The new world of work at the Google development centre in Munich: The location offers the typical Google mix of efficient work environment, elegant design and a multitude of amenities for employees.
Christian Rudnik/Google

Open space for open thinking

Start-ups with digital business models are changing the shape of the office market. But established companies – influenced by digitalisation – are also developing innovative office concepts geared to communication. This presents project developers and investors with a number of challenges.

The first thing that staff at Microsoft Germany’s new headquarters in the Schwabing district of Munich do at the beginning of their working day is find a suitable place to work. Anyone who wants to focus undisturbed heads to the Think Space, a quiet room that feels like a library. Anyone who has arranged a brainstorming session with their team to discuss a new project meets in the Share & Discuss Space. The Converse Space is designed for a mix of individual and group work, while the Accomplish Space is best-suited to traditional desk work. Only one thing is missing from the headquarters, which staff moved into in August this year – an assigned desk for every employee.

The German headquarters of the software giant is a prime example of the current revolution in the office market, which is being driven quite decisively by the megatrend of digitalisation. “The way people perceive the office as a place of work is changing,” notes Robert Hlawna, who as Managing Director at Colliers International Corporate Solutions advises companies on finding suitable office solutions. For Hlawna, this means more specifically that the office is becoming a “space for creative solutions”. Stefan Wundrak, Head of European Research at TH Real Estate, has observed a similar trend: “More and more companies are offering their employees desk-sharing models, the option to work from home, and flexible working hours.”

The importance of the digital economy is now such that it exerts a considerable influence on the demand for office space.
Wolfgang Schneider, Head of Research at BNP Paribas Real Estate

The influence of start-ups

One important reason for this trend is the emergence of young, innovative companies that are challenging established firms with their digital business models. Start-ups are no longer an exotic phenomenon on the fringes of the business world. According to an analysis by consulting firm BNP Paribas Real Estate, in 2015 companies operating in the digital economy in the six biggest cities in Germany rented 625,000 square metres of office space, 60 percent more than two years previously. For Wolfgang Schneider, Head of Research at BNP Paribas Real Estate, this analysis shows that “the importance of the digital economy is now such that it exerts a considerable influence on the demand for office space.”

Young companies have very specific ideas about the location and furnishing of their offices. “In keeping with their image, start-ups often look for a creative environment,” says Ken Kuhnke, Member of the Management at property service provider HIH Real Estate. In his experience “locations in trendy districts and spaces in renovated industrial buildings that have been converted into stylish offices” are particularly popular. Typical features in these offices include large meeting places with a lounge atmosphere and a canteen where people can linger. The US internet giants take this approach particularly far. Google, for example, is planning a new headquarters in Silicon Valley which, according to the little information that has been released, is designed to be a massive futuristic campus with flexible offices.

Some elements associated with these solutions can also be found in properties occupied by insurance companies, banks and other established businesses – even state firms like Swiss Post. Its headquarters in the WankdorfCity district of Bern, which opened in 2015 and was developed by the real estate company Swiss Prime Site, has only around 20 individual offices for members of the Executive Management team and other managers. All other staff share desks, which means they have to choose a suitable workplace – perhaps in one of the 100-plus “aquariums”, glass cubicles designed for focused individual work, or maybe in the lounge area or on the piazza, which is perfect for an informal discussion. There is also a quiet room where staff can take power naps.

Technical developments have made concepts like this possible, says Colliers expert Robert Hlawna. Twenty years ago, he explains, there were three reasons to work in an office: that was where you could access technical infrastructure like computers and a landline, that was where the documents were, and that was where you talked to colleagues. “Today, the first two reasons no longer exist,” he says, citing the invention of tablets and smartphones. But this means that communication with colleagues and managers is now all the more important, and offices need to provide the environment to support that. One of the factors motivating well-established major corporations to engage with new office concepts is the need to keep pace in the competition for the best minds from Generation Y – a group that grew up with the internet, tablets and smartphones, is used to flexible ways of working from their university days, and has new perceptions of work and life. 

The real estate industry needs to consider whether every employee will still need a physical work station in future.
Andreas Kleinau, Managing Partner at Combine Consulting

Coworking spaces set for expansion

Any company that tries to force members of this generation into rigid structures with set working hours and an allocated desk is in danger of losing the smartest people to start-ups, which are considered much more attractive. “The key to corporate success lies in the workplace,” concludes Andreas Kleinau, Managing Partner at Combine Consulting, which specialises in modern work environments. “And that’s why decisions about what infrastructure a business should provide are now made right at the top.” The current upheaval is highlighted by the success of coworking spaces. These are office spaces rented by an operator, fully kitted out, and then let to freelancers or project teams in combination with a comprehensive range of services on a long-term or short-term basis.The US start-up WeWork is creating the most waves in the industry. The company, which according to the Wall Street Journal is valued at an incredible $16 billion, opened two coworking spaces in Berlin this year and plans to enter the market in Paris in 2017.

In mid-2016 it had offices in 28 cities in 12 countries.WeWork and its competitors – for example the Israeli start-up Mindspace, which is also enjoying good growth – see themselves more as community managers than office space providers. WeWork consistently refers to its tenants as “members”, and on its website it declares that its mission is “to create a world where people work to make a life, not just a living”. The feeling of being part of a select community has its price, however: a WeWork office for two people in Berlin costs around €1,000 a month – significantly more than what freelancers normally pay for similar shared offices.  A look at WeWork’s space in Paris illustrates the influence coworking providers have in the office letting market: the company has  rented no less than 11,000 square metres of office space in the 9th Arrondissement for 12 years. “We’re taking a good look at the concept of coworking,” says Martin Rodeck, Executive Managing Director Germany at project developer OVG Real Estate. “From a certain critical volume of around 25,000 square metres of office space it can, in certain circumstances, be a good idea to have a coworking provider in the building.”

