Virginia Gibson, The University of Reading
Communications and Its Effect on Location, Location, Location --
What is an Office?
The changing dynamics of space, place, and time.

Introduction

The word office evokes a host of different images: buildings, desks, telephones, computers, and people. One of the key issues for those involved in the development, ownership or management of buildings is understanding what are the requirements of an office today. Looking at a standard definition, an office is a room or building in which business, clerical, administrative work is done. However, in today's environment, those activities are likely to be undertaken in a variety of locations and within many different types of property setting. Can a hotel, airport lounge or a home be called an office?

Technology, particularly the development of sophisticated information and telecommunications systems, has been a key driver to this locational flexibility that both workers and organisations now have. Not only has this technology expanded the location choice, it has also had a fundamental impact on the environment within which organisations operate and the way they attempt to compete. To understand the changing dynamics of the demand for business space, you need to step back and attempt to assess the strategic and operational impact of technological change on a business. Only then is it possible to determine the way in which the real estate product and associated services can develop to meet the needs of current and future occupiers.

Technology and Business Change

Organisations are facing a more dynamic and competitive environment. Technological innovation, global competition and the restructuring of political economies are but a few of the factors leading to a more unpredictable competitive environment. Technology has, and continues to be, a key driver in increasing this pace of change.

There are two ways in which the impact of technology on business can be considered. First, technology has been an enabler of new market structures, organisational forms and management practices and secondly there is the direct impact technology has on working practices. Technologies have an impact on the spatial organization of activities on a local, regional and global scale. They also have an impact on the way certain tasks are undertaken and change the nature of activities, replacing some tasks but permitting other, often higher-level, activities to emerge.

Examining first the indirect impacts, technology has brought the world closer together and played a key role in many of the new management initiatives. Corporate restructuring, core business, de-layering, downsizing and new working practices can be seen as a response to wider changes in the organisation of production and distribution. There are many intermingled strands to this debate but certain common themes may be found:

• rapid product innovation and product diversity;
• tailoring of products to niche markets;
• a drive to maximize flexibility and overcome rigid structures;
• greater concern for risk diversification.

These apply at national and regional level and to individual firms. At the level of the corporation, firms have sought greater flexibility. This has been achieved through more flexible use of workers and machines and more flexible arrangements between firms. Organisations have also reduced the amount of capital tied up in inventory (e.g. just in time delivery systems) and helped to break down barriers to capital mobility. Many of these changes are evolutionary in nature. However, the re-organisation of production, coinciding with greater globalisation of business and governmental deregulation, represents a substantial reordering of economic activity.

These changes after the competitive environment for firms. To counter these, management solutions have been sought that draw from a variety of sources which have often been advanced out of management and business schools and popularised by business "gurus". Three main themes emerge: the drive to improve productivity and quality; changes in organisational structure; and evolving labour arrangements.

There have been a number of management developments which focus on the search for ways to improve productivity, reduce costs and gain competitive advantage. The emphasis is placed on the need to move away from a hierarchical, vertically integrated structure to an organisation that is responsive and flexible. The most visible tool to achieve such ends has been business process re-engineering (BPR). Typically, this involves a radical rethinking of corporate structures and a flattening, or de-layering, of the corporate hierarchy, with devolved decision-making. BPR can be linked to the drive to improve the quality of outputs and processes, and hence to total quality management (TQM) and quality circles.

TQM, in turn, links to the idea of the learning organisation: in an environment characterised by change, knowledge must be transferred quickly throughout the organisation. This places prominence on group working and cross-functional teams. Indeed, there is a focus on the need for quasi-autonomous team working, the teams altering in composition to meet changing demand for products and services through their lifecycle. A final common thread is the need for the firm to focus on core competencies and shed other, non-core, functions.

These changes in the structure of firms have implications for the size of firms and employment relationships within organisations. Concentration on core business, flattening the corporate hierarchy, de-layering, downsizing and outsourcing serve to reduce the job security of workers. Firms maximise labour market flexibility by maintaining a smaller core of permanent, full-time staff and drawing on "peripheral" labour when cyclical conditions and the product life cycle determine. Thus labour markets are increasingly characterised by short-term contracts, part-time work, job sharing, sub-contracting and self-employment. Overall, the broad restructuring of the workforce implies a restructuring of the space required by those workers.

