Hong Kong commercial property and COVID-19

This year, workplaces around the world have had to adapt extensively from the impact of the coronavirus pandemic. Hong Kong, with its proximity to the first outbreak in Wuhan and lessons learned from previous SARS experience in 2003, trod cautiously in the face of COVID-19.  

The Hong Kong government has responded to the COVID-19 emergency with stringent measures, from social distancing of public places, border controls, and contact tracing to daily media briefings. At the same time, the Hong Kong public’s resilient and risk-aware mindset, which permeates the business environment in the city, has helped slow down the spread of COVID-19. Coupled with Hong Kong’s fast-paced environment, high population density and businesses, from large corporates to small and medium enterprises, all are responding with agility to keep their operations moving.  

How have different stakeholders in this commercial real estate (CRE) industry  –occupiers, landlords, facilities management and consultants – been reacting to COVID-19, and what are their medium- to long-term preemptive strategies? Organisations, irrespective of occupiers or landlords, have been faced with the need to be more flexible in their workplace model, maintain operations under the ‘new normal’, and enable technology and data to play a growing role in managing their office portfolios effectively. This combination will likely lead to lowered operating costs and enhanced productivity, so that business can become more resilient.

As Shelley Boland, managing director of CRE at Standard Chartered Bank (SCB) and CoreNet Hong Kong Chapter chair, observes: “Now that COVID-19 has forged ahead a more flexible workforce, we can reconsider how the square footage can be optimised and in a format that suits our employees better.”

The bank carried out a survey on remote working during COVID-19 and results showed many employees found the flexibility and choice to be efficient and empowering. What does this mean for the future of the office? Bolland says that as a higher proportion of employees work more flexibly, office space will be designed to be more collaborative without forgoing quality experience. In the long term, the bank’s broad network of retail branches and main office hubs could be leveraged and expanded, giving employees more convenience and accessibility to match their future work aspirations.

“You can’t take away that colleague experience, and as the office design shifts from a fixed environment to one where we can repurpose the space quickly for situations like COVID-19, the office will continue to build a collaborative work experience – marrying productivity and employee wellbeing.”

Organisations with a wide mix of asset types, such as the West Kowloon Cultural District Authority (WKCDA), are managing their employees and spaces with reinforced COVID-19 specific procedures and policies adapted to the government’s guidelines. From owning offices to arts and cultural facilities, including entertainment spaces such as retail and performance theatres, Graham Tier, general manager, District Facility Services at WKCDA and former chairman of International Facilities Management Association in Hong Kong, explains the challenges in managing the different spaces from a facilities management viewpoint, and how all stakeholders must work together.

“With the social distancing measures in place,” says Tier, “the entertainment spaces like our tea theatre are a big challenge to maintain, however we have utilised the latest technology such as UV treatments and special coating to protect surfaces from contamination. It only takes one incident to damage our reputation so we must keep our guard up.”

As frontline employees at WKCDA face a higher risk of infection due to frequent contact with the public, they can get priority testing and must follow a rigorous sanitisation programme. Human resources have worked together with the facilities management team on staff rotation – to prevent any cross contamination – and strictly control who is coming into the various spaces.

Now is the time where landlords and occupiers must work closely with facilities management on raising the bar on commercial space operations. “We have a role to carry out enforcement, education and training on how to keep sanitation and hygiene levels at the top,” explains Tier. “The role of facilities management is to give comfort to staff and our occupiers in our space, so we’re doing everything to ensure their safety when they come in.”  

Architects and design consultancies, who collaborate with landlords and occupiers, agree that flexibility in design, technology, and changes to the current real estate business model is long overdue.

Work from home has allowed  businesses to continue operations, so as an occupier’s lease ends, they may choose to reduce their office space in this economic climate. As a result, landlords need to adjust the classic office environment to offer more amenities such as leisure areas or rooftop parks, and flexible space.

According to Darryl Custer, senior vice president of a design consultancy CallisonRTKL Hong Kong, offiice buildings of the future will include less fixed rentable office space and more flexible rentable space, with the latter as shared conference spaces and communal areas. “People need to understand that COVID-19 accelerated the mode to change. Commercial real estate may not be defined simply as a space for commercial, retail, or industrial sector in separate uses anymore, but needs a breakdown into more fluid use groups within the mix,” Custer says.

The challenges facing landlords are the capital constraints in building integrated projects and how to evolve their business model in order to attract a fluid mix of  occupiers and meet their requirements. For design consultancies, it is no easy feat either, as designing such commercial real estate projects means there will be an expertise challenge.

As many occupiers’ workplace model is undergoing transformation, technology is key to the integration of employees working at home and in the office. Developers should look to incorporate shared workspace into residential spaces, and employ technology for occupiers to demonstrate a seamless work experience, so employees do not feel disconnected even if they are working from home.

“Covid-19 has pushed forward the idea of a more flexible lifestyle, one which will become the expectation,” says Custer. “Perhaps work may evolve to where people can work here, work everywhere.”

Crisis management and reactive strategies have been taken on by organisations in facing the pandemic. On the question of what effects COVID-19 will bring to the workplace, Paul Scott, executive director at Arcadis, believes that “incorporating resiliency into business continuity planning will drive better workplace design, space and operational planning for our future working environments.”

The fundamental factor in selecting the right workplace environment of the future is great design with resilience in mind, and that space can be best optimised along with effective technology. However, organisations who want to emerge from this pandemic better than before will find the current workplace model challenged, and flexibility is needed.

Business resilience encompasses the ability to operate well – for example amenities that promote circulation of people – especially during crisis, enhanced hygiene and safety measures within the building and even attaining standards to prevent communicable diseases such as COVID-19. Current commercial buildings with reduced common spaces and designated circulation routes, which are easily congested, are not ideal, playing into the fall in square footage values and occupancy levels.

Beyond the changing trends in attitudes and design, technology can be a catalyst in making effective choices on workplace selection and optimisation. With technological advancements, we can access and capitalise on market and space utilisation data to improve commercial real estate. Consultancies are constantly looking at how to reshape traditional workplace models, operations and supply chains to fulfil business outcomes. Arcadis has a team focused on solving some of these challenges using data and digital as solutions. Known as Arcadis Gen, it is developing technologies to improve the performance, decision-making and customer experience of clients. Their technologies use genetic algorithms, a search-based technique for solving complex optimization problems through machine learning, and real-time data on personnel and client asset portfolios to model multiple scenarios, to allow for faster decision-making by organisations on relocating different departments. This brings about a cohesive strategy in balancing the use of different office sites, adapting them for a variety of business needs when a crisis escalates.

“Understanding flexible workstyles and work maturity in the sense where work-life balance is respected, fosters a common ground between employees and management on how to work productively,” says Scott. “From what we already use at our office and learnings from COVID-19, there’s now a realisation that flexible working can be further enhanced, to work anywhere.”

It is highly likely that the commercial real estate industry can emerge strong from the COVID-19 crisis, with the support of different stakeholders, however, the industry should be ready to transform – be it the business and workplace model of landlords or occupiers. Landlords developing new buildings may need to reconsider building resilience through the design and operations, to meet the changing demands of occupiers. The notion of the workplace is no longer bound by a physical office, but reiterates the necessity of flexible, remote working.

Ultimately, Hong Kong is a place used to adaptation and flux, where the business environment has had to change over time to adapt within a changing China and the Asia region. Perspectives on the business environment, people’s mindset and physical traits of high building density, all place Hong Kong on the trajectory to attain new heights as the world emerges from the pandemic.  

Related competencies include: Client care, health and safety, landlord and tenant, strategic real estate consultancy