Stay Nimble and Expect Change: A Conversation About the Financial Services Industry
05.10.2013
Dianne Dodge and Rocco Giannetti in Financial Services Firms, Workplace Design

Image © Gensler

In the midst of a topsy-turvy economic and financial landscape, corporate real estate (CRE) teams at financial institutions are expected to respond quickly and effectively to ever-changing conditions while demonstrating value in sustainability, speed-to-market, cost reduction, and operational efficiency. The challenges and opportunities for CRE teams to deliver on this imperative lies at the heart of Gensler’s 2013 Corporate Real Estate Challenges Survey. We conducted the research to understand the innovative strategies CRE teams are using to manage changing portfolios, and what tools and information they need to perform their jobs more effectively.

To elaborate on the findings, we asked the research team leaders to comment on the changing nature of the financial services industry and how these findings are relevant to CRE teams at financial services institutions.

Tim Pittman (Interviewer): Let’s start at the beginning — what led you to conduct this research project?

Dianne Dodge (Research Team Leader): We conducted this research to better understand the ways that our clients are making real estate decisions and what their challenges are. Our primary question was: do corporate real estate professionals (CREs) have what that they need to make effective real estate decisions?

Rocco Giannetti (Financial Services Practice Leader): Our respondents largely represent financial clients headquartered in the US, so the results should be considered in that context. One thing we learned is that these clients’ portfolios are becoming more global and that presents greater and greater challenges. Although 90% of respondents have responsibility over the US market, many are also managing large, distributed portfolios with global components.

TP: What challenges come through as most prominent in their survey responses?

DD: One is certainly the broad portfolios Rocco mentioned — some regional, some global — and those portfolios are very complex. I think it’s challenging to wrap their arms around everything they have and make effective decisions.

In particular, the ability to forecast areas of needs and understand how to acquire or shed real estate effectively and efficiently is one of their biggest challenges — demand and supply forecasting was noted as an issue by 56% of the respondents.

TP: How is this affecting your clients?

RG: Respondents see a volatile industry and are making real estate decisions based on very short-term needs and projections. While financial firms have always been responsive to markets, the speed of change and frequency of reorganization appears to be getting faster. In general, there’s much more risk mitigation and it’s happening much faster.

In the past, clients were comfortable with vacancy rates up to 10% — what we call “frictional vacancy.” The benefit to frictional vacancy is that it allows reorganizations and shifts to occur more easily. Now we’re seeing much lower vacancy, and clients are also looking fewer years out. There’s less room to build in flexibility for change, and when it has to happen it’s more disruptive.

In one recent project, we were asked to reconsider a space almost overnight in response to a business change. Our deep bench and experience allowed us to deliver successfully, but I worry that what gets lost in the long run is the ability to do thoughtful research, planning, and design.

TP: How are your CRE clients balancing this speed of change with the physical realities of the workplace and real estate?

DD: I think this speed of change is causing CREs to seek more direct involvement in business decisions. If they’re not part of those discussions, they won’t be able to forecast properly, putting them constantly in a reactive mode and keeping them from making proactive decisions.

Design guidelines and flexibility are increasingly essential, especially for large companies with a lot of different types of businesses. Unique businesses can’t have entirely unique spaces - workstations and place types need to be similar to maintain flexibility. More easily changeable factors, technology for instance, may be places where more business-unit specific strategies are appropriate.

TP: What other challenges did respondents note?

DD: About two-thirds of respondents also see talent recruitment as an issue, and this needs to be balanced with cost reduction and flexibility goals. I think that supporting different or a variety of ways of working is one successful approach. Some people, particularly a younger generation that’s more used to mobile technology, may actually do their best work in different settings.

Connecting these strategies to management styles is very important. Work anywhere strategies, for instance, are certainly not the right approach for everyone — these strategies can’t be one-size-fits all. I think there are many ways our clients can support and recruit talent - it can be about vacation time, mentorship, or praise as much as paychecks and desks.

