Global corporate real estate trends in 2021
Those participating in the roundtable include:
After one month of 2021, could you discuss the current landscape when it comes to corporate real estate?
JL: The current landscape in corporate real estate across the majority of markets continues to be that of uncertainty – with the pandemic greatly impacting market activity and transactions. In Knight Frank’s Africa Market Pulse Survey, which was conducted at the onset of the pandemic, office landlords indicated that only 20% of office leasing deals were proceeding normally, while a majority (40%) were experiencing delays.
Overall, however, market performance has continued to be influenced by a range of factors beyond COVID-19. These have included low commodity prices in oil dependent economies, currency devaluation, ongoing recession in countries such as South Africa and hyperinflation in markets such as Harare, which are adversely impacting demand and returns. As such, we have noted that approximately 60% of the 28 cities in the prime office market we track have recorded rental declines in the period to Q3 2020.
AG: The social distancing and movement restrictions brought on by COVID-19 interfered with supply chains and services in the UAE and around the world. With many business activities interrupted in H1 2020, the office market came under pressure. Businesses reacted to the sudden change in market conditions and vacancies began to increase, leading to occupiers finding newfound leverage to negotiate. Now, landlords are more commonly offering incentives including deferrals, waivers, increased number of cheques and, in some cases, lower headline rents to existing lessees. Extended rent-free periods, increased CapEx contributions towards fit-out, reductions in notice periods and early break penalties are also becoming more common. Sellers and landlords are expected to realign asking prices towards the offer levels of purchasers and occupiers in the near term. Poorer quality assets are likely to experience the largest decrease whereas premium stock will see a more evenly balanced duel between negotiating parties.
However, Dubai’s non-oil private sector continued to show improvement in business conditions as evidenced by an increase from 50.9 in August to 51.5 in September of the seasonally adjusted IHS Markit Dubai Purchasing Managers' Index (PMI). A reading above 50 indicates expansion. The office sector is likewise expected to improve in the quarters ahead as companies return to full capacity in 2021.
RD: The current corporate real estate landscape is challenging owners and occupiers in unimaginable ways. As a result, organisations have a dilemma on their hands. Workplaces are close to empty and there’s too much costly unused office space going to waste: many offices are reporting 50% less desk space as a result of social distancing rules. Despite promising news of an effective vaccine, it is not yet approved, and even when experts predict it may take many months before we can expect social distancing to become a thing of the past. And so occupancy levels will be reduced for sometime.
As a result of strict quarantine measures and lockdowns around the world, organisations have been granted time to take a step back and to assess how they can keep people safe in this pandemic even when it is time to return to the office. Workplace technology exists to help provide comfort and assurances. There are solutions in the market that offer the ability to sense and learn when and where spaces are in use in order to keep them clean and compliant. Occupancy-based data can ensure heads of HR, facilities and corporate real estate (CRE) are aware of individual and collective behaviors, allowing them to make educated decisions on optimising real estate space while reducing the risk of transmission. Technology like this can do everything from provide the usage and cleaning history of a given desk so employees know when it was last used and when it was sanitised ahead of their arrival, to help staff plan their day at work so they are assigned a safe space with the colleagues they need to collaborate with.
How have you seen the industry evolve due to the pandemic?
JL: The pandemic has introduced a new dynamic for all types of occupiers in Africa. Hospitality, student housing and regional shopping centres are some of the sectors that have been negatively impacted so far. The office sector has also recorded reduced demand as a result of the shift toward remote working. While we are unlikely to witness an extreme shift to remote working, we anticipate that flexibility and collaboration are going to prove core values to any organisation going forward.
In the short to medium term, we will probably see a change in office layouts and design, as the overall employee density remains low, and in response to pandemic containment measures across different countries. In the long-run, office premises are likely to be utilised as collaborative spaces, where talent retention and health and wellness for employees will be a key aspect of the new office-as-a-service for corporates.
In a bid to attract and retain tenants, the majority of the landlords are also proving more willing to grant lease concessions and, in some cases, renegotiate existing lease terms.
Overall, In the longer term, we expect the majority of sectors to recover. For instance, sectors that span the entire human life cycle such as agriculture and healthcare continue to be in high demand. Niche differentiation in sectors such as office spaces and residential into grade A will also be critical, while the increasing need for connectivity will lead to high demand for data centres.
AG: Dubai’s office market witnessed a paradigm shift in workplace practices to adapt to social distancing precautions. The widespread deployment of virtual conferencing has helped many companies remain competitive and contactless, especially in the professional services industries. The effectiveness of these tools may vary by company and industry, but some companies will reconsider the need for traditional, or pre-pandemic, office space going forward.