However, Andreas Schulten, Member of the Board of Directors at consulting firm Bulwiengesa, points out that this approach can turn office buildings into operator-managed real estate whose success depends largely on the quality of the coworking provider. At any rate, he says, WeWork and other providers are actually not so new, but simply “a cool Regus” – the next stage for providers of flexible office solutions, which have already been on the market for a long time.

Desk-sharing and the consequences

These new forms of working are by no means restricted to the coworking concept. “The real estate industry needs to consider whether every employee will really still need a physical work station in future,” says Andreas Kleinau. “Although desk-sharing strikes right at the heart of the German idea of socialisation at work, I think it will become well established.” But Germany is still lagging behind other countries. Silicon Valley is not the only place where companies are more willing to experiment with innovative office ideas. “In Europe,” explains researcher Stefan Wundrak from TH Real Estate, “businesses in the Netherlands, Sweden and Denmark are generally quickest to incorporate new developments.” And it’s worth noting that desk-sharing does not necessarily mean that less office space is needed per staff member. Any savings in classic workspace are normally used to expand communication zones. 

Flexibility is required for new office buildings

In spite of this, investors and project developers cannot avoid dealing with changes in their customers’ requirements. Andreas Kleinau from Combine Consulting points out that, to be fit for the future, office buildings need to be “flexible and convertible – tomorrow’s office must be a place that supports exchange and creative processes.” To achieve this flexibility, OVG project developer Martin Rodeck recommends that new builds have a ceiling height of three metres and a building depth of at least 14.50 metres. “This building depth allows for all kinds of office solutions,” he explains. But many portfolio properties are also flexible enough to meet today’s requirements, adds Norbert Löffler, Head of Property Development Consulting Germany at Bilfinger Real Estate.

Flexibility is also necessary in one other area. Martin Rodeck summarises the challenge: “No company can seriously sign a ten-year lease nowadays because no company can know where it will be by then.” Portfolio holders are all too aware of this issue. “Even in Germany, there’s an occasional move to make a lease more flexible,” says Christoph Schumacher, Member of the Management Board at Union Investment Institutional Property GmbH. “At asset management level we’re therefore working with contractual penalties and incentives. Soft factors such as having a canteen or a campus manager play a role in encouraging tenants to stay longer.”

However, it seems that nothing can stop this trend towards different office solutions, as a look at other countries shows. Rabobank, for example, has redesigned its head office in Utrecht to create “a loft with an open, industrial character”, as described by Zenber Interieur Architectuur, which was commissioned to complete the work.  And at The Edge, an office complex in Amsterdam developed by OVG Real Estate, it was the tenant Deloitte, an audit firm, that encouraged the project developer to achieve the highest level of innovation. The aim, as Peter Bommel, CEO of Deloitte Netherlands, emphasised at the opening ceremony, was to ensure “that the building creates a productive, pleasant working environment”.

So the question is whether we are experiencing a revolution in the office market triggered by digitalisation? It’s more of an evolution, says Andreas Schulten from Bulwiengesa. But there’s no question that the new possibilities offered by modern technology and new requirements of users are challenging the innovative power of the real estate industry. As Martin Rodeck from OVG Real Estate emphasises, “There’s no stopping digitalisation.”

Christoph Schumacher is responsible for the real estate business for institutional investors at Union Investment.
Union Investment/Adele Marschner

„We aim to achieve a good mix”

Christoph Schumacher, Member of the Management Board at Union Investment Institutional Property GmbH, on the new fund Urban Campus Nr. 1 and changes in the office market

Mr. Schumacher, together with Investa you have created the first German institutional fund for campus property. What sets it apart? For Urban Campus Nr. 1 we want to acquire office property with flexible floor space concepts that offer a very urban quality of visitor experience and modern IT infrastructure, and also make the most of sharing and coworking trends. We have our eye on buildings with flexible, living structures that also present an opportunity for smaller tenants. To ensure that tenants are well looked after, we appoint a campus manager – similar to the approach taken by coworking providers like WeWork. We’re not thinking in terms of individual buildings here, but focusing on neighbourhoods. We’re interested in areas with strong development potential close to research facilities or large companies, for example, but also those in unconventional inner-city locations.

In the long term, will flexible working concepts be an important part of the
office market? 
Yes they will. These flexible concepts will represent part of the office market. But although they will clearly be important, our entire portfolio won’t focus solely on this model. Traditional working concepts will always be needed.

Would you consider taking on coworking providers as tenants for your fund properties? We are currently in lively discussion with these providers. However, coworking providers compete with other interested tenants. The conditions must be right for both sides. The same applies to digital start-ups. We hold the capital of our investors in trust and take into account the financial situation of our tenants, which is why we cannot accept every unstable start-up as a tenant. But we aim to achieve a good mix. Campus real estate in particular offers the best conditions for this because it has space for both medium-sized companies and start-ups, which often receive financial support from a university or another business.

The working world is changing radically outside the world of start-ups too. What impact does this have on long-term portfolio holders? We have definitely observed that the work environment is changing, not just in the start-up scene, but also in other areas, for example institutional investment. We need to adapt to the fact that our tenants are using desk-sharing and working-from-home solutions to a greater extent. This means we need to ensure that our properties are flexible enough.

The interview was conducted by Christian Hunziker.


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