Productivity: Where does Real Estate fit in?

The famously productive artist, Pablo Picasso, with Brigitte Bardot, in his studio. True #SpaceasaService

Within the real estate industry we tend to operate under a misconception, which is spelt out in this saying:

‘Businesses don’t want an office, they want a productive workforce.’

Just like people do not want a drill, they want a hole in the wall, we tend to think our customers want to buy or rent an office from us, because that is what we have to sell. Or at least that is what we had to sell as a product industry. As we are moving into being an industry selling ‘Space as a Service’, increasingly we need to be selling productive workforces, not offices.

To do so we first need to understand just what it is that a real estate company can impact as far as productivity goes. Fundamentally that boils down to not being able to make a bad company good, but enabling a good company to be better.

A recent anecdote I heard involved a large, wealthy American company. They supposedly had an amazing Gensler designed office, with all the bells and whistles one could dream of. What they did not have was a workforce prepared to return to the office post Covid. When discreetly asking why, it turned out that what they had the most of was a truly toxic working environment. For all the good that an excellently designed and thought out office was doing, it stood not a chance against a management culture that was despised by the workforce. Having maintained productivity away from the office, the consensus was ‘let’s just skip the office thing altogether’.

Real estate cannot fix a rotten culture. 

What it can do though is enable a productive workforce, should a customer wish to leverage that ability.

Productivity in the workplace is a difficult thing to define. It is true that we can create spaces that provide the services that individuals need to best undertake their current ‘Job to be done’ (aka #SpaceasaService). And we can measure the effectiveness of particular strategies to do so, but their impact on actual productivity is hard to capture definitively. However there is something we can measure that does have a direct bearing on productivity. And that is cognitive function.

Cognitive function refers to multiple mental abilities, including learning, thinking, reasoning, remembering, problem solving, decision making, and attention. I.e the things we need to do to perform ‘knowledge work’. And each of these can be measured and quantified. In fact there is a mountain of peer reviewed studies into this subject matter, but for our purposes all we need to know, for sure, and we do, is that cognitive function is impacted by environmental conditions in the space around us. Simply put, if you put someone in an environment that is less than optimum their cognitive function will be impaired. And operating at maximum productivity is hard to do with impaired cognitive function.

To take just one example of this, as reported by the Harvard T.H. Chan School of Public Health, the Global CogFx study, is a research project conducted among 302 office workers in six countries (China, India, Mexico, Thailand, the UK and the US) that aims to understand the effects of indoor air pollution on cognitive performance. In September 2021 they published a paper (https://iopscience.iop.org/article/10.1088/1748-9326/ac1bd8) that shows the significant acute effects of PM2.5 and ventilation on cognitive test performance.

In their own words …..

‘Some key takeaways:

• We developed an ecological momentary assessment framework to administer cognitive tests based on real-time indoor PM2.5 and CO2 measurements.

• We found 0.8-0.9% slower response times for every 10ug/m3 increase in PM2.5. Throughput (correct responses per minute) was 0.8-1.7% lower for the same concentration increase.

• We also found effects of CO2 (a proxy for ventilation) on cognitive function. For every 500ppm increase, we saw response times 1.4-1.8% slower, and 2.1-2.4% lower throughput.

• We did not find a lower threshold at which effects from low ventilation are no longer present.

In addition to the well-established health benefits from lower PM2.5 levels (e.g. reductions in cardiovascular disease, asthma attacks, premature mortality), and from higher ventilation rates (e.g. reduced infectious disease transmission, fewer sick-building symptoms, and reduced absenteeism), our findings provide further incentive to improve air quality in indoor spaces.

Higher ventilation rates and enhanced filtration that exceed current minimum targets are important public health strategies, and we must pursue them.’

The above covered the impact of CO2 and Particulate Matter 2.5, but we also know that similar deleterious affects occur when one’s immediate lighting, noise and temperature veer away from optimum levels. Improving the condition of each of these has been shown to have an average weighted impact on productivity of 1.1, 1.4 and 1.2% respectively*.

The fundamental point here is that these are factors which can be under the control of real estate people, so if we put our minds to it we can create the environmental conditions that enable our customers to operate at maximum cognitive function. We can ‘do no harm’ to their ability to be as productive as they are capable of being. In other words we can ‘enable a productive workforce’. And when doing so amounts to a cumulative increase in productivity of circa 5% that is worth shouting about. Now 5% might not sound much but for contrast productivity in the UK was only around 1.3% higher in Q1 2022 than Q4 2019, before the pandemic. Truth be told anything that enabled a 5% increase in productivity would be a big deal.

We can go further though. A true #SpaceasaService workplace would not only be constantly monitoring environmental conditions but would be acting upon this data and operating space as if it were software. In the tech industry they have a mantra of ‘Build, Measure, Learn’ where you build something, get it rapidly into the hands of a user, measure how it performs, learn from that and then rebuild incorporating this new knowledge. And repeat. And repeat. In real estate we normally stop at ‘Build’. Don’t measure and don’t learn. But not so in the #SpaceasaService world. Here we’d measure, and optimise, not only the systems controlling environmental conditions but also look to reconfigure the physical space itself. Whatever was required to enable people to perform as best they can.

Winston Churchill, in 1942, during a debate on how to rebuild the bombed UK Houses of Parliament said ‘First we shape our buildings, and then they shape us’. That was true then, but even more so today. Our immediate environment has an enormous impact on how we feel, how we think, and how we perform. The space around us matters. And we, in the real estate industry, have control over that space. So it is incumbent on us to make it as fit for purpose as possible.

Adam Smith, the godfather of free market capitalism, would be, in the context of real estate, decidedly ‘woke’. Because he would understand that the desired output might be ‘productivity’ but that the way to maximise that would be to help people be as ‘happy and healthy’ as possible. The most productive people are most likely to be those who are also happy and healthy. And fundamental to enabling this is to maintain the very best environmental conditions.

The World Green Building Council have a well known graphic where they show that, in operating a workplace we spend 1% on utilities, 9% of rent, and 90% on people. Historically in real estate we’ve concentrated on the 1% and the 9%. In the future we need to concentrate on the 90%. We need to fixate on what we can control that benefits the 90% the most. And that is the environment we put them in. 

We need to stop selling people space, but leaving productivity up to them, and start to separate space from cost. We should be in the business of selling people a productive workforce:

‘I’m not selling you space, I’m selling you a productive workforce. Would you like that?’

Antony

PS - This is part of the subject matter we'll be deep diving into at trilliondollarhashtag.com

* Oseland N and Burton A (2012) Quantifying the impact of environmental conditions on worker performance for inputting to a business case to justify enhanced workplace design features Journal of Building Survey, Appraisal & Valuation 1(2):151–165.