Currently, the market situation has fuelled growth of the technology and digital sectors, underscoring the strategic goals of Smart Dubai 2021. As of Q3 2020, many of the enquiries for office space continue to come from the construction and related sectors while healthcare, beauty and pharma as well as the professional services sectors experienced modest demand compared to previous quarters. The technology sector made up approximately 15% of enquiries, and with the UAE announcing plans to prioritise digital economies post COVID-19, demand is expected to further increase in the future.
RD: There has been much exaggerated talk of the ‘death of the office’. In reality, we have seen a relatively small number of organisations looking to reduce their office footprint, despite the currently low occupancy levels. Instead, they are looking at creative ways to best optimise that space to support the return to work – and real-time data from occupancy based sensors is fuelling and enabling that creative approach to space optimisation.
However, some organisations are now accepting that the home office environment will be a permanent extension of their corporate estate portfolios and have been taking steps to ensure their staff are supported, comfortable and productive for the long-term. One of the key challenges for CRE heads entering 2021 will be to balance blended ‘home and office work’ in such a way that business objectives are met. As such, they are likely to work closely with HR and risk departments as organisations tackle the challenges of infection control along with the health and wellbeing of their people.
What technology and/or approaches have you seen emerge in the industry due to COVID-19, and how do these compare to before the outbreak?
JL: Remote access has been the most prevalent technological shift as a result of the pandemic. Corporate real estate has evolved, such as through the adoption of online management platforms, to aid in client and property management during the pandemic. For instance, in the context of agency, technology adoption has evolved from online listings to virtual reality. As a result of movement restrictions imposed during lockdown, virtual viewings in the majority of markets have surged. Knight Frank Kenya’s website, for example, registered a 47% increase in users over the months of May and June compared to the previous year. Virtual tours have effectively allowed potential tenants and buyers to have realistic ‘walkthrough’ tours of the properties.
We have also witnessed an increased focus on data and analytics in the corporate real estate sector, effectively aiding decision makers to predict market performance and plan accordingly.
While the transformation of real estate technology was already taking place pre-COVID, the pandemic has certainly accelerated this trend, underpinning its importance, and we only expect these trends to continue.
AG: Changes in the way that companies carry out day-to-day operations have been underway for years with disruptive technologies such as virtual viewing and conferencing. However, COVID-19 has fast-tracked the adoption of these technologies as social distancing and remote working have become more prevalent. To facilitate transparent communication amid restrictions and social distancing, various property listing platforms have launched interactive virtual tours of properties without the need to physically visit them.
In terms of new approaches, the Dubai government has introduced a virtual working programme that allows professionals to work overseas while residing in Dubai. On an annual basis, the programme costs AED1,054 plus medical insurance with valid UAE coverage and a processing fee for each person. In addition, the Dubai government recently declared an economic stimulus package of AED500 million, taking the total stimulus extended to AED6.8 billion, to support individuals and businesses in response to the pandemic. Many of these incentives will benefit small and medium-sized enterprises (SMEs) and the likely trend to emerge from this will be represented by the increasing demand for smaller office requirements.
RD: It is looking like the majority of organisations will turn to a hybrid working model to reduce the spread of the virus and accommodate employee and business needs. To this end, two strategies are proving popular:
● The ‘split group’ strategy involves separating employees into different weekly groups to support business continuity in the event that one group becomes infected
● The ‘split desk’ strategy enables the alternating usage of desks between days, creating maximum usage of the space overall and more time for cleaning teams to react to the demand.
Strategies like this require live data to be effective. Programs which monitor occupancy rates will play a central role in enabling the most appropriate measures to be put in place at any one time. Organisations must understand their occupancy threshold for safe practice and to keep track of when that threshold is neared.
When it comes to technology, it can help on all fronts. Employers will keep workplaces hygienic and allay people’s fears if they communicate the right information, at the right time and to the right level of detail – and the most effective way to do this is by providing employees with mobile apps and installing digital signage throughout the workplace. While there will always be a place for static posters, digital platforms allow for the instant and dynamic delivery of messages at the exact point they need to be consumed. Research by Intel has also found that digital signage captures 400% more views than static signage.
Digital signage will encourage employees to adopt and maintain the desired behaviors, including good hygiene and social distancing. But this isn’t limited to flashing messages reminding employees to wash their hands and avoid touching their face, though that is effective. Displaying live data on socially distanced spaces to use, cleaned space availability and cleaning regimes in place will help to guide staff and reduce cross-contamination. Facilities teams can also use the technology to both deliver methodical cleaning practices and reassure occupants by highlighting the preventative infection control measures that they are undertaking.
