Embracing the ‘phygital’

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This article was published 24/08/2023 (1084 days ago), so information in it may no longer be current.

What if the office had an artificial intelligence chatbot answering questions about the building’s efficiency?

How about a workplace with Circadian lighting, where the light changes throughout the day to keep people focused — would that keep staff around?

Offices must embrace the “phygital,” where physical and digital spaces intertwine, in order to stay relevant, a new report by Deloitte Canada suggests.

Digital services may be a new, key form of revenue for building owners in a post-pandemic era which sees more workers at home and employers downsizing their office rentals, the report continues.

“Office vacancy continues to be a challenge,” said Marco Macagnano, Deloitte Canada’s digital real estate leader. “There’s (been) a serious change in appetite for commercial real estate.”

There’s been a “flight to quality,” states one employee of CBRE Winnipeg, a commercial real estate services and investment company.

Downtown Winnipeg’s office vacancy rate is 17 per cent. The rate jumps to 19.6 per cent when focusing on Class C offices, which are the least modern structures.

Across Winnipeg, office vacancy is 14.9 per cent, as per latest CBRE data. Suburban vacancy, at 9.7 per cent, lowers the overall total.

“(We wanted) to see if landlords are investing in the things that tenants want to pay for or feel that they would want to have,” said Macagnano.

Deloitte surveyed 100 Canadian commercial real estate owners and tenants — a 50-50 split — and found roughly half the tenant sample wanted more flexible lease terms and would ask for rental concessions. Surveyed tenants and owners had revenues of at least $50 million.

Just over half the tenant respondents — 56 per cent — showed interest in paying landlords to monitor renewable energy or water usage. Half said they’d pay for occupancy analytics to help them make the best use of their space.

Tenants also expressed wanting digitalized and personalized services, the Deloitte report states.

“We know we want to get more efficient, we know we want to streamline our costs,” Macagnano said. “All of these requirements mean there’s going to need to be a more serious approach to managing systems and information and data.”

One way: offering systems, like occupancy detection or temperature control linked to apps, to tenants through a subscription model.

“(Landlords) could supplement that shrinkage of footprint with services that would make the tenants’ day to day more profitable,” Macagnano noted.

Digitizing the office could also attract and retain businesses, and decrease energy consumption, Macagnano said.

“Everything we do in our home and work lives is being completely transformed by digital innovation,” said Adrian Schulz, a Manitoba Real Estate Association board member. “It’s nearing a point where if you don’t go along for the ride, you’ll be left in the dust.”

The property manager foresees a “premium model” where landlords provide limited access to a service, like a smart thermostat, and tenants pay extra for the bells and whistles.

However, such models don’t last forever, Schulz said.

“Eventually (the technology) becomes a norm that you just have to provide if you want to get tenants,” he said, adding there doesn’t seem to be an end to new technologies.

Winnipeg is home to office towers that adjust lighting based on natural light — like 220 Portage — and “destination dispatch” elevators which have specific routes to save energy, noted Paul Kornelsen, vice-president and managing director of CBRE Winnipeg.

New and retrofitted offices, labelled Class A, consistently have the lowest vacancy rates. However, vacancy in Class C structures downtown has increased four per cent over the last year, Kornelsen said.

“The lower quality buildings are starting to suffer,” he stated.

Tenants care about air quality monitoring, water efficiency and other behind-the-scenes features, Kornelsen said.

“Where we can use technology to give us real time answers and (the) ability to adapt and improve, those are the buildings that are having success,” he said, adding the “flight to quality” will continue.

Building owners constantly look for improvements in productivity and efficiency, said Tom Thiessen, Building Owners and Managers Association Manitoba’s executive director.

They’re adding “smart” features, and also full kitchens with chefs, recreation spaces and gyms, he added.

“If a physical office space contributes to those goals of productivity, efficiency and culture-building… then frankly businesses are going to be more inclined to inhabit office spaces post-pandemic,” Thiessen wrote in an email.

Many owners who’ve adopted green building and smart building certifications have “done well” in tenant retention. Some tenants have taken free rent periods and allowances to renovate their spaces as incentives to stay, Thiessen continued.

He called some of the Deloitte statistics “unimpressive.” Half of the tenant respondents didn’t say they’d pay for occupancy analytics, he noted.

Many organizations have mandates to meet environmental savings goals and will likely emphasize energy efficient offices, said Loren Remillard, president of the Winnipeg Chamber of Commerce.

“Your physical office is more than just the space that employees work,” he stated. “It’s a physical statement of your corporate values.”

gabrielle.piche@winnipegfreepress.com