_The occupier’s checklist for ‘going global’

The emergence of the Global Cities is a direct consequence of the on-going need for corporates to secure competitive advantage and commercial relevance.

Yet neither the source of this advantage, nor the global geography of business which has derived from it, has been static. There have been four recognisable phases through which this global geography of business has evolved.

Phase 1: Advantage through scale 

Initially, significant office occupiers such as investment banks, accountants, management consultants, lawyers and the like, sought to drive growth through the simple exportation of services across the globe. This was a rudimentary strategy whereby the dots on the map signified the global coverage upon which competitive advantage was secured. The tier one markets of London, Tokyo, New York City and Paris were firmly to the fore.

Phase 2: Advantage through cost efficiency

A second phase emerged as corporates sought to utilise global markets as a means of delivering cost efficient services. A corporate strategy based on scale was usurped by one focused on broadening representation in those cities where operating costs were lower than in developed economies. This led to a raft of corporate off-shoring initiatives, which placed customer and shared service centres in cities like Bengaluru, Cape Town and Warsaw.

Phase 3: Advantage through putting the right things in the right place

Next has been a push towards functional specialisation. Combining the learning from the previous two phases, corporates created global operational portfolios whereby functions, part functions or entire service lines have been placed in those global locations that can best provide the right human resources at a price point and skill level appropriate to the significance of that function or service.

Phase 4: Advantage through speed and agility

We are now in a fourth phase of global business growth in which speed takes precedence over size. Emboldened, enabled and forever disrupted by technology, corporations go global to gain rapid access to the latest innovative ideas and the talent pools generating such ideas in order to utilise any competitive advantage before it becomes eroded.

To achieve this, a corporation must have the systems, processes and platforms to leverage these short-lived moments of advantage, and at a global level.

In this phase, business success becomes a function of agility, connectivity – both physical and virtual - and the rapid capitalisation of good ideas. Crucially, the decision to go global is occurring at a much earlier point in the business life-cycle – again through the ability of technology to reduce barriers to entry.

As we noted in last year’s Global Cities 2017 report, the emergence of tech and creative businesses with global intent or significance has brought various tier two cities such as Austin, Berlin and Dublin into firmer focus as global business centres and office markets of international significance.

Above: occupier property requirements are changing. Above top: Mumbai international airport

The true implications of going global 

There are broader property market implications emerging from this fourth phase. The demand side of the property equation is changing and is forcing cities to change their ‘offer’ to occupiers. There are five key shifts:

1. A broader pool of demand within cities

Demand is now drawn from a deeper range of industry sectors and with a greater variation in the size of floor-space requirements. We have witnessed, for example the tech sector replace financial services as the dominant source of demand in the London market over a number of years, but also a small reduction in the average size of leasing deals across the city. Global Cities are no longer centres of singular sector excellence but rather markets that have diversity.

2. A very clear and intense urban focus 

City cores, in markets such as Manhattan, are being re-born as places whereby innovative and creative talent can be sourced and secured. This is exemplified by companies such as Nike and Spotify expanding in New York City.

3. The push for flexibility

In an environment of short-lived competitive advantage, occupiers are demanding flexibility in terms of building design, lease terms and, critically, tenure. On this last point, we have seen the rapid emergence of co-working space across Global Cities – one recent study predicts that there are currently more than 11,000 co-working facilities globally and that the market will have a Compound Annual Growth Rate of 24% in the years out to 2020. Co-working increasingly provides a solution not just for start-ups but also corporations who generate innovative products through smaller, creative teams.

4. The flight to quality and service

Linked to points two and three, has been a growing occupier focus on securing high quality and heavily serviced space, which serves as a magnet in attracting and retaining talent to drive growth. This has been compounded by low levels of new office development over recent years.

5. Space as an accelerator of innovation

The fourth phase of going global does not alter the need for offices but does change the way in which offices are utilised. No longer a battery farm for email processing and administration, offices are being used as innovation labs with corporates such as Coca-Cola, Telefonica and Capital One creating distinct business accelerators and incubators within the Global Cities.

Case study: 

The rise of Navi Mumbai 

A new business district was needed for Mumbai, beyond the city centre, to house its tech sector

Vivek Rathi Vice President Research, Knight Frank India

Mumbai’s CBD and off-CBD comprises locations like Nariman Point, Fort, Cuffe Parade and Worli. Until the late 1990s, these districts accounted for more than 90% of the office stock in the city, and were the only meaningful locations in the city from an occupier’s perspective, mainly on account of their indomitable status as the commercial and trade hub of the city.

However, continued growth in commerce and a shortage of land in the CBD encouraged new office development post-2000 elsewhere. Attracting occupiers mainly from the IT/ITeS sector, Navi Mumbai has emerged as the tech hub of the city, accounting for one-fifth of the current office stock.

In the last decade, the emergence of Navi Mumbai as the satellite city of Mumbai led to office developments mainly in locations like Airoli, Vashi, Mahape, Turbhe and Belapur. Central to its success has been the availability of large land parcels, which paved the way for development of modern buildings, offering large floor plates and affordable rentals.

Our office agency and tenant representation teams can provide expert advice to tenants and landlords across the global office market. We deliver real value through carefully formulated property strategies and robust negotiation, in prime business districts for landlords, multinational businesses and local occupiers.