The Future (of the) Office

The Future (of the) Office

A scenario study of what the future office could look like due to the progress of digitalisation ASTRID LUNDMAN

ASTRID ÅLANDER

Master Thesis Number Supervisor

Key Words

TRITA-ABE-MBT-21389 Inga-Lill Söderberg

Future Office, Future Scenario, Office Market, Digitalisation, Office Digitalisation

ABSTRACT

This thesis examined the future office by interviewing 16 participants according to the Delphi method. Participants were given the opportunity to share their individual opinions related to ten introductory questions. All participants then continued the interview by participating in a feedback session that would form the basis of a future scenario for the office. According to the participants, the spread of Covid-19 has been a catalyst for the office's development.

Environmental focus is high in the future when employees can take meetings from any place they prefer, instead of traveling the world to meet customers. Efficiency enables work regardless of workplace and thanks to digital tools and platforms, the employee can work anywhere at any time.

What was somewhat more difficult to discern was the development of demand for offices.

Although there were some aspects that all participants agreed on, it was possible to distinguish a lot of aspects that they thought about in different ways. There were different opinions from each stakeholder group regarding demand, rental levels, vacancies and other market factors that drive the market forward, as well as who will win and lose if the market moves on to a market characterised by flexible work.

Thi ma er he i a made po ible thanks to the important guidance and supervision of Inga-Lill Söderberg, PhD in Financial Systems at The Royal Institute of Technology.

We would also like to thank all participants who contributed to this thesis by participating in our Delphi study.

A big thank you to Cushman & Wakefield Sweden for contributing with important data that was a relevant part of the market outlook.

Thank you to Fastighetsvärlden for inviting us to the digital event Kontorsdagen 2021. Having the pleasure of being present of the seminar gave important insights to our reasoning throughout the thesis.

Stockholm, May 2021.

Astrid Lundman & Astrid Ålander

Examensarbete Masternivå Handledare

Nyckelord

TRITA-ABE-MBT-21389 Inga-Lill Söderberg

Framtidens Kontor, Framtidsscenario, Kontorsmarknaden, Digitalisering

SAMMANFATTNING

Detta examensarbete undersökte det framtida kontoret genom att intervjua 16 deltagare enligt Delphi-metoden. Deltagarna fick möjlighet att dela sina individuella åsikter tillhörande tio inledande frågor. Alla deltagare fortsatte därefter intervjun genom att delta i en feedback- session som skulle ligga till grund för ett framtida scenario för kontoret. Enligt deltagarna har spridningen av Covid-19 varit en katalysator för kontorets utveckling. Miljöfokus är högt i framtiden när anställda kan ta möten från vilken plats de helst föredrar, istället för att resa världen för att träffa kunder. Effektivitet möjliggör arbete oavsett arbetsplats och tack vare digitala verktyg och plattformar kan medarbetaren arbeta var som helst när som helst.

Det som var något svårare att urskilja var utvecklingen av efterfrågan på kontor. Trots att det fanns en del aspekter som alla deltagare höll med varandra om gick det att urskilja en hel del aspekter som de tyckte mycket olika om. Det framkom olika åsikter från varje intressent angående efterfrågan, hyresnivåer, vakanser och andra marknadsfaktorer som driver marknaden framåt, liksom vem som kommer att vinna och förlora om marknaden går vidare till en marknad som kännetecknas av flexibelt arbete.

Denna masteruppsats möjliggjordes tack vare den betydelsefulla handledningen och vägledningen av Inga-Lill Söderberg, PhD i Finansiella System vid Kungliga Tekniska Högskolan.

Vi vill också tacka samtliga deltagare som bidrog till denna avhandling genom att delta i vår Delphi-studie.

Ett stort tack till Cushman & Wakefield Sweden som bidrog med den viktiga marknadsinformationen vilket är en relevant del av marknadsutsikterna.

Tack till Fastighetsvärlden för inbjudan till det i år digitala eventet Kontorsdagen 2021.

Medverkandet på det digitala eventet gav viktiga insikter i vårt resonemang under hela uppsatsen.

Stockholm, maj 2021.

Astrid Lundman & Astrid Ålander

CBD Central Business District

GDP Gross Domestic Product (Swedish; BNP)

F&B Food and Beverage

Prop Tech Property Technology AI Artificial Intelligence

ICT Information and Communication Technology

AA CBD

A Prime area

B Secondary area

sqm Square meters

OPO Open Plan Office

ABO Activity Based Office

AFO Activity Based Flexible Office

AWS Alternative Work Settings

BMS Building Management Services

Covid-19 SARS-CoV-2, official name of the virus

Gen-Y Generation Y (millennials) born in years 1981 until 1996 Gen-Z Generation Z born in years 1997 until 2012

F

GBP British Pound Sterling Written as GBP 10 million USD US Dollars Written as USD 10 million