What are your predictions for the industry in 2021 and beyond?
JL: We anticipate that in the near-term, influences such as global tensions between the US and China, the Government’s abilities to effectively tackle the pandemic, currency changes, cost of capital and the shift to the ‘new normal’ will continue to impact performance in the corporate real estate sector in Africa.
However, in the long term we anticipate that ‘big picture trends’ that existed pre-COVID, will continue to influence the market. These include market resilience, innovation and health and wellness trends. Gardens and outdoor spaces featured at the top of home buyers wish-list in their homes of choice of at least 66% of the respondents in our Global Buyer Survey. Closer to home, we have observed buyer preference towards gated communities or developments that avail open spaces.
RD: The repurposing of office space to facilitate collaboration will be a trend for 2021 because it has been proven that, for many, home working supports individual focussed work but less so for social activities. CRE heads will need to ‘sell’ the office to those who have had a positive home working experience to willingly get them back and maximise attendance. Any office redesign must carefully consider the experiences people have had whilst working at home.
Offices will likely be carved into creative spaces for collaboration, innovation, and will also be a place to simply wind down and socialise. It will be important to ensure that the workforce is made aware of these investments now so they feel confident that they will be kept safe and supported when they return to the office.
Why we need more female CFOs (and how to reach that goal)
The number of women in CFO positions in Fortune 500 companies reached a record high late last year, hitting 90, up from 65 just a few years ago. It’s not surprising given the increased focus in recent years on C-suite and board parity by investors such as Blackrock, as well as other institutions including the Nasdaq, which recently stated that companies listed on its US exchange will need to have a minimum of two non-white or female Board members. And if they do not, they must publicise the reasons as to why.
The picture is similar in the UK. According to Julia van den Bosch Wazen, CFO Practice consultant at Odgers Berndtson, The Financial Conduct Authority in the UK is now looking to the London Stock Exchange listings framework as to whether similar measures ought to be implemented, while for City firms, “there are already ongoing discussions about potentially using wider FCA powers, such as denying regulatory approves to drive diversity on Boards”.
But while there’s certainly been improvement, the under-representation of women in executive finance positions remains less than rosy, with van den Bosch Wazen admitting that “whilst much has been done, we are still of the view that progress is too slow”.
Still too few women make CFO
According to the government-backed Hampton-Alexander Review, of which Odgers Berndtson are active contributors, while women now make up one third of all board positions in the UK’s FTSE 100 companies, up from 12.5% less than a decade ago, there remains a concerning lack of female representation in senior leadership and key executive roles in FTSE companies, with just 15% of finance directors bring women.
“One of the Big Four partners informed me that their annual graduate intake split is around 52% women, 48% men. By the time this age group reaches their early thirties, the number goes down to 34% women,” explains van den Bosch Wazen. “Since many CFOs of listed businesses in the UK take the audit route, before moving into industry, the disparity of diverse talent coming into the market starts early and is not able to catch up later.”
Recent McKinsey research for its Women in the Workplace report for North America backs this up. While research shows that women and men in financial services begin their careers making up roughly equal portions of entry-level staff, once you get higher up the ladder, women account for only 19% (one in five) of positions in the C-suite.
The research suggests that as women advance through their careers, they steadily lose ground to their male peers at every stage, suggesting the pathway to the CFOs office is not as clearly illuminated for female candidates.
Why women make good CFOs
And yet the evidence suggests that when women do make it to CFO, the payoff for organisations is positive. Companies with female CFOs and CEOs prove more profitable than those led by men, with women-led firms generating US$1.8 trillion more in gross profit than the sector average, according to a report by S&P Global.
Furthermore, as van den Bosch Wazen points out, according to McKinsey’s latest Diversity Wins report, companies with more than 30% of women executives are more likely to outperform companies where this percentage ranged from 10-30%.
“The benefits speak for themselves and I’m thrilled that investors are pushing harder for this,” states van den Bosch Wazen. “The more diverse your management team, the more engaged your workforce, and the better your customers are looked after. You are better informed of the world, you tend not to miss trends, making your balance sheet strong and your organisation run more efficiently.”
Cristina Catania, Partner at McKinsey & Company agrees that gender diversity “enriches decision-making and so has a positive impact on companies’ performance and sustainability”, however more specifically, and in the context of the finance function, she points out that studies have found that “women have higher risk aversion than men and that can be a good thing”.