TP: You also asked respondents about interest in alternative workplace strategies (AWS) — mobility and shared seating, for instance. What AWS strategies do you see as viable opportunities?

RG: Many of our financial clients are looking to shared workspaces and mobility to make up gaps and to create even further efficiencies of space utilization in their workplaces. But for many this is still a conundrum. On the one hand, there’s a belief or hope that new strategies can help them save seats. But there’s a definite challenge to actually making it happen. The reality is that many groups are very reliant on teamwork and access to support staff. In those cases, mobility can actually create inefficiencies if it causes people not to be sitting together.

Mobility seems to works best in situations where groups have a large percentage of visitors or in groups with a lot of employees that already work out of the office or are embedded in client space. But that doesn’t describe, at least to my experience, employees at many front office financial service companies. And that may be why these AWS strategies aren’t in place as much as we might expect.

DD: I think many of the alternative work solutions may actually be within the workplace. Teaming areas and other amenities can be really important. It’s no longer just you get a cube, you get an office. The conversation has to become: here’s what you get to do your job better. That means the right technology, it means the coffee bar or a quiet lounge, food service or vending machines, or any number of other amenities that get people to be more satisfied and work better.

RG: Another related issue is disaster recovery, which is also a challenge for effective real estate planning. During emergencies the ability to host additional people is really important. During Sandy in New York, for instance, clients with both downtown and midtown locations were able to move employees to midtown and keep the business going — a huge benefit. But how much of that space do you plan for? It’s hard to say and even harder alongside a desire not to have any extra space on the books.

TP: It sounds like a lot of these decisions come down to having the right information.

RG: Absolutely. When asked about information that would help them make better choices, respondents ranked space utilization and workflow data at the top. This is in line with our experience; clients are definitely interested in knowing how space is best utilized and understanding their own workflow and processes. Interestingly, peer comparisons took the lowest spot.

The fact that they seem not to recognize the value of peer comparison surprised me initially. But the more I think about it, this finding dovetails with a larger trend we’re seeing. More and more often our financial clients are asking for knowledge about what clients in other industries are doing. In particular, technology companies seem to be a model they’re looking to, because those companies are often who they’re competing with for talent. Technology companies have also, in many cases, more successfully adopted higher densities and new or alternate ways of working.

TP: Respondents also showed an interest in using the workplace as a productivity driver.

RG: Yes, and unfortunately most don’t currently have the data and tools to make that connection. Our clients are very interested in linking productivity and the workplace. The challenge is in making the investment to really understand it well. To do that, you need to invest in measuring the productivity of existing space, even if you start with more anecdotal connections between productivity and the work environment. If we can’t look at the before, then we can’t understand the after. That’s when tools like our Workplace Performance Index (WPI) become valuable because we can use them as both pre- and post- measures. If you can marry those measures with client-specific research and data, that’s how we can really start to track success.

TP: Sounds like a big opportunity.

DD: It is. The challenge is pursuing it in incremental steps. One big lesson out of this research is that corporate real estate executives are still very bottom-line focused. If you go down the ranked list of factors they see as the most important, it’s all about what represents the most immediate risk or financial opportunity — business factors come first, generations and climate change come last.

RG: One positive development is that clients are seeing their spaces more and more as expressions of their culture. It’s very tangible. In a recent project for Société Générale, we added functions that reflect European business culture throughout their office. For Nomura, Japanese culture and principles had a really strong influence on the aesthetics of our design.

I think financial institutions are going to stay conservative in their workplace and real estate approaches, but I see growing willingness to test strategies at smaller scales, as Dianne suggests. They’re not going to want to make as many changes and take risks without a lot of consideration and testing, but there are still opportunities for change.

Rocco Giannetti is a studio director with Gensler's New York office. You can contact him at rocco_giannetti@gensler.com.
Dianne Dodge is a project manager in Gensler's Newport Beach office. Contact her at dianne_dodge@gensler.com.
Article originally appeared on architecture and design (http://www.gensleron.com/).
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