Corporate real estate has largely been stuck in VUCA (Volatility, Uncertainty, Complexity and Ambiguity) but the COVID-19 crisis has created an opportunity to flip VUCA to bring CRE into the age of accelerations.
This research piece was originally featured on Forbes.com as part of the Forbes Real Estate Council.
VUCA, like all good acronyms, was coined by the U.S. military, and stands for volatility, uncertainty, complexity and ambiguity. Corporate real estate has largely been stuck in VUCA, forgoing forward-thinking trends in the age of accelerations for dated strategies that are largely linear, long-term and inflexible, making them particularly ill-prepared for the rapidly expanding events of the COVID-19 crisis.
During the Vietnam War, enemies broke from historical customs of previous wars and engaged in guerilla tactics where it became difficult to discern enemy from innocent citizen. In came volatile, uncertain, complex and ambiguous situations, and the military shifted from a command-and-control posture to more of an outcome-based approach. The term VUCA was coined in the late 1990s.
Fast-forward to the global crisis, and we — personally and professionally — are living once again in VUCA times. As CRE leaders, we have an opportunity and an obligation to flip this to improvise, adapt, overcome and prepare our companies, our people and our clients for reopening, recovery and the new normal, to bring CRE squarely into the age of accelerations.
At Instant, we have interviewed 100 heads of CRE as part of an Agile CRE Thinktank (ACT) across four continents since the beginning of April. Our goal was to help the industry strategize, envision and plan for a post-pandemic CRE shift. Shifting the VUCA mentality as follows will help us do just that.
From Volatility To Vision With Velocity
Volatility surrounds us right now, in the financial markets, in tough company decisions to fair treacherous waters and with political headwinds in an election year — to name just a few.
In the flexible office industry, many leading operators buy long-term and lease short-term. Still, the pandemic threw the whole model of hot-desking into question, forcing operators to adapt their visions.
The traditional office lease was outdated before the pandemic, but I believe it will go the way of dinosaurs in a post-pandemic world. Traditional office leases call for 10-year terms with limited flexibility for breaks. The rapid shift to work-from-home created volatility in both our personal and professional lives, but it also put working from home to the test on a global scale and proved that it works.
In the near term, employee needs may require disbursed space outside of urban cores. We may be looking at six to 18 months of flexible space to allow businesses to reopen workspaces while keeping distancing in place. This would introduce the “work near home” (WNH) office, allowing for the first phase of reopening and reengagement with teammates, while benefiting from car-friendly commuting and avoidance of crowded areas.
From Uncertainty To Understanding, Even With Some Unorthodoxy
CRE has been stumped. How can we future-proof a portfolio when business cycles are accelerating? While owners in the traditional lease market ask for 10-year commitments, many CREs can’t even project headcount three to five years out.
Now, the pandemic is creating the biggest component of uncertainty our economy has ever seen, and it has exacerbated the uncertainty of the role of the office. For those businesses that weather the storm, will we need to be in the office? How important is gathering and socializing with colleagues and clients? Most importantly, how do we plan for a safe environment for staff, clients and colleagues?
Understanding the pendulum shift, experts believe there will be a phase-in strategy implemented by and large across companies getting back to the office, but longer-term, remote working can account for up to 40%-50% of workers, compared to the 10% we calculated before COVID-19. Companies may permanently lower their total real estate cost from its current 9%-12% to somewhere between 5% and 6%, shifting to a 50/50 core/flex strategy.
From Complexity To Clarity And Collaboration
The workplace is more complex than ever. How will work restart in a post-pandemic world? Many believe work itself will change. ACT respondents talked about a more dispersed future of work. The requirement to be in a physical space will be dictated by collaboration and customer requirements and less by personal work production.
The decision to reopen is a complex one. Reopening the economy as well as reopening individual offices requires a balance between economics and public health.
Clarity will come from business continuity planning and strategic planning to ensure the team’s health and safety and that the way that we use physical space aligns with overall employee wellness. This will be achieved through internal collaboration and planning.
As we rethink space, offices will shift from a place to show face to intentional and purpose-driven environments. Core offices in central business districts will be where people go to collaborate, connect and innovate. Companies that adopt work-from-home and work-near-home arrangements in tandem with core offices will see happier, safer and more productive employees.
From Ambiguity To Agility With Action
Fear is rampant because it remains unclear how many Americans are infected with COVID-19. Until curves flatten and contact tracing occurs at the herd level, a nationwide return to the office will be delayed and fraught with anxiety.
Once back, how will the built environment change? We saw substantial changes following 9/11 to both office buildings and airports. We see sneeze-guards popping up at grocery stores. Will this be mirrored in the office? Will buildings be fitted with temporal thermometers, segregating the feverish from the fine?
Companies are taking a hard look at their layouts, contemplating open office environments and shifts needed in the short and long terms. Technologies such as UV lighting, safety dividers and sensor-enabled fixtures will make smart buildings the most desirable office spaces. Serviced, managed and space-as-a-service solutions will provide the agility companies need to get back to work and remain nimble both for their employees and their bottom lines.
While CRE can lead these conversations, we can’t work alone in shifting VUCA. Across companies, information technology, human resources and real estate together are planning for reopening and recovery, focusing on employees’ safety and security while seizing an opportunity to leave behind what’s stale in CRE and future-proof portfolios at long last.