SEK Swedish Krona Written as SEK 10 million

% Written as 10.00%

Amount Written as 1,500.00

Numbers in text 10>n written in words Numbers in text 10 n ri en in n mber

Data Written in numbers

T

C

1 INTRODUCTION ... 3

1.1 Background ... 3

1.2 Research Aim and Questions at Issue ... 6

1.3 Limitations ... 7

1.4 Disposition ... 8

2 LITERATURE REVIEW ... 10

2.1 Workplace Use and Distribution ... 10

2.2 Office Digitalisation ... 17

3 MARKET OUTLOOK ... 21

3.1 Transparency ... 21

3.2 The Real Estate Office Market ... 21

3.3 Rental Levels on the Stockholm Office Market ... 24

3.4 Yields on the Stockholm Office Market ... 25

3.5 Vacancies on the Stockholm Office Market ... 26

3.6 Covid-19 Pandemic ... 27

3.7 The Power of Digitalisation ... 31

4 THEORETICAL FRAMEWORK ... 36

4.1 Supply and Demand ... 36

4.2 Price Bubbles... 37

4.3 Behavioural Theory ... 40

5 METHOD AND DATA ... 42

5.1 Scenario Analysis ... 42

5.2 The Delphi Method ... 46

5.3 Course of Action ... 47

5.4 Stakeholder Analysis ... 50

5.6 Ethical Consideration ... 54

5.7 Reliability and Validity ... 56

6 EMPIRICAL FINDINGS ... 57

6.1 Implementation of the Methodology ... 57

6.2 Summary of Responses ... 60

6.3 Foundation and Results for Future Scenario ... 63

6.4 Processing of Results ... 67

7 THE FUTURE SCENARIO ... 76

8 ANALYSIS AND DISCUSSION ... 79

8.1 The Future Office ... 79

8.2 Market Conditions ... 82

8.3 Catalyser ... 85

8.4 Sustainability ... 86

9 CONCLUSION ... 88

9.1 Outcomes and Contributions from The Study... 88

9.2 Suggested Further Research ... 91

REFERENCES & FIGURES ... 93

APPENDICES ... 100

1 I NTRODUCTION

In this chapter, the Master Thesis will be presented in accordance with the relevant background to the research gap, research problem, research questions, certain limitations and the overall disposition of the thesis.

1.1 B

It is difficult to fully determine where we are heading and what is to be expected in a world characterised and steered by digitalisation, where numerous industries are going through changes. The same has occurred in the office market in terms of the design, use and distribution of the office. Ever since the acceleration of the digital evolution in 1985 when the digitalisation of the companies truly began, the office market has evolved constantly (Harris, 2015). In the 2000 s, a flexible work style was introduced which shifted the office market resulting in tenants rethinking their volume of leased space and its use (Zamani & Gum, 2019). In 2020, the Covid- 19 pandemic forced many office workers to work from home due to sudden new restrictions and recommendations, leaving many of the offices close to empty in only days. The office has for the past years, and is still, challenging many external factors. Previous research show that organisational changes, the workforce, workplace and workstyles are all ever-changing aspects due to digitalisation (Ayoko & Ashkanasy, 2020; Zamani & Gum, 2019; Unsworth, et al., 2013;

Harris, 2015; Oseland, et al., 2012). To keep a comparative advantage as an employer on the market, the company needs to constantly update the organisation and the tools within it no matter what circumstances on the market that are true causes of change.

Twitter made an announcement in late 2020 where they shared the controversial idea that their employees could decide themselves if they wish to return to the office or not (Twitter, 2020).

Spotify in Stockholm, who occupies more than 30,000 sqm, announced that they have implemented a new office environment called home mix and work mix in order to adapt to the new flexible workstyle. In Spotify s new concept Work from Anywhere Spotify s employees choose from working from home most the week or if they wish to spend most their working hours at the office (Spotify, 2021). During a short period of time, big actors on the market have made rapid changes, and quite controversial ones, causing the traditional office market to change in various ways. On the other hand, Mentimeter decided to implement a full working from the office -environment, as a contrast to companies that encourage the change

work strategy and workstyle are become increasingly common, research shows that companies have different needs and purposes when it comes to office space. Tenants are using different approaches when implementing the future office, some are becoming more agile while others are increasing their square footage and the use of the office (Miller, 2014).

Traditionally, the real estate market is known for not being very prone to change, this because of the long investment period resulting in a long implementation time for structural changes.

Historically, real estate investments have been known for, as close to always securing a positive yield which have made it a very sought-after investment option (Poleg, 2020). This mainly due to the long investment period which could result in short-term risk fluctuation which is not always included in long-term real estate investments. However, no investment option nor asset is to be considered risk-free only because it is characterised as a historically stable investment (Poleg, 2020). Today s market situation exposes the fast-evolving world to further changes, and now more than ever considering the drastic consequences the Covid-19 pandemic that was brought onto the world. In 2021, every industry has been deemed to vastly adapt to the new normal to keep their businesses afloat. The real estate market is like all other industries a victim of the pandemic which have left thousands of square meters of commercial properties unoccupied due to the everlasting remote working and continues lockdowns (Cushman &

Wakefield Sweden, 2021). The answer to how this industry, that is especially known for being slow at acclimating to new trends, will survive the consequences brought by digitalisation and catalysed by the pandemic, is hard to tell and the transformation of it has not slowed down.

The Covid-19 pandemic has resulted in an uncertainty on the office market. Several market corporations have recently reported on this change and because it is an ongoing development on the market this study also report on their findings. A recent survey conducted by CBRE on Nordic corporations and office workers behavioural change of the way we work concluded that 45.00% of occupiers expect sizing down their office space in the long-term, 21.00% will have the opportunity of fulltime remote work, while 76.00% plan to adopt a hybrid working model.

The survey concludes that the office will be a space for teamwork, collaborations and community instead of the previous function-based approach (CBRE, 2020). A similar study conducted by Boston Consulting Group (BCG) comes to the same conclusion that the future workplace will consist of a blended mode of onsite and remote location work. It also mentions the unique opportunity of reinventing the office pushed by the pandemic (Boston Consulting Group, 2020). According to Cushman & Wakefield Sweden s Office Snapshot Q4 2020 report

the subletting in Stockholm has increased to 65,000 sqm during 2020 with the majority located in the CBD area. In other words, 30.00% of all vacant space on the office market are sublets (Cushman & Wakefield Sweden, 2020). The ever-increasing area of subletting s show that tenants have been affected by the changes on the market, since they signed contracts regarding spaces that they did not need or use in the future, leading to an increase of subletting s. What can be observed is the change in what the actual take up is in comparison to the take up that will be requested due to market fluctuations caused by digitalisation and other aspects, such as the Covid-19 pandemic.

Since the beginning of digitalisation, the world of real estate has slowly started to change and adapt to new possibilities due to new digital tools. Digitalisation has evolved the previous old traditional office, consisting of cell and individual offices to activity-based offices and the newly nevertheless evolving coworking office. The evolution of the office is made possible due to the introduction of new digital technologies such as the laptop and information and communication technology (ICT) (Messenger & Gschwind, 2016). Digitalisation continues to challenge the office of today and nowadays, more behavioural aspect regarding the design of today's office is being questioned. Questions driven by the opportunities of digital offers have become more relevant because of the Covid-19 pandemic, which has forced the everyday behaviour to change. The great adjustment from everyday life to isolation and remote home working has made the world question the significance of the office as one once believed.