But technology has also had a more direct impact on the way in which office space is used. Innovation in both information and communication technology has provided firms with considerable locational flexibility. Firms, and to an extent individuals, can chose where certain activities take place. Workers can operate effectively from a variety of locations described by a melange of terms such as satellite offices, teleworking, telecottages and the virtual office. Home working is yet another manifestation of this trend. All of these ideas are predicated on the availability (and low cost) of digital communications technology, laptop computers, modems and information interchange software.

This locational flexibility enables organisations to make more intensive use of their office space. Staff who are not regularly at their "place of employment" may not need a permanent office, desk or workstation. Hot desking and office hotelling, particularly in sectors where there are high levels of customer contact or off-site work, allow firms to reduce their floorspace per worker ratios and improve productivity levels through real estate related cost reduction.¹ This typifies the emergence of the new ways of working theme.

Potential Impacts on the Demand for Business Space

By mapping out these environmental and management changes, it is clear that there are potentially profound impacts on the demand for business space. For instance, team working, group working and business re-engineering alter the way firms use space. They imply a need for more communal workspace rather than discreet, cellular, offices and the ability to reconfigure space. Concentration on core business, downsizing, de-layering and outsourcing appear to reduce the aggregate space required by large organisations (but may increase the need for smaller space by spun-off service providers). Core and peripheral labour structures imply a need for core and peripheral business space.

In summary therefore, these management changes might lead to the following impacts:

• reduced aggregate demand from intensification of space usage,
• new and rapidly changing functional requirements,
• a shift in locational requirements on a local, regional and global scale;
• the need for less permanent space to accommodate the peripheral workforce,
• a greater emphasis on flexibility both in physical configuration and in leasing or ownership;
• a shifting in responsibility for the management and servicing of space.

This ultimately leads to demand for a more varied product from suppliers of business space, with consequent impacts on pricing and on investment potential.

However, while business reorganisation and new working practices have attracted much attention, the extent and significance of change over the whole economy appears to be muted at present.² Although many organisations claim to have adopted these new management practices, the proportion of staff affected is often comparatively small. Additionally, many "office factory" tasks are not suited to these new approaches, such as team-working, hot desking or home-working, and therefore need to be examined in other ways.

Nevertheless, it is clear that organisations intend to continue to invest in and upgrade their information and communications technology, allowing for a greater proportion of their workforce to be involved in these new management practices. Change has tended to be evolutionary rather than revolutionary but that is not to say that the impact on the demand for business space will be any less intense.

In Search of Flexibility

The theme, which consistently appears in both the economic and management debate, is the search for flexibility. Organisations are seeking ways to adopt new technology and respond to market changes faster than their competitors. Therefore, having a workforce, work processes and an organisational structure that can flex and adapt is seen a critical for future success. Underpinning these Organisation must therefore be a corporate infrastructure which can facilitate and enhance this flexibility,

The impacts of these changes on the demand for business space which are starting to appear include a greater understanding of flexibility by both occupiers and suppliers of space, the emergence of highly flexible space and a recognition that creating a workplace is about more than bricks, mortar and location. Not unsurprisingly, the flexibility theme comes through again.

The issue of occupational flexibility is now recognised multi-dimensional. Not only must an occupier consider the physical aspects, at least as important is the functional and financial flexibility of a property.

Physical flexibility has been articulated in terms of building design including useable areas, modular floorplates, and the ability to change the internal configuration of space. It is recognised that organisations need business space which can physically adapt to the changing business requirements.

However, as outlined above, the activities which take place inside an office are multi-faceted. Space needs to be designed to support the wide range of functions that are now undertaken in an office environment. Team space, meeting areas, free address areas, enclosed offices are all potentially needed within a modem office environment. Another aspect of functional flexibility is the need to have spaces designed and used so that individuals and teams can relocate within the organisation with minimum downtime and cost. The cost of "churn" is often considered to an unnecessary expense if the properties were better designed and managed.

Financial flexibility has only recently been considered. In the UK where the standard institutional lease was the norm until recently, occupiers argued that financial flexibility was only possible through freehold ownership. More recently, major corporate occupiers appear to have found financial flexibility through the emergence of the serviced office sector. Although the cost of occupation may be high, the financial flexibility, that is the ability to use the space on a very short- term basis or exit quickly, is seen as a priority for some activities and therefore worth the expense.

The other emerging point is an understanding of when and what type of flexibility is required within an organisation's property portfolio as a whole. Adapting the idea of a core-peripheral workforce, a three-tiered approach to examining a corporate property portfolio can be developed to differentiate between the core and periphery property requirement.