Maggie Xu, Principal of Greater China Financial Services Practice at Oliver Wyman, agrees suggesting research shows that female CFOs are more risk averse and tend to adopt more conservative accounting policies. And for “those companies/industries with higher litigation risk, default risk, systematic risk, or management turnover risk, who are more focused on accounting conservatism, female CFOs may well do a better job”.
Arguing that women are “equally qualified to effectively address current and future challenges and disruptions”, Hanady Khalife, Senior Director of MEA & India for the Institute of Management Accountants further points out that beyond operations, inclusive working cultures where women leaders exist have been known to attract and retain top talent.
“No matter how you look at it, women leaders are good for business and for building more sustainable, self-sufficient and increasingly shockproof businesses, even economies,” asserts Khalife.
In our roundtable, we talk to these four female financial leaders to identify the barriers facing women and discover how organisations and leaders can facilitate their advancement.
International panel discussing women as CFOs
Julia van den Bosch Wazen
Consultant, Odgers Berndtson’s CFO Practice
Principal, Greater China Financial Services Practice, Oliver Wyman
Partner, McKinsey & Company
Senior Director, MEA & India Operations, Institute of Management Accountants
Why are women under-represented in senior financial positions, and the CFO role specifically?
Julia van den Bosch Wazen, Consultant, Odgers Berndtson’s CFO Practice: Women in key financial management roles tend to have a shared set of challenges, such as balancing home/work life, which is overcome by having the right support and an engaged sponsor at work. Sponsors are often men in senior management positions. Men are essential in furthering the development of all strands of diversity in the workplace, and the more informed diversity and inclusion allies there are, the better the company performs. COVID has forced the majority of companies to work from home and highlighted to many employers the dual nature of a working woman’s careers. That said, pre-pandemic, many female CFOs said to me that their life was a constant balancing act of whom to disappoint more – their partners, kids, or friends. Senior women rarely disappoint their employers, just like their male peers.
During the executive search processes we run, Boards will actively seek diversity, though in a risk adverse hiring market, like the one that we are in, many end up choosing proven Board experience over and above stepping up talent. It is widely publicised that there are more men in those roles than there are women, and so the balance is again not restored, further facilitating the lack of Board experienced women.
Cristina Catania, Partner, McKinsey & Company Unfortunately, this under-representation of women in senior roles isn’t exclusive to finance – it’s a similar picture in business management and strategy. But, prior to COVID, concentrated efforts were making some gains. Across all industries, we’ve seen women’s representation in the C-suite increase by 24% since 2015, including some notable appointments in the financial sector, like Jane Fraser at Citi. There is, however, a broken rung at the very bottom of the corporate ladder that is stalling progress.
Our annual Women in the Workplace study of women in North America shows that for every 100 men, just 72 women are promoted and hired to manager. Women get stuck at the entry level and fewer become managers. Not surprisingly, men then end up holding 62% of manager-level positions, while women hold just 38%. The number of women decreases at every subsequent level, so despite improved hiring and promotion rates for women at senior levels, they aren’t able to catch up.
Hanady Khalife, Senior Director, MEA & India Operations, Institute of Management Accountants One would assume this is a problem most prevalent in the Middle East but it is global. A National Bureau of Economic Research study from Denmark found that even at the height of their careers, women tend to spend more time raising children, and so work fewer hours, take longer breaks from full-time employment, and are more likely to move into less demanding jobs with lower growth and less pay.
Other reasons include the pay gap, lack of mentorship and coaching, and aggressive competition by male colleagues, as well as lack of female C-suite role models. When women don’t see role models or potential paths towards executive-level leadership, they are more likely to deselect themselves out of such roles.
Maggie Xu, Principal, Greater China Financial Services Practice, Oliver Wyman In research, we identified four critical barriers for women seeking leadership. Firstly, men and women define effective leadership differently, while women leadership candidates tend to be evaluated by men. This misalignment in key leadership traits between the genders creates obstacles to women rising to leadership roles. In China, although significant increase in the ratio of companies with female executives has been observed during the decade, extensive research indicates that the rate for female CEO remains very low, and CEOs are critical in assessing the performance of CFO candidates.
Secondly, women’s focus or predisposition toward results, along with a dislike of ‘networking for networking’s sake,’ may cause them to miss an important dimension of what ultimately impacts leadership promotion decisions. We also discovered that qualified women are unintentionally left on the sidelines, partly because women are simply not top of mind, and so are less likely to self-advocate and must battle inaccurate assumptions related to their willingness to take on more intense roles.