Furthermore, this great change has started to question what we want the future office to look like especially since there is limited research on the future office since the pandemic started.

Today the traditional real estate market has found itself in a continued state of change which has challenged stakeholders within the office market to adapt, quickly. Questions regarding remote working, convenient office hours and the actual purpose of the office are now being discussed. Because of digitalisation and Covid-19 the mentioned aspects need to be researched further with these new conditions as a basis and the lack of previous research of what is requested in terms of the new office and its future purpose has suggested a more thorough investigation of this.

The above-mentioned research illustrates a gap in the literature regarding research on stakeholder expectations on the use, design and distribution of office space. More specifically, the impact of the present public discourse on digitalisation and sustainability warrants further

1.1.1 RESEARCH GAP

Due to the great uncertainty on the office market because of the 2020 pandemic and previously introduced technologies, alongside an already changing office market, it is clear that more modern research and investigation within the area is necessary. Especially research regarding the determination on what characteristics is demanded out of the future office. An abstract outlook on what the market want out of the future office would guide the current development of the office. However, research regarding the future is difficult considering future scenarios always contain uncertainty.

Research shows that many dissertations have reported on how coworking and activity-based offices have contributed to a new working environment in terms of the workplace, workstyle and workforce (Ayoko & Ashkanasy, 2020; Zamani & Gum, 2019; Unsworth, et al., 2013;

Harris, 2015; Oseland, et al., 2012). However, there is a gap of information whether what will be the new aspects following the footsteps of coworking and the activity-based office and what is to be expected come next. In the world of research there is a research gap regarding investigating what the market expect are key characteristics of the future office. By conducting research regarding what the market stakeholders today predicts, the findings can be used to determine a probable future scenario of the office use, design and distribution of space. By allocating responses with representation from all stakeholders affected by the office development, the study can investigate the markets future development. Because of this, the research aims to investigate in what direction the future office will wander and contribute with a probable scenario of what the future office could look like based on the knowledge of market representatives in terms of digitalisation.

1.2 R

A

Q

I

The aim of this study is to explore stakeholder expectations of the office market s development, with a specific interest in spatial aspects. Furthermore, the purpose aims to investigate if the different stakeholder groups, that represent the market, have corresponding views of the future office, and if not; discuss and determine what the main differences are. The future office includes many aspects which all cannot be investigated within this study. Therefore, this study has both the design and use of the future office and the market conditions of the office as its angel of approach. Based on the focus of this study the authors have presented four research questions to be further investigated throughout the thesis.

1. What is the direction of the future office and what key characteristics are associated with this development?

2. Will the Covid-19 pandemic accelerate the development of the office segment even further?

3. Will digital development make the physical office irrelevant in the future?

4. How will the market conditions change in correlation to the development of the future office?

To investigate the direction of the future office, a future scenario has been constructed based on the stakeholders expectations and thoughts about what could be expected in the future. By constructing the future scenario, the study could contribute to a better understanding of what the stakeholders views are for the future office as well as how the office market probably would portray itself in the future.

1.3 L

This study is limited to the office market in Stockholm, Sweden. The empirical findings have gathered responses from companies that either have properties, offices, work within the real estate market, work with real estate digitalisation or as architects within the market in Stockholm. The area of Stockholm is considered as one of the bigger property markets in Sweden and is therefore prone to change and development in several real estate segments. When gathering data, the Stockholm area is normally divided into geographic market areas representing its attractiveness on the specific market. For data to be gathered and analysed as easily and effective as possible the authors have chosen to focus on the market areas especially attractive for offices which is the area of the central business district (CBD) as well as office A and B market areas. The market area of CBD has been defined by The Swedish Property Research Forum and are used as praxis by the industry (Datscha, 2021). When looking at market data such as rents, yields and vacancies, CBD is used as a geographical limitation considering this is where most the office supply stock is located. As well as it has been hard for the authors to find reliable data in other areas than the CBD. Nevertheless, when choosing office tenants to be included in the study the authors aimed to get representation for not only tenants located in the CBD but also in market areas of A and B. The reason for only choosing market areas of A, B and the CBD, is because these areas represent the biggest market share.

Other markets such as C and D locations, does not represent the office market, in terms of office

1.4 D

Chapter 1 – Introduction: A brief synopsis of the background of the chosen topic. After the background of the topic has been shared the authors presented the research gap and the aim of the thesis to strengthen the purpose of the thesis. This followed by the presentation of the research questions and applied limitations.

Chapter 2 – Literature Review: The focus of the literature review has been put on the change in organisational, workforce, workplace and workstyle of the companies and what research has been found connected to these.

Chapter 3 – Market Outlook: Based on market reports made by real estate companies, mainly consultants that have a large market share in the Stockholm region. These data are mostly based on the changes in market, what is requested by various parties and estimates and numbers of actual vacancies, rental levels and yields. The authors also presented the power of digitalisation and the effects of Covid-19 which are crucial points of the thesis.

Chapter 4 – Theoretical Framework: Here the chosen theories of supply and demand, price bubbles and behavioural theory are presented. The theories are chosen since they allow the authors to open their perspective and to use their critical eye and various insights to analyse the empirical findings.

Chapter 5 – Methodology: This chapter explains the Delphi Method used in the thesis. The course of action and selection of both participants and questions have been integrated as well as the reliability and validity of the chosen method and the participants in the end of the chapter.

Chapter 6 – Empirical Findings: Presentation of the actual findings made through the interviews. These are presented according to what the stakeholders have chosen to use in terms of anonymity. A list of all statements that are the foundation of the final future scenario is presented at the end of the chapter.

