

“They were hip and often grungy and clearly not the best fit for professionals who want their workspace to match their image – and not be distributed by endless games of ping pong,” Trim notes.

But now that companies and consultants operating on a more traditional structure are learning about the benefits of sharing workspace with like-minded businesses, the market is looking to accommodate their needs.
As much as pro-working is a play on co-working, it has evolved from a typical serviced office set up, but with the added element of the best boutique hotel hospitality such as concierge services, personal assistants and access to gyms.

Says Trim: “In addition, the pro-working offering is inspired by the community spirit that co-working has brought to modern office life. Pro-working aims to allow formal businesses to create communities with compatible professionals.

“Co-working made this transition effortless for lone workers and small companies who depended on flexible work options. And now pro-working is doing the same for the professional set.”

Trim also notes that one of the key workplace trends today is to really invest in your people and make sure they are happy and able to produce their best work, which is why the shared market is such a hit the world over.

“Pro-working places are particularly appealing for companies that want to expand because the offices are ‘on-demand’ – there is no need for lengthy procurement processes or FICA (Financial Intelligence Centre Act) requirements,” says Trim. “They also offer extreme flexibility in that the office space is there for as short or long a time as you want it.”

FutureSpace offices in Katherine Street and Rivonia Road in Sandton host many of South Africa’s most successful companies, as well as international start ups that needed to quickly get up and running.

Such is the demand, FutureSpace plans to open several new offices in 2019.

The pod — a small, free-standing box or space that is typically soundproof and designed to fit just one or two people — is taking over offices in South Africa according one of the country’s biggest office space and furniture consultancies.

And there is good reason for the rise in its popularity.

Isla Galloway-Gaul, MD of Inspiration Office, says: “Privacy pods that allow you to meet or talk on the phone without others overhearing, or work in complete silence, have been installed in many offices ranging from start ups to large companies with thousands of employees.

“We have experienced rising demand for pods over the past few years and expect them to become increasingly popular in offices in South Africa.”

One of the biggest reasons for companies installing pods in their public spaces is people’s need for silence and privacy.

“We all need periods of silence, especially at work,” says Galloway-Gaul. “Working and commuting in busy urban environments is putting a lot of noise and busyness pressure on our lifestyles.”

People around the world tend to spend increasing numbers of hours at work compared to decades past, and because of the rise of open plan offices we need the option to go somewhere quiet and carry on working.

“While many people like open plan offices, others find in makes for a more difficult work environment by creating more stress, reducing productivity and lowering job satisfaction. Most people struggle with concentration anyway, even without interruptions and elevated noise levels,” she adds.

Privacy pods are an ideal solution and easily installed.

“They do away with the need to build entirely new private rooms, can be added and removed according to need and as they are small, can be slotted in without making much change to the overall offices space or aesthetic. They are also much more cost effective and far less disruptive than making wholesale changes to an office,” says Galloway-Gaul. “Companies can still have uncluttered open offices and accommodate those who need quiet.”

Another reason behind the rise of the pod?

“An increased focus on wellness,” says Galloway-Gaul. “There are a lot of introverts in the world that need a place to go to think and recharge,” she says. “And even those who aren’t, may want a few moments of peace every so often.”

Productivity is another factor.

Pods make it more convenient for people to work more, thereby increasing productivity. Productivity in the workplace is vital to support an efficient business and enhance the bottom line, but it is apparent that a lot of employees feel that they are sometimes restricted by the environment around them.

Says Galloway-Gaul: “Organisations must create as much choice as possible to enable employees to vary noise levels to meet their needs depending on what they’re working on.

“There is a growing demand for pods around the world. It’s a growth area and one that could be a disrupter to how companies plan their spaces.”

Yet another struggling retailer is trying to shore up foot traffic with a unique in-store experience. Staples is offering customers cooperative working spaces and is finding some success with the endeavor.

Staples’ new offering, called Workbar, resembles a tech-heavy upstart in the wake of WeWork’s success in office space sharing. Seven-year-old WeWork’s valuation has skyrocketed to an estimated $20 billion recently after it secured some $300 million in investments from SoftBank Group Corp. (See also: Behind WeWork’s Billion Dollar Valuation.)

The Framingham, Mass.-based Staples is banking on a hip vibe at Workbar – with young workers at their laptops sipping gourmet coffee amid funky art – to offset soft demand and revive its brand. At its first co-working space in Boston, where Staples opened its first location in September, there’s a putting green, skylights and happy hours.

“If you go to most people on the street and ask about Staples they’d go, ‘Oh yeah, the office-products superstore,’” Staples’ new CEO Shira Goodman told Bloomberg. “But the reality is that’s very far from where we are today, and even farther from where we want to be.” Goodman said she expects Staples’ online sales to be 80% of the retailer’s overall sales by 2020.

