Are the days of flash corporate headquarters over?

Sunday, 14 July 2024

Tech giants Xero and Datacom are downsizing some office space, while other big companies are on the move, but that does not mean the end is near for swanky corporate headquarters.

The rise in working from home has impacted on offices around the world, although in New Zealand the return of workers’ to the office has been ahead of the global trend.

But last week it was revealed that Xero was looking to sublease 2810m² of its five-storey, 6500m² Taranaki Street headquarters in Wellington, while Datacom would be subleasing the fourth floor of its offices in Auckland’s Wynyard quarter.

A number of other big name corporates, including Spark, One New Zealand, Beca and Air New Zealand have announced headquarter moves in recent years. In One NZ’s case, its new office footprint will be smaller.

So could this signal a shift away from the long-standing corporate preference for fancy head offices?

JLL head of office leasing advisory Ross Bolton says there is some downsizing going on at the top end of the market.

“What we are seeing is large companies of the type that have a sizeable internal middle management component, downsizing or right-sizing their requirements.

“That’s because they tend to have less client focused staff and can move to more hybrid working and virtual meetings in that middle tranche.”

A cohort of those companies also took on additional space in the years leading up to Covid, and the change in ways of working left them with excess space, he says.

“We have crunched the numbers, and across the office market the average shift. Strip them out, and there’s not much change for most office occupants.”

For the big corporates, changes to office space are being driven by the type of sector they are in, different ways of working, and a desire for better quality property, he says.

“It’s more about changes in the space than letting go of the office. It’s worth noting that pre-Covid offices were never 100% full, with office utilisation rates at about 80%.

“They might be consolidating and downsizing their footprint because less staff are in the office all the time. But they are spending more on high-quality premises, with better amenities, good green and seismic credentials, and top of the line technology.”

Bolton says the flight to quality has become pronounced, and shows the value corporates continue to put on premium office property.

But it has created a big gap between top end and secondary office space, and as premium office space is limited that sector of the market is competitive, he says.

“There is some subleasing that goes on, but it is in pockets and not a big part of the market.

“The larger companies often have a big footprint spread over different spaces around the country, and are continually refreshing parts of their portfolio to respond to what their market and workforce is doing.”

Bolton’s view on how the corporate office market is changing is reflected in the corporates’ reasoning behind their moves.

A Datacom spokesperson says the company moved into its Auckland office in 2017, well before the pandemic changed the way people work.

It now supports a hybrid work model, and while many people come in every day, in the Auckland office they were consistently seeing people scattered over several floors, with empty seats and desks on each, she said.

“It made sense to sublease one floor and condense the team to occupy the other floors. It also helps to create a more vibrant atmosphere, which is what many people who come to the office want.”

The move will result in cost-savings, and these savings will be reinvested into the business, and whether that is to staff or investment in infrastructure and product innovation, ultimately it is a benefit that is passed on to customers, she says.

But Datacom still believes it is important to retain office space for several reasons.

“The vast majority of our people are hybrid workers who work at home and in the office. We see our offices as an important space for collaborative work and we know our teams value time spent working face-to-face,” she says.

“The other critical reason for our offices around the country is that they are a base where our teams can connect with our customers and work face-to-face with them on projects.

“We are truly local with teams on the ground in cities around the country, and our offices provide an important hub for our work with local customers and partners.”

She adds the company has made a range of different moves in offices over the past year. They include subleasing space in Auckland, upsizing its Hawkes Bay office where the team has grown, and moving to new headquarters in Wellington.

A Xero spokesperson says the company has consolidated some of its office space in Auckland and Wellington to best optimise its physical footprint and manage utilisation.

It is also to encourage greater team collaboration, networking and connection, and support the company’s commitment to flexible working and enabling staff to do their best work, she says.

One New Zealand is another corporate that has announced it is moving offices, although it will not be doing so until late next year.

The company will be moving its Auckland support office from Smales Farm on the North Shore to a new carbon positive, 6-star Greenstar building, currently under construction by Mansons TCLM, in Wynyard Quarter.

One NZ head of sustainability and corporate affairs Nicky Preston says at 10,000m² the new office will be about 60% of the size of their current office which is 18,000m².

That is driven by more people working from home, with office utilisation rates in the Auckland office hitting about 60% on a big day, she says.

“The new space will accommodate the maximum number of people we see in the office based on that rate, and it will be designed to enhance connection, support future ways of working, employee wellbeing, and sustainability.

“It will support hybrid working and incorporate private areas for focused work, with flexible spaces that facilitate training and development opportunities, and social spaces, which we are working on with staff to ensure we provide what is wanted.”

The company is focused on creating connections, and unlocking the magic of technology to help its customers thrive, she says.

“Moving to a more central location, surrounded by many business partners and customers, will enable us to enhance those connections, so it feeds into our purpose as a business.”

One NZ continues to see value in having a flagship head office, Preston says. “We will have 1200 staff working there over three floors and two towers, so it’s still a pretty big office.

“We see the need for a great, central office space that our people want to come into, and that allows for innovation, and collaboration. It is just a matter of using space in the right way, and we are.”

Some other impending corporate moves involve Spark, which will be shifting its head office to Mansons’ new $650 million tower on Albert St in Auckland’s CBD next year, and Beca, which is moving its headquarters in Auckland from Pitt St to a landmark building in the Wynyard Quarter Innovation Precinct in 2025.

In Wellington, BNZ recently relocated to its new flash home on Whitmore Pl near Parliament, after moving five times following earthquake damage to the bank’s old headquarters.

BNZ general manger of property Kelly Galbraith says the bank wanted to create a unique, state of the art office space for staff and customers.

“We believe it is important to create and maintain great office space. It’s had a positive impact on company culture, and this office has great value for us.”

Air NZ was planning to relocate its head office from Auckland’s CBD to a refurbished building at Auckland International Airport this year. It wanted to bring together corporate and operational business units in a facility which fostered a hybrid working environment.

But Air NZ chief financial officer Richard Thomson says that after further assessing the project's complexity, cost and the airline's current priorities, it has been decided to defer doing that until at least 2031.

Massey University marketing professor Bodo Lang says the days of corporates having huge offices to house all their staff every day are over, but for many it is still useful, and desirable, to have a dedicated head office.

A premium office in a prestigious part of town gives presence, mana, and recognition, and for some businesses that is critical, he says.

“An equivalent would be sponsorship or billboard space at a massive event, such as the Fifa World Cup. That’s all about building brand recognition, and a flash corporate headquarters is exactly the same.

“It sends important signals to customers, so there is definitely a purpose behind corporates having these offices.”

But given the “humongous costs” involved, the value of it really depends on what the industry is and what the company does, Lang says.

“For businesses providing services with credence attributes, where you can’t find out about the product and its value until you have used the product, such as insurance or banking, a flash office would provide value.”

That is because they indicate the business is credible, reputable and safe, he says.

“Office headquarters are the physical, tangible part of a corporate’s brand. They help other businesses and consumers evaluate what that business is like, and people like that.”