Chapter 7 – Future Scenario: The chapter presents the final future scenario which is a result of the joint first responses that were given feedback during the feedback session. The future scenario is solely based on the statements and opinions shared by the participants

Chapter 8 – Analysis and Discussion: An analysis and discussion of the empirical findings that are broken down together with the chosen theories to analyse what has been said in the

interviews. The result from the Delphi study is analysed according to the similarities and differences between the interviewees, and stakeholder groups, in order to follow up with a conclusion.

Chapter 9 – Conclusion: The final chapter of the thesis is where the authors present their conclusion that was made. This is followed by additional nuanced suggestions of further research that the authors found to be interesting once reading about the topic, doing the interviews etc. but did not have the space nor time to include in the research.

2 L ITERATURE R EVIEW

The literature review presents literature on the field of use and distribution of office space, mainly today but also historically to give the reader a better understanding on what research is accessible of today's office and the ongoing development. Furthermore, literature regarding digitalisations impact on real estate is presented considering its significance on the modern office of today.

2.1 W

U

D

The following subheadings relate to previous research on the specific area of the evolution of the office market. The aim of each subheading is to present evident material as a base for the study for the upcoming discussion and analysis. The subheadings have been divided into organisational aspects, workforce change, workplace change, workstyle strategy and office digitalisation. These have been explored in former research and mentioned in various articles.

2.1.1 ORGANISATIONAL ASPECTS

Previous research has indicated that the evolution of companies organisational behaviour has changed the design and use of the physical office, and that these are strongly dependent on the behaviour of employees and their abilities and ways of performing their specific work-related tasks (Ayoko & Ashkanasy, 2020). The organisational change within companies, as well as the ever-changing operational scene present the foundation of the demand of offices. Once these organisations evolve, so does the demand of the future office space. Many researchers have due to this, changed their approach to physical change to a change characterised by human and corporate behaviour (Harris, 2015). Harris (2015) also claimed that another aspect of the behavioural change and organisational change is the ability to provide a comparative advantage on the market. Research has indicated that organisations and the way they work represent the essence of driving factors influencing the office market. When organisations change their operational behaviour, it will change the demand of the office and consequently evolve the workplace and the office supply stock. When corporations are able to adapt to the changes within the market, they can attract new talent by offering what is needed for organisational success (Woodman, et al., 2009). Unsworth et al. (2013) means that when, for example, implementing pro-environmental organisational aspects into the company this also generates many benefits for the company. For several years, companies and landlords have increased the incentives to go greener internally and to, for example, go by bike rather than by car to work to

achieve fulfilment for both the employee, the organisation and the environment. When organisations show that they are pro-change and are willing to give up on some aspects and focus more on others, they may increase the company value on a behavioural level (Unsworth, et al., 2013). As mentioned in the research done by Conger and Fishel (2007) the on-boarding process within the organisation is an important step in order to customise the work-experience for new employees within a company. The on-boarding could increase the knowledge of the organisation itself, be used to achieve certain goals by executive programs and courses as well as the ability to get to know colleagues through social interaction (Conger & Fishel, 2007).

2.1.2 W^ORKFORCE C^HANGE

The purpose of an office is of great importance for the organisation's success. This has been determined by research which says that enhancing the satisfaction of physical work environments is crucial since it can be directly linked to worker s job satisfaction as well as other outputs such as worker productivity, stress and retention (Zamani & Gum, 2019).

Research shows that digital and technological innovation, in combination with changes in organisational structures, have resulted in a new profile for many companies, thus leading to a change of the profile and expectations of the worker. One discovery is that offices are starting to focus more on their workers work-life balance and user control, meaning that the worker more and more have started to control their own everyday work schedule. Another finding is that the importance of workers well-being has increased considering that it is a vital role as a part of a package of benefits to attract staff. Research indicate that implementing the above- mentioned aspects are essential for a company to attract and retain skilled and expensive staff as well as optimising productivity within the workplace. Both two aspects signify the important focus on ensuring a good workplace design and management (Harris, 2015).

Research by Vasilyeva (2021) shows that the Generation Z, individuals born between 1997-2012, have experienced the evolution of digital tools since being born which has a strong effect on the learning and living of these individuals. According to the research, the expectations of the evolvement of the digital era is high when talking to the people that belong to Gen-Z since it has affected the way these young people perceive and think about the future ways of digitalisation (Vasilyeva, 2021). Another study, conducted by Tolstikova et al. (2021), compared Generation Y (1981-1996), also called millennials, with Generation Z in terms of various aspects such as beliefs and behaviour in terms of the digital world. The research showed

and in particular, the people who belonged to Gen-Y had quite a negative way of perceiving Gen-Z. The ideas mentioned that Gen-Z are connected with ideas that they were born with the mobile phone in their hands and that they are bad at socialising due to them being stuck to their screen and that they behave in a very individualistic manner that joined with no clear individual opinions and sprawled opinions (Tolstikova, et al., 2021). The mentioned research suggests that the perception and digital ways of living could be different depending on what generation you belong to. The research also suggested that all these aspects could affect how younger generations expect more and better quality of digitalisation tools and manners than other previous generations due to the previous exposure and normalisation of the digital environment (Vasilyeva, 2021; Tolstikova, et al., 2021).

2.1.3 W^ORKPLACE C^HANGE

There are numerous amounts of research about different workstyles and how these styles have emerged and developed over the years. The past three decades have been a time of transition with several changes of the workplace. Research have determined that the ignition of this change is credited to the profound impact of digitalisation which started to accelerate in 1985 (Harris, 2015). The section of workplace change will cover research behind several historic office strategies as well as its transition. Each office aspect is covered but in different depth depending on the importance in history and its relevance to this study. The office aspects closer in time to this study is of most importance.