At the centre of an organisation's requirements would be the core portfolio. This could include facilities which are considered strategically located (manufacturing facilities), landmark buildings which embody the history and culture of the organisation (headquarters buildings) and space relating specifically to the organisations source of competitive advantage (research and development facilities). These are the buildings the organisation would be willing to invest in but also want a high degree of control to adapt them as the organisation changes. In ownership terms they are likely to want to own these facilities on a freehold or long lease hold basis. The key flexibility issue would relate to functional flexibility, the ability to change the use of the building, and by implication some physical flexibility.

The first level of periphery property is that where numerical flexibility is required. As the demand for products or services fluctuates over the business cycle, the organisation will want to be able to service that demand in times of boom but to reduce the costs in times of recession. The key issue here is having some functional flexibility in order to allow for marginal growth within the building but more importantly the ability to exit the financial contract at particular points in time.

The second level of periphery portfolio relates to the requirement organisations have for very short-term space. Speed of entry and exit are paramount and therefore financial flexibility is the most important. There are two types of space which appear to fall into this category. First, specialist spaces like training facilities which are used infrequently throughout the year by the organisation. This demand is met through a range of properties like hotels, conference centres and universities. Secondly, there is a growing need for generic office space to house overflow activities on a short- term basis or entry into new markets prior to establishing a more permanent presents. This demand is being met by the serviced office providers who are able to facilitate total flexibility both in terms of space and services.

But there is yet another dimension to the flexibility debate. When an organisation occupies property there are numerous servicing requirements which need to be put into place, such as maintenance, facilities and office management. One of the issues as we move into the periphery layers of the portfolio is the degree that physical, functional and financial flexibility may be impeded by the need to also set up and establish these management services. Therefore the two periphery layers within the portfolio imply that, as well as space, services are also being provided by the "property provider" or are being outsourced to another partner.

This brings us to the basic changing nature of the demand for business space. Occupiers are increasingly realizing that providing, managing and servicing business space is not part of their core business. What they would like is a provider who recognises that creating a workplace concerns not only the occupancy resources (land buildings, interiors and alternative workplaces) but also the connectivity resources (public and private communications networks, local area networks, individual communication and information technology tools). These physical resources are then surrounded by the facilities and management services necessary to create an efficient and effective working environment.

The Future

Does the axiom location, location, location still hold? The basic need for space and place will not disappear but we are seeing greater diversity in the wants of occupiers. Location is but one facet of the equation. Creating a working environment is concerns no only the physical infrastructure, but also the management services to keep those resources operating.

The rise in technology has changed the focus of attention in many occupiers. Communications and connectivity resources are becoming more expensive that the real estate that houses them. Those on the supply side of the industry have to consider the way in which they can best repackage their product in order to meet these ever changing challenges. Location and buildings is not enough. Developing new products which combine space, technology infrastructure and service may be the only way to provide an added value platform.

Virginia Gibson,
BT Property Research Fellow & Senior Lecturer in Land Management,
Department of Land Management & Development
The University of Reading

¹ The presumption that total costs will fall is not borne out. There is evidence that, in many instances, the reduction in real estate costs are outweighed by the increasing IT and communications costs.

² Based on a study funded by the RICS. See Gibson and Lizieri (1998 & 1999) for full results.

Selected Bibliography

Becker, F and Steele F, Workplace by Design, Jossey-Bass Ltd. San Francisco, CA, 1995.

Davis, Stan and Meyer, Christopher, Blur: The Speed of Change in Connected Economy, Capstone Publishing Limited, 1998.

Duffy, F., The Responsive Office: People and Change, Streatley-on-Thames: Steelcase/Polymath, 1990

Gibson, V. & Lizieri, C. New Business Practices and the Corporate Real Estate Portfolio -- How responsive is the UK property market? Journal of Property Research, 16:3, 201-218, 1999.

Gibson, V. & Lizieri, C. Business Reorganisation and Working Practices - Trends and Real Estate Implications, Research Paper, Right Space Right Price, London, RICS Books. 1998

Harris Research Centre, Tomorrow's Workplace, Richard Ellis, London. 1994.

Harris, R., Less a Castle More a Condominium: Taking a look at the office of the future, Gerald Eve Research, London, 1996

Horgen, T.H., Joroff, M.L., Porter, W.L. and Schon, D.A, Excellence by Design: Transforming workplace and work practice, Wiley, New York, 1999.