Offices or Happy Work Spaces? Disruption in the Real Estate World - Part 2

It's an age of experimentation which allows for disruption. No set rules for how you live, work and play. Ownership is passe - shared is in (almost) - and it even applies to spaces that we thought we had control over. Applying this theorem to workplaces; from cabins and cubicles; to an open work station format; to team benches - the office is evolving. Coffee bar, snooze room, recreation and relax zone, kids pen and many such concepts have moved from being a novelty to a regular feature in large format offices. Innovation is guiding design and prospective employees are making decisions on where they will work and where not despite high unemployment. The new generation is more sure of its capabilities and there is a growing shift away from making lots of money to more in life.

Richard Branson recently announced a work as you please policy allowing his employees to take holidays at will and in return give their best on the days they are working. Such examples are showcasing the extent to which organizations are willing to go to to retain trained employees and get the best out of them. How is that going to impact the way offices are built in India?

Well, if the work environment needs to bring in a fun environment then the decision cannot be driven by bums per square foot seated - which is the case at high cost locations. Mumbai ranks No. 3 in the world for the highest office rents and probably somewhere there for the worst office quality in general. If employers had they ability; they would double deck employees to average out the high costs. But that is changing, If studies are any indication of the truth in the market; then there is a gradual increase in office vacancies happening all over the Country. The national average is about 30% and that's a scary number when one factors in the millions of unfinished square feet waiting to be clad and put on offer. Apart from a few sectors high rents sought in the CBD and SBD locations of this Country are not conducive to running a business. The low cost advantage that India once enjoyed in terms of land and labour is history. We have over inflated our own worth and become globally uncompetitive and that's probably why our real worth has been corrected down 50% in terms of the currencies of measure.

Economics is forcing organizations to down size offices or shift the middle and lower bulk to more economic back room locations. As a result transportation, time and productivity parameters of an employee are being impacted. It's a different matter that many of the office complexes built in remote zones are at wrong locations; the bigger worry is that they have been built wrong too. Then, to top it, to make up for the high cost elements included by the developers to make these swank campuses the rents are off the mark too even though they are less than half of what one would see in CBD and SBD of Metros and T1 cities. In a way, with the aid of technology; its easier to work from home to cut down cost of living and improve quality of life. But in a city like Mumbai where 2 to 3 generations of a family are packed in less than a 1000 ft2 of real and fictitious area - that too is not much of an option.

Gated work-stay campuses are on the rise but that is great for new age sectors. Old world structures cannot easily adapt to such set ups. Ask any developer and he will blame the Government, Goons Global woes and God for the high cost of creating and selling a foot square. His Greed is never a factor. Each time the Government increases the Floor Space Index or FSI (area allowed to be constructed on a ft2 of land) to drive down the overall cost of land; the cost actually goes up because the prevailing land rate is multiplied by the new higher FSI. Redevelopment and regeneration of areas were supposedly planned to usher in lower prices and more open spaces have actually done the reverse as well. Ultimately there will be a situation where the Developer and or his investors will have to go near bald with heavy haircuts to sell or let the spaces not wanting to see a deserted edifice. Private Equity operators believe that REITs are the only hope left to bring in better construction standards and decent rates as the very nature of how a REIT is run depends on these two factors. I disagree as I think that the chain is as strong as its weakest link and REIT's will be run by more or less the same guys who created a mess in the first place.

If it could happen in New York and London - it will happen in Mumbai too. Someday, employees will sing the "Happy" song at happy workplaces because the problem now is an opportunity for a major disruption - and the seed for it must be germinating in some brilliant minds as I write this blog.