Figure 1 - The evolution of the office (Lundman & Ålander, 2021)

The first office was designed in the early 1900s and has been credited to Frederick Taylor (Buchanio, 2017; Poleg, 2020). Frederick Taylors office can be compared to a white-collar factory and by today the workplace has evolved to a knowledge-based environment where people interact and collaborate with improvement and development as a main goal (Poleg, 2020). Figure 1 displays the transitionary stages of the office since the beginning of the Taylorist office to the flexible working of today. Factory office work implemented by Frederick Taylor is today regarded as the first research and introduction to the field of scientific management, many of the aspects introduced by Taylor in the 1900s are still valid in today's

Factory

Office Cell

Office Cubicles Open

Plan Office

Activity Based Office

Flexible Working

modern world. However, the findings by Taylor have been demonised by new modern research which states the injustices of factory work. Even though the Taylorist factory office is seen as the first step of the office evolution, the aspect of scientific management which Taylor spoke about also included aspect of systematic approaches (Harris, 2015).

Taylor s third paper A Piece Rate System for the American Society of Mechanical Engineers was published in 1910 and initially became known as the Taylor System which is now known as Scientific Management. Taylor s research contributed to the engineering-led management revolution which later would create concepts such as mass production, high-volume manufacture of relatively inexpensive, standardised products that achieved huge economies of scale and characterised the major industrial economies. Taylor had a huge impact on the industrial society due to his machine tools and development of time-study and in the early 1900 s Taylor brought his knowledge about scientific principles to organisational affairs which was implemented in both factories and offices, introducing the workstyle of office work (Kijne, 1996). Taylor s beliefs where that humans would replace mechanical tools and because of this Taylor dedicated his research to provide an empirical basis for how work should be organised and how workers should be trained. This resulted in the white-collar factories where desktops were distributed in an open floor planning, supervised and discouraged from socialising or focusing on anything other than the assigned task (Poleg, 2020). Later e 1940 e ff ce lost its machine-like feeling and new layouts with furniture systems were introduced.

Companies tried to make the office better and workplace layouts such as private cell office and cubicles were introduced alongside the digital evolution (Poleg, 2020). Later, in the 1960s, computers started to be introduced into the workstyle and now basic cognitive tasks which dominated the workstyle of Taylor s office factory, could be automated by a computer.

However, research has shown that the foremost turning point of the future office started in 1985 with major technological breakthroughs that would dramatically change the world, Apple introduced the first desktop icons, the first .com website was registered, and Microsoft Windows was launched. This was the first aspects that would come to significantly change the way we work. These developments are all yet today essential for the everyday work (Harris, 2015).

In 2009, Tabak distinguished three different ways to differentiate work activities. These three aspects are presented below and were later used in studies to investigate human behaviour in the office and how it affects our work (Tabak, 2009).

1. Nature of the activity – social, psychological or job related 2. Individual or group activities

3. Planned or unplanned activities

The aspects of human behaviour in the office are essential within research on activity-based offices (ABO) (Appel-Meulenbroek, et al., 2011). Tabak's research also indicated that work activities also can depend on other aspects such as duration, frequency and importance. The conclusion of the research is that depending on the activity and personal aspects, a specific workstation is necessary within the appropriate facilities. This is the essence of ABO, where workers use the appropriate workstation for their work at the time which consequently means no personal desks, an aspect also known as hot desking where the worker is able to touch down for certain work tasks. Activity based offices is almost always designed within an open plan office (OPO) which is the predecessor to hot desking and ABO. OPO is best explained as an office with a limited number of partitions, personal desks are spread out over an open office area with natural divider such as plats and boards. The successor, ABO is the same idea of the OPO but with no personal desks, workers can sit wherever, and work tools are left in a locker at the end of the workday. The goal with the OPO was to increase productivity by stimulating interactions and better communication between colleagues by eliminating partition walls and instead placing all workers in an organised open plan with plants, desktops and screen walls being the only partitions. Another main aspect of the implementation of the OPO is the reduced accommodation cost per worker. ABO has the same purpose as OPO, only that the ABO is the elevated version of OPO (Appel-Meulenbroek, et al., 2011). Both the OPO and the ABO were made possible due to the ICT development, which included work tools such as Windows and the laptop. Research shows that ever since the ICT evolution of 1985, the desk space has decreased and common areas such as meeting, collaborative and social space have been increasing in the office. This is a direct consequence of the office being more agile and knowledge based instead of repetitive, and production focused. Since the introduction of OPO the concept has been evolving and it still is, yet today (Harris, 2015; Appel-Meulenbroek, et al., 2011). However, all research is not in unanimity and some researchers believes that the aspect of the workplace being a place needed to promote collaborations and innovation works

directly against the trend of home working. One must not forget that different companies have different needs when it comes to accommodation and the future office might therefore display several outputs. Already today we can see that office tenants are taking different approaches to the new office; some are increasing their square meters in total and per workers and some are decreasing (Miller, 2014).

When going through research which investigates the end users perspective of ABO it is clear that there are both benefits and disadvantages with implementing an ABO workstyle. A study, which collected the end users perspective of ABO through a questionnaire with questions regarding their personal behaviour and opinions came to the conclusion that the results were very various, which indicates that personal aspects are of high importance when it comes to human behaviour at the office (Appel-Meulenbroek, et al., 2011). Observed in the research by Appel-Meulenbroek et al. (2011) the average employee used a varied number of different workstations during an average week, 19.00% answered one workstation, 37.00% used two and 32.00% used three and 12.00% used three types of workstations. These results implied that implementing an ABO is successful since the different areas are utilized by the workers.

However, 28.00% said they still claim a specific workstation by leaving personal belongings which does not correlate to the vision of ABO. One aspect regarding ABO which has been criticised is the lack of privacy and the increase of distractions due to an open landscape.

However, research shows that more than half did not feel that their workstations was too much in sight of others and did not provide them with privacy. Nevertheless, around 40.00% agreed with the fact that they were easily distracted due to events around them in the open office (Appel-Meulenbroek, et al., 2011). Research has also shown that collaboration instances are higher, especially in an area which is more visible and open, this because it supports more spontaneous interactions between team members and others (Zamani & Gum, 2019).