Also, men and women perceive their readiness for the next role very differently, and most companies do not actively mitigate that bias at play. A woman often won’t apply to a job unless she feels she meets 100% of the described qualifications, while for men, it’s more like 60% and as we all know, raising one’s hand does not necessarily equate with capability.
Finally, research shows women are more likely to have ideas mis-attributed to others, be talked over in meetings, receive vague or unconstructive feedback, and be viewed negatively for visibly demonstrating the same confidence that is valued in male leaders. Many high potential women, weary of bias, exit the talent pipeline, either opting out of the workforce or choosing a different career.
How can organisations and leaders motivate, empower and facilitate women in reaching CFO status?
Julia van den Bosch Wazen Mentorship from senior colleagues is vital in helping women to navigate the mid-point of their career. Our philosophy in the CFO Practice facilitates that same ethos: we want to help advise women early on to help build careers toward the three-stage interview process they will face when stepping up to their first Main Board role. A financial management career for a listed CFO role needs to be built to answer the questions a CEO will pose (do you have commercial and operational P&L experience to be my partner in setting strategic goals); the Audit Chair (will you give me comfort in your technical financial management skills to assure that the business will not have to restate its numbers); and the Chair (do you keep my CEO ‘in check’, and will you let my Audit Chair rest easy at night).
There are a number of roles within the finance function I strongly encourage women to take en route to Board, to gather experience against the above criteria. I also urge women to do more external networking. I’ve set up bi-annual women’s networking lunches giving senior female talent the opportunity to hear how experienced finance leaders have successfully developed their careers. These have been well-received and have now broadened out to both our Regional CFO and Financial Services Practices to help deepen the advice shared.
When selecting a headhunting firm, I would urge that you ask what they are doing to support the D&I agenda during the pitch process. Your candidate list might well be diverse, but if you see that those who are looking likely to be shortlisted are all non-diverse, check why, and what can be actioned based on feedback.
Cristina Catania Talent attraction is the first step to sustaining a pipeline to fill CFO roles long term. For finance, there is a need to create multiple role model examples to inspire young women to join this career path, which is increasingly at the centre of key company decision-making. We know from our study that when employees believe that their company offers both fairness and opportunity, they are three times more likely to remain at the company, be fully engaged and recommend the company to a peer. What we know about the experiences of women at entry levels in financial services indicates that a perceived lack of fairness and opportunity could be contributing to the steep drop-off in female representation between entry-level and middle management roles.
Specifically, women early in their careers are less likely to aspire to top positions. This could be due to a lack of female role models, but women also report less interest in executive roles due to concerns about balancing work and family and the perceived pressure that accompanies top jobs. Even when women do aspire to the top positions, they typically do not receive the sponsorship support that would enable them to succeed.
Our 2017 Women in the Workplace research shows that women who receive advice from senior leaders on career advancement are more likely to be promoted, and yet earlier-tenure women receive less encouragement and support from senior leaders than do their male counterparts.
The programmes that are showing impact in creating a sustainable pipeline of women start with the creation of a more ‘inclusive’ workplace, created through HR parental policies (applicable also to fathers, which in turn allows for shared parental responsibilities) and doubling-down on additional welfare services like in-office daycare.
Other measures include removing gender biases in assessing criteria for being eligible for a promotion, flexibility arrangements, leveraging maternity as an upskilling moment, the introduction of sponsorship programmes, and measuring and publishing target setting. And all steps need to be truly sponsored and promoted by the CEO and cascaded throughout the whole organisation.
Hanady Khalife Increasing opportunities for women to advance to leadership roles in the organisation begins with understanding the internal pipeline to identify barriers and obstacles to advancement and in turn, establishing measurable goals for building equity.
Organisations need to develop corporate cultures that support women who wish to achieve a healthy work/life balance, rather than breed cultures that penalises them for attempting to balance priorities. But while firms need to focus on more affirmative action to ensure gender equality, whether through quotas or recruitment programmes, they also need to pay more attention to how women can be mentored better to keep pace with new and emerging industry requirements.
Maggie Xu Organisations can be more purposeful in levelling the playing field for women, and by changing the emphasis from fixing things bottom up to top-down, effects will take place faster. We believe there are three core elements in this effort: inclusive leadership starts at the top, so educate your existing leadership and motivate them to be change agents; target D&I like a business to get more results; and double down on sponsorship, improving the effectiveness of senior leaders’ sponsorship of the women.