Staples, with $18 billion in annual revenue after years of declines, recently said it plans to close 70 stores in the U.S. and Canada to reduce costs amid declining sales. Fourth-quarter sales fell 7% from the year prior.
The company closed 13 stores during the quarter and ended the year with 1,255 stores in the U.S. and 304 stores in Canada.

The office supply retailer is also planning to launch a new marketing campaign that will underscore its role as a partner to businesses, including with its co-working space. Monthly memberships to Workbar cost $130. More than 200 people have signed on since its debut in September.

Staples stock is down 23.3% the past year, and down 6% year to date. Staples tried to buy Office Depot in 2015, but that proposal was not approved by regulators.

By Rebecca McClay for www.investopedia.com

Despite the well worn office mantra of group work being central to success, businesses often struggle to offer effective collaborative spaces. This is according to Inspiration Office, an Africa-wide office space and furniture consultancy.

Says Richard Andrews, MD of Inspiration Office: “Historically, most collaboration in South Africa has occurred through formal, scheduled meetings having many participants.

“As a result, organisations have had years of experience building conference rooms and other formal meeting spaces. These spaces were designed to facilitate large group work processes, efficient client exchanges of information and decision making.”

Andrews notes that the need for innovation, improved productivity and particularly speedy decision making are the principal drivers behind the charge towards collaborative, less structured workspaces.

“This is especially true when you consider 70% of great, innovative ideas at work come from people collaborating,” he says. “The search for competitive advantage through innovation and effective decision-making has led many organisations to highly value group-oriented work and workspaces.”

Today’s collaborative spaces fall short of expectations, driven by a lack of spaces to support the most valued types of collaboration, and a lack of adaptability of both furnishings and technology within the spaces.

“While the most highly prized collaborations are informal in nature, they need to be supported with the right design characteristics such as convenient location, support for social and small group work interactions, and casual look and feel.”

Most organisations consider the social component of work separate from “work” spaces. To foster social interaction, some copy the obvious characteristics of successful public spaces (the café, bar, market, lounge) mistakenly hoping that the variety of social interactions occurring in the public versions of these spaces will translate to a business setting.

However, organisations have few insights into supporting innovation other than to encourage as much interaction as possible and “wait for the magic to happen”. Organisations know their group spaces are under-performing, but do not know how to respond.

Andrews says that while the trend to establish comfortable, informal collaborative spaces within offices has taken hold in Europe and particularly in the US over the past few years, and to some degree in South Africa, he expects the trend to accelerate here in 2017.

“The economy is sluggish and adding a collaborative space in an unused office area means you can enhance office facilities without taking on extra spaces and bumping up the rent or spending a lot on expensive office reconfiguration.

“Another advantage is because these spaces typically consist of things like screened off areas, perch tables with high stools, booths with comfortable ottomans and chairs, they are easy to move to a new office.”

Andrews says that the types of collaborative spaces offered continue to evolve- the most rapidly growing categories support brainstorming, small unplanned meetings, videoconferencing and project team work.

“In the future, most collaborative spaces will offer features that facilitate connection to technology, sharing of visual information, adaptability to changing work process and amenities such as food, beverages and daylight,” he concludes.

Staples has announced a new way to make better use of its cavernous stores at a time of shrinking shopper traffic: turning some of that square-footage into office space.

The office supplies giant said that it was collaborating with office-sharing startup Workbar to open communal workspace at three of its stores in metro Boston in a pilot. Workbar runs a network of locations with desks and conference rooms that subscribers can use for a monthly fee.

Each of the 2 500 to 3 500 square-foot Workbar facilities will have workspaces, conference rooms, private phone rooms, and wifi access. The average US Staples location is 20 000 square feet in size.

The move is just the latest by big box retailers looking to find new uses for all their store space at a time more shopping is moving online.

For instance, Macy’s has shops run by sports apparel retailer Finish Line and is testing out a similar idea with electronics retailer Best Buy. Sears has rented out parts of stores to everyone from Whole Foods Market to Dick’s Sporting Goods.

Staples is struggling with a declining retail business. It said last month it would close 50 of its 1,607 North American stores this year, after shutting 242 others in the two previous years. Staples is also trying to convince the government to let it buy Office Depot to fend off growing competition in the office supplies area from Amazon.com.

It recently re-named its business services division Staples Business Advantage from Staples Advantage to prop up that part of its business, which in contrast to the retail division, is growing.

Business services now generate 40% of company sales, compared to 35% in 2013. What’s more, Staples’ North American B2B unit is far more profitable and looks set to surpass the retail division in the next year or two.

Many of Staples’ stores have much more space than they need, now that people are buying more and more office items online.

By Phil Wahba for www.fortune.com

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My Office News Ⓒ 2017 - Designed by A Collective


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