Since the ABO was introduced in 1990s the concept has developed increasingly in the 2000 s and new mixes of different workplace concepts have taken place. Research indicates that thanks to technological advancements the office work has been challenged as workers embrace the ethos of work anytime and anywhere. Organisations are now seeing a utilisation rate between 60.00-70.00% in real estates and as a response to this, organisations are finding innovative ways to reduce their leased square footage. One of these new concepts are the activity-based flexible office (AFO) which is a mix of the previous OPO and ABO, where workers decide where, when

seen as a flexible way of working and the latest research shows that an agile working strategy is becoming increasingly popular, agile work aims to promote collaboration and integration and the workplace is a tool to connect and engage workers rather than the old office industries previously mentioned (Harris, 2015). A consequence of the workplace shifting to a more flexible and agile environment is the aspect of property management needing to adapt as well.

The office building has evolved from an asset to a resource, which means that the purpose of management has changed from managing buildings to managing people (Poleg, 2020; Harris, 2015). The product that the property owners provide for its tenants has changed from a standard workplace option to a flexible, service-oriented facility which provide hotel like services to its users. Because of the demand change on offices the property supply has answered with several flexible options such as serviced offices, activity based and coworking. Due to the new agile and communicative workplace made possible by ICT services the general leasing time for contracts have been decreasing. In 1985, the general leasing time for offices was 25 years which decreased to 15 years by the early 1990s and by the 2000s the normal leasing time is between five to ten years (Harris, 2015).

2.1.4 W^ORKSTYLE S^TRATEGY

Research have given indicators that, due to digitalisation, the new way of working has been summed up in a few workstyles as a part of agile working ; smart or flexible working, activity-based working and hybrid working (McGregor, 2012). The new way of working is characterised by agile working as a way of including the digital evolvement of the office space as something that could be done no matter the physical position. The ability to work from other locations than the original office has proven to contribute to knowledge spill over hence employees are enormously creative (McDermott, 2016; Mckew, 2018). The result of the benefits from flexible working allows organisations to put more focus on the employees within the organisation and to investigate in what kind of workstyle that is best suited for them (Oseland, et al., 2012). According to the research done by Oseland et al. (2012) there are other aspects than only the flexibility of location that is the benefit of the change in workstyle. The productivity in terms of travel time and increased productivity and efficiency through communication services when collaborating with colleagues. McGregor (2012) expresses the ways of agile working as something that allows delivering more with less since more productivity creates better efficiency. The ability to show up once needed and the office offers hot-desking as opposed to individual desks, allows employees to be flexible and productive through digitalisation and less space (McGregor, 2012).

The most known form of flexible working is the concept of coworking. The terminology and way of working was first introduced in San Francisco in 2005 (Leclercq-Vandelannoitte &

Isaac, 2016). According to Leclerq-Vandelannoitte and Isaac (2016), coworking involves a new workplace strategy which gathers workers from different fields and companies to one shared space, with the incentive to promote collaboration and to form a community (Leclercq- Vandelannoitte & Isaac, 2016). Today, flexible working has evolved into a realistic and common work strategy for many different fields and people. Flexible working was made possible by digital tools such as the personal computer, Windows program, e-mail and mobile phones which all were introduced between 1970-1990 (Buchanio, 2017). These tools have made the working process more agile by allowing workers to choose when and where they work.

Working at an office is often correlated with long hours and a lot of sedentary where the employee is sitting at the desk for the majority of the time. Research done by Parry and Straker (2013) show that a change in the workstyle where more flexible working is included, is beneficial for the employee as the sedentary is reduced. The research also indicates that thanks to the digital evolution and being a part of the change in office environments, this also results in a reduced number of deskbound people (Parry & Straker, 2013).

2.2 O

D

The digital evolution is an inexplicit evolution which is constantly evolving and includes developments such as the electronic high-speed printer of 1953, email in 1971, the personal computer of 1973 as well as the internet in 1990. Which have resulted in the digital world of today with smartphones and social media (Buchanio, 2017). Both small and big innovations have impacted the evolution of the digital world we live in today, even though the digital answering machine might seem small in today s digital world. Digitalisation and its innovation have played a vast role in the progress of the office. Buchanio (2017) spoke about the first Taylorist office in the early 1900 s as something that was completely dethatched from digital influence. The idea of the Taylorist office was to implement neat and efficient working (Buchanio, 2017; Poleg, 2020). As mentioned in research done by Harris (2015), the first digital computer was introduced in the office environment in the 1960 s, making basic and repetitive tasks easier to do through a computer system rather than by human resources. This was a way to make tasks more effective and save time in order to limit unnecessary work.

Two of the bigger ground-breaking changes within the evolution of digitalisation were introduced in 1985 when Apple introduced their desktop icons alongside the first dot com website that was created by Microsoft (Harris, 2015). Another digital aspect which has turned over the way office work is performed, is the introduction of information and communications technology (ICT). When first introduced, ICT was referred to Telecommunication or Telework and it was first introduced in California in the 1980 s. The goal with ICT was to enable working from home with help of these technological tools to keep in contact to the physical office and one s colleagues. ICT included innovations such as stationary computers, fax machines and fixed telephones (Messenger & Gschwind, 2016).

As the technological development continues the innovations of ICT evolve even further and today ICT innovations include smartphones, cloud data storage and tablets. To differentiate the two, old ICT enabled working from one distance residence, the home. And the new ICT enables working from anywhere, therefore some argue that the term of ICT is antiquated and only a component of the previous traditional office. On the other hand, many states that ICT technologies are transitioning and adapting to the new world resulting in ICT developments extending the workplace from the traditional office to the employee s home and lastly to anywhere. Resulting in three generations of ICT which can be titled, Home Office, Mobile Office and Virtual Office. The home office being supported by the innovations of old ICT, the second stage being the mobile office made possible thanks to mobile device and laptops making it possible to work on to go. Lastly the virtual office was generated by the internet which made work accessible anywhere and on smaller more powerful devices such as smartphones (Messenger & Gschwind, 2016). The latter generation of a virtual office changed the location of the office to anywhere and therefore also allowing employees occasional use of ICT s depending on need. This is what today is normally referred to as flexible working, the individual decides when and where they work, which can be at a third place or at the office dependent on different circumstances (Messenger & Gschwind, 2016).

