Digital disruption – how smartphones, laptops, apps and the Internet have made physical time and place irrelevant – is posed to “profoundly disrupt the way we live, work and shop” and one industry unready to face the future is the real estate industry.
That’s a key finding of a recent Deloitte report titled “Digital Disruption in commercial real estate: catalyst for growth?”
Deloitte finds itself uniquely placed to forecast what’s in store for real estate and business in general as a result of the accelerating digital revolution. It’s currently living it.
The professional services firm is getting ready for a big transformational real estate move of its own, next March moving its spread-out GTA workforce of 3,500 to new digs at the Bay Adelaide Centre East.
So what’s going to be different at Bay Adelaide? “Everything,” said Sheila Botting, a partner and Canadian real estate leader.
The future of office
The professional services firm is more than just the anchor tenant of the east tower. In a unique partnership with Brookfield Office Properties, it has been intimately involved with the launch of the tower, working on the initial design, urban planning and architecture of the project.
“So we won the office lease of the year through the NAIOP REX awards and we won a bunch of other awards,” said Botting.
Deloitte’s plan for its 420,000-square-foot space in the 44-storey, 980,000-sq.-ft. Bay Adelaide East tower is to go fully office-free. That means not even managing general partner Mark Whitmore will get a permanent office in the new space.
“I think Deloitte is a leader in this space in Canada; it is a whole new workplace strategy,” said Botting.
Will use less space in Toronto
Overall, Deloitte will be using less space in Toronto: currently, its GTA employees occupy 510,000 square feet in seven locations across the city, a compression of about 25% in Bay Adelaide.
While the firm is quite diverse with about 45 different businesses, there is a unifying trend.
“When you look back at the office you see we have a 60-to-70% vacancy rate. Our people are not sitting in their chairs processing paper anymore. That is kind of long gone due to technology.”
Deloitte’s solution is to provide every employee with a laptop and free them from the physical need to be tied to a desk.
The workspace of today, private offices, some meeting rooms and common areas, disappears in Deloitte’s future. Instead, the new Toronto space will feature 18 different work environments employees will be able to choose from based on specific requirements
Amenities such as a restaurant, wellness centre and even a training and development arm dubbed Deloitte University should help with retention.
No one-trick pony
Deloitte’s Bay Adelaide experience is just the tip of the office iceberg when it comes to showing what a motivated tenant (and landlord) can do to embrace the opportunities of the digital revolution.
The firm has already carried out similar initiatives in Montreal (Deloitte Tower: 160,000 sq. ft.), and offices in Sherbrooke, St. John’s, Ottawa, Regina, Winnipeg, Calgary, and Langley B.C.
“So literally about 60% to 70% of our portfolio is rolling and that is providing us an opportunity to completely change the way that we work and how we look at our business.”
For other businesses, whether clients of Deloitte or not, the first step to embracing the opportunities digital disruption provides “is just to start the journey,” said Botting.
“You learn as you go in terms of how you can embrace some change. So removing the traditional office environment or the cube farm, embracing alternative office environments I think is the table stakes. Once you start down that journey, (it) opens your eyes to other opportunities.”
From there, she added, organizations can decide whether to provide employees with a dedicated work space or provide “bookable” places to work.
Deloitte, which has been on the path to the digital office of the future for four years, has found ideas like yanking out cube farms and corner offices are no longer seen as too way out for many organizations.
“Today you are seeing many companies embracing this type of transformation. So governments are looking at it, our financial institutions are looking at it, professional firms are embracing this. So I think you are seeing a much wider acceptance and each company is on its own journey and version to discover where their own endpoint could be.”
The gradual abandonment of the “one-seat, one-person” office model has meant dramatic shrinkage of space per employee – from the 500 sq. ft. per person “Mad Men” space of 1970 to 225 sq. ft. in 2010 to a projected 151 sq. ft. in 2017 and down to just 95 sq. ft. not long after that.
What it means for RE
Deloitte has identified the three sectors most affected by the digital revolution: office, retail and industrial.
Retail is facing a shift in power from retailers to consumers with the rise of online retailing and the power of smartphones in the hands of shoppers. Deloitte sees retail as “a technological hotbed of entrepreneurship and innovation in both the storefront locations as well as the back-office environment.”
Botting predicts “a shift in the retail stores themselves and the experience that they offer to their customers.” That shows up in the transformation of regional malls into faux downtowns, complete with high-end restaurants, shopping and entertainment.
“The old adage for real estate plays out here: location, location, location. If you have a great location, it will always be a great location. If you have a secondary location, you can look really carefully at that asset and decide what you would like it to be in the future.”
Warehousing and distribution markets have grown
The rise of omni-channel retailing has meant warehousing and distribution markets have also grown as large retailers are investing in sophisticated technical fulfillment centres.
The shrinking footprint of retail stores has moved the inventory into warehouses where it can be shipped directly to customers. With square foot cost of warehousing cheaper than retail space, retailers are realizing cost savings.
The omni-channel model, technology and process improvements are where most of these savings are being reinvested. “Most organizations are not looking to heavily invest in expanding infrastructure in the near future,” Deloitte stated in its report.
Overall, Deloitte is optimistic real estate can adapt to the challenges of the digital revolution.
“The key to surviving and thriving in this new order is to adapt to these disruptors while maintaining a core vision and developing a flexible approach that can withstand future volatility and drive growth. Real estate should do more to create value and drive operational excellence and growth. Now it can.”