Many state that ICT technologies are transitioning and adapting to the new world resulting in ICT developments extending the workplace from the traditional office to the employee s home and lastly to anywhere; resulting in three generations of ICT which can be titled Home Office, Mobile Office and Virtual Office. The home office being supported by the innovations of old ICT, the second stage being the mobile office made possible thanks to mobile device and laptops making it possible to work on to go. Lastly the virtual office was generated by the

internet which made work accessible anywhere and on smaller more powerful devices such as smartphones (Messenger & Gschwind, 2016). The latter generation of a virtual office changed the location of the office to anywhere and therefore also allowing employees occasional use of ICT s depending on need. This is what today is normally referred to as flexible working, the individual decides when and where they work, which can be at a third place or at the office dependent on different circumstances (Messenger & Gschwind, 2016). The latter generation of a virtual office changed the location of the office to anywhere and therefore also allowing employees occasional use of ICT s depending on need. This is what today is normally referred to as flexible working, the individual decides when and where they work, which can be at a third place or at the office dependent on different circumstances (Messenger & Gschwind, 2016).

Today in a world of a pandemic, ICT tools has become more frequently used than ever before and tools such as internal and external communication services, webinar instruments and chat- services are today essentials within the organisation (Bosch & Olsson, 2021). Historically digital developments within office work are great which questions how ICT can expand in the future. According to the research by Bosch and Olsson (2021) the digital evolution with all its digital tools and technologies have fundamentally affected the strategy and ways of doing business with each other. When digital tools were introduced, all face-to-face communication could be exchanged with applications such as Microsoft Teams and Google Meets. This changed the way companies connect, participate and even compete with others on the market proving that the digitalisation of industries is constantly improved as new opportunities emerge (Bosch & Olsson, 2021) The latter generation of a virtual office changed the location of the office to anywhere and therefore also allowing employees occasional use of ICT s depending on need. This is what today is normally referred to as flexible working, the individual decides when and where they work, which can be at a third place or at the office dependent on different circumstances (Messenger & Gschwind, 2016).

Building management services, commonly known as BMS is a digital construction development where data is used to fine-tune maintenance systems within the building, enabling the building to operate more efficiently. This is done by sensors which regulate aspects such as temperate, airflow and humidity, commonly known as sensors (Gillen, 2019). According to Gillen (2019) this aspect is yet another proof of how digitalisation can be applied to the digital

achieve a more energy efficient building and therefore also a more environmentally friendly building. The sensors also benefit the tenants directly because it provides a more accurate indoor climate (Schneider & et al., 2020).

Another type of sensor which is not as common is utilising sensors, these sensors detect the presence of people with the purpose to assess the occupancy rate of a certain area. This tool can give indications on how to design the future office, it will show what areas are most utilised by the employees and which areas are not. The sensors can therefore help adapt the design of the office to make sure it matches the actual need. The goal is to learn from the sensors and continuously adapt the office to the data collected to get an environment best attuned to the people working in the office (Gillen, 2019). The utilising sensors can also help making the office more dynamic with displaying seating in real time and showing which spaces are occupied or free. By reviewing the historic patterns of utilisation over time the sensors can help building managers to achieve an efficient use of space while ensuring individuals find the workspace desired. In the future, the ideal BMS system will include sensors for all appliance from, sustainability and utilisation to internet devices and control gates. Digital sensors have many benefits to several parties, some of the main benefits are, minimised maintenance costs, a higher environmental quality, environmentally friendly and improvement of office spaces (Gillen, 2019).

3 M ARKET O UTLOOK

In this chapter, a selection of corporate research has been presented with relevant information regarding the Swedish real estate market for offices. The information is mainly based on market trends and observations and is not to be mistaken for, or considered as a part of, the literature review in the previous chapter.

3.1 T

Information gathered in this section is mainly result based on the collection of market information collected and produced by corporate firms in Stockholm. The firms are following the market trends, observing fluctuations in rental levels, the current and historical vacancies and the various yields on the different segments. It is generally difficult to state what the actual and exact levels are regarding rents, vacancies and yields since they all depend on many different factors. This said, the data presented in this section is to be taken lightly, it will reflect the market to the extent of which these companies have reported the specific variables.

However, a bit of reflection and critical eyes need to be added while reading this segment, and as the market is an ever-changing market, the authors know that some of these may change over time in accordance with the process of writing this thesis.

3.2 T

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The real estate market is a traditional and fundamental market known for offering stable investments with low risks. The property market is an important keystone around the globe with a high contribution to the global and national GDP. The Swedish real estate portfolio in 2020 presented a taxation value almost equal to SEK 10.50 million where commercial properties represented around SEK four million (SCB, 2020). The 2019 national GDP for Sweden equated approximately SEK five billion where the real estate businesses represented 9.00% (SCB, 2020). It is fair to say that the real estate business plays a vital role in both the global and Swedish financial wellbeing.

The real estate market is divided into four main segments with respect to property type, these are office, residential, hotel and industrial. This thesis will focus on the first segment of office properties. The office is known for being one of the most stable segments within real estate.

The reason for offices providing such a stable investment is mainly due to the low risk compared

to retail and hotel properties, this because office tenants pay a fixed rent. Another aspect that makes offices stable, is the fact that risk is distributed over several office tenants which is not the case for a hotel property. Another attractive characteristic of the office is its standardised outlook which implies that less capital needs to be used to personalise the premises to a specific tenant such as a hotel. This results in offices being a passive investment option with stable and reliable returns over time. Because of the stability, office building has become the ultimate real estate asset, especially for institutional investors. However, some of the desirable characteristics of the office has recently started to be challenged (Poleg, 2020).

The office supply in Stockholm is spread out in various sub areas around the city centre. In other words, these sub areas are called office hubs as certain companies, within a specific segment, chooses to locate either a number of offices or their headquarter in an area where other similar companies have also chosen to locate their offices. For example, many IT companies have for decades located their enterprise in Kista a bit north of the Stockholm city core. Law firms are usually located in prime areas of CBD and Östermalm, game and tech companies are highly present in Södermalm, etc. The list goes on, but during the past few years, companies and international brands, have chosen to locate their offices more towards the centre of Stockholm, due to new development in the city centre of Stockholm and mainly Stockholm CBD. Many companies have communicated that they need to localise themselves in the prime areas to successfully achieve the comparative advantage to find attractive talent and great exposure. Microsoft, for example, recently moved their entire office from Akalla to prime office hub Urban Escape and they are currently occupying part of the building alongside WeWork and other tech companies such as Facebook, Spotify, Netlight and Kindered (Dagens Industri, 2019).

3.2.1 SUBLETTING ON THE S^TOCKHOLM O^FFICE M^ARKET

The ability to lease the office space to another tenant is a possibility that is communicated via the landlord and the tenant and is controlled by the statements in the contract. If the sublet is not accepted by the landlord, the tenant is able to apply for a settlement through the Swedish Rent Tribunal (Riksdagen, 2021). If the sublet however is accepted it is usually up to the tenant to investigate and to find a proper tenant willing to sublet, and eventually even take over the contract. Normally, tenants occupy the space and need, due to a large expansion or decrease in employees, to expand or narrow down their current space. This is usually done in the final years of the remaining contract time. The contract usually also involves a break option; a fee that is

paid to allow the ability to leave the contract early. This is both a security for the tenant, but also the landlord. If the tenant no longer wishes to occupy the space, they should have the ability to leave and the other way around: if the tenant wishes to leave, the landlord contract should imply a financial security for the landlord since they lose their tenant, which in the long term means loss of income if the space is not occupied by another tenant (Riksdagen, 2021).

In a report published by Cushman & Wakefield Sweden, all vacancies in the CBD area as of Q4 2020 consisted of at least 30.00% of vacancies due to subletting. This is a new level of subletting not experienced before on the Stockholm market (Cushman & Wakefield Sweden, 2020). About 3.00% of the total supply of office stock in Stockholm is categorised as flexible office space, and according to Cushman & Wakefield the remaining 97.00% of the supply has a lot of potential to undergo vast changes to meet the expectations of the market (Cushman &

Wakefield Sweden, 2021). A reason for this, according to Cushman & Wakefield is that it has become a large interest in occupying spaces that has already been taken by other tenants. Maybe the new tenant wishes to occupy a traditional office space but are not willing to sign a contract that keeps them locked in a space for the next five years. A comment from Cushman &

Wakefield Sweden is that subletting is fairly common on international markets. The office market in Stockholm needs to change its attitude towards subletting and realise that this could be a good solution to a short-term problem, but also something that could be effective in the long-term. The product subletting has to be marketed as a potential product for tenant that are in the middle of their greatest expansion phase, causing them to be cautious in signing long term leases of five or more years. Subletting means flexibility and sometimes a lower rental value than what could be offered by the market. A good solution that could relieve the short- term stress and problems for various parties (Cushman & Wakefield Sweden, 2021).

3.3 R

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Figure 2 - Rental levels dated March 2005 until March 2021 (Cushman & Wakefield, 2021)

Figure 2 show the development of the office rental levels in the inner part of Stockholm city throughout the years of 2005 until the first quarter of 2021. The past years have shown a rapid change in the office environment where market rents have increased more than previous years.

This has a lot to do with the international interest in the Swedish office market and the new supply and pipeline of office stock that increased during the years 2016 until today.

Historically, rental levels have risen steadily, and during the year of 2019, rental levels in Stockholm CBD were observed at a record high level of almost SEK 8,500 per square meter, annual rent. Prime rents were observed at SEK 10,000 covering the market s more newly produced supply. Despite the high rental levels, together with a low vacancy rate ranging from 1.00-3.00%, the tenants in Stockholm CBD were left with no other choice than to accept the rents offered by the landlords and to take the deal to secure a premise in the desirable district (Cushman & Wakefield Sweden, 2019). However, the rental levels during the last three quarters of 2020 were recorded at lower levels, considering the total turn on the office market due to the pandemic. Only a small rise in rental levels were recorded, and overall, the resulting final rent in Stockholm CBD was reported at an annual level of SEK 7,900 per square meter (Cushman

& Wakefield Sweden, 2020). However, the slightly lower rental levels observed in 2020 have increased during the first quarter of 2021, as shown in figure 2. A reason for this could be the stabilisation of companies on both the international as well as national market but also the positive attitude towards the future shared by the landlords. According to Cushman &

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Prime rents in Stockholm City (SEK/sqm/an)

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Wakefield Sweden the rise of rental values in the beginning of 2021 could be a result of landlords focusing on giving the tenants rent-free periods rather than lowering the rents to keep a steady property value.

3.4 Y

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Figure 3 - Prime yields in Stockholm dated March 2005 until March 2021 (Cushman & Wakefield, 2021)

The yields, as in the beginning of figure 3, were fluctuating a lot due to an unstable market, as a result of the financial crisis of the world economy during 2008. In the last ten years yields in Stockholm have declined steadily and in the last quarter of 2020 the yields were documented at a level of 3.75% in Stockholm CBD (Cushman & Wakefield Sweden, 2020). A reason for this trend is the attractiveness of the Stockholm market, lowering the risk causing the yield to go down. During the recession of 2008 the market, on an international level, was highly impacted, however, the Swedish market managed the recession well. This has led to an increase international aspiration to invest in Swedish real estate over the past years. However, due to the stabilisation in the market, the yields in the real estate sector have gotten lower year by year and as of quarter one in 2021, the yields have been documented at a level of approximately 3.30% for Stockholm CBD (Cushman & Wakefield Sweden, 2021). The shorter graph in figure 3 shows the yields in the suburban parts of Stockholm. The thesis mainly focuses on the inner city of Stockholm; however, the outskirts of the city centre are also important in showing how the yields are higher and could affect the way stakeholders chose to invest in real estate.

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Prime Yields in Stockholm

Stockholm CBD Secondary Suburb