5Th International Conference On New Ideas In Management, Economics And Accounting
Sustainable development represents an important goal for emerging economies. The main engine for this development is innovation, which is generated by human capital accumulation. For the real estate industry the growing importance of human capital and the war to retain and attract the most talented people, the kind of people capable of driving innovation, growth, and economic success in a global economy are critical to developing the type of assets capable of attracting the best tenants and offering the greatest return on investment. Real estate strategies focused on recruiting and retaining talent are also contributing to significant changes in real estate market fundamentals and these changes could have profound implications for where and how people work for a generation. The purpose of this paper is to explore how human capital is affecting real estate. Our hypothesis is that there are structural changes in how current real estate buildings are being developed in order to be correlated with current expectations and needs from the new generation of employees.
Investment in human capital is one of the most profitable types of investment for any community that is set on the path of sustainable socio-economic development. The future belongs to countries which create an environment that supports innovation, and whose resilience depends on the existence of a high level of investment in human capital. Innovation requires a number of factors that allow new ideas to be brought to market. Having the right human capital is critical for innovation. However, for the success of innovation, besides the adequate human capital, other factors are needed, such as: socialization, concentration, learning and collaboration. The purpose of our research is to explore how human capital is affecting real estate and the objectives are: i) Study of the human capital challenges; ii) Analysis of the real estate markets changes; iii) Study of real estate role in recruiting, retaining, and engaging talent.
As the field of research is relatively new, there are several studies on how human capital influences real estate.
In a more recent paper Donner et al (2018) present an analysis of the potential benefits of digital cities for real estate development decision making. They conclude that cities that can create excess demand are going to experience increasing property value. Therefore, the policy of attracting human capital will have a direct impact on real estate values.
Gyourko et al. (2013) analyzed the relation between human capital and house price growth and they show that in the context of constant preferences for location among households, and housing supply not being perfectly elastic everywhere, changes in aggregate housing demand will impact cities differently so that local house price growth leads to a change in local population composition. Basically, aggregate demand will raise prices more in so called ‘superstar’ cities with excess demand and low supply elasticity, which in turn impacts the population composition when lower income potential residents are being crowded out. The authors state that as much two-thirds of the increase in house price dispersion, and almost all the increase in income dispersion, can be explained by the increase in high-earning households on the national level. A large body of research (Glaeser et al, 1995, Simon, 1998, Simon and Nardinelli, 2002, Glaeser and Shapiro, 2003, Simon 2004, Shapiro, 2006) studied the human capital and agglomeration effects. They support a positive relationship between city size and growth in employment and population. Studies also support a positive (although varying in magnitude) relationship between city size an,d wages (Glaeser and Maré, 2001, Wheeler, 2001 Wheeler, 2006,Di Addario & Patacchini, 2008). Rauch (1993) makes the argument that the average level of human capital is a local public good. The author supports this argument by finding that cities with higher levels of human capital have higher wages and land values. Shapiro (2006) analyzes the effects of human capital on rents and house prices, finding stronger effects than on wages. The author also runs a model that estimates that 60% of the effect of human capital on employment growth is due to increased productivity, with the remaining effect being a consequence of a relationship between concentrations of human capital and increased quality of life. Glaeser and Berry (2006) show that the importance of attracting educated households is illustrated by a positive relationship between wages, population and educational attainment. Closely related to levels of human capital, and a possible proxy for real estate development is the presence of knowledge intensive industries or universities. Knowledge spillovers from universities are typically found to promote firm innovation.
Andersson et al (2005) found that patenting activity increases in larger and denser labor markets when examining Swedish data. Andersson et al (2009) estimates that half of productivity gains were found to be within 5-8 kilometers from the community in which higher education investments were made. Audretsch et al (2005) states that spillover effects are likely to be heterogeneous and dependent on the context. Examining high tech start-up location choices in Germany, the authors find that such firms locate near universities to access knowledge spillovers. Acs et al (2002) found that both university research and industry R&D a positive effect on patent activity, with R&D activity having a substantially stronger positive impact. Autant-Bernard et al (2013) Confirm that technological knowledge is a principal input to R&D activity, as knowledge spillovers positively impacts firm productivity. In summary, the above-mentioned research tells us that an increased level of digital infrastructure is closely related to human capital, agglomeration economies and knowledge spillovers. In most cases, more developed digital infrastructure results in higher economic growth because of corresponding developments in human capital, knowledge spillover, and agglomeration effects. In this framework, our research investigates the effect of human capital on the real estate, having the following structure:
- 1) The human capital challenges;
- 2) The real estate markets changes;
- 3) The real estate role in recruiting, retaining, and engaging talent.
The research methodology applied in this study is based on the collection and analysis of statistical data. The research activity involved the study of specialty economic literature, using the following methods: scientific abstraction, analysis and synthesis, quantitative analysis methods, the evolutionary investigation of the analysed events and phenomena.
The activities carried out for completing the research will require gathering information regarding the orientations of national and international programmes. The data was collected from official resources (the statistical data provided by the EUROSTAT, the World Bank, the Romanian Statistical Yearbook, sociological research, journal articles and specialized magazines, the evaluations of international organizations).
The Human Capital Challenge
At the Conference Board CEO Challenge (2017), human capital is ranked as the most important business challenge faced by today’s global CEOs. Businesses are also facing the unavailability of talents in the marketplace. Withdrawing the first generation of baby boomers will generate a significant imbalance between supply and demand in Romanian labor force. While baby boomers are leaving the working age population, they will continue to demand a significant amount of material goods and services from the economy. In short, business demand will continue to grow, while the ability of businesses to produce will become tense.
Figure 1 highlights the projected annual change in the Romania labor force (age 15-64) between 2015 and 2050. The figure shows the downward trend of the Romania working age population, which will cause an imbalance between supply and demand for labor force. This imbalance between supply and demand for labor force in the Romanian economy will increase the competition for talent, which in turn, will lead to compensation costs and ultimately will influence corporate profitability. Thus, finding the right talent to fill vacant positions within organizations will become more difficult and significantly more expensive. (Source: Eurostat, 2018)Figure 1: Romania working age population projections (age 15-64)Global statistical overview of generations, including Millennials, Baby Boomers, Generation X, and Generation Z. Generation names and ages are defined somewhat differently by country and/or region. Approximately, the following generation names and age names are considered global generations: Baby Boomers: 1946-1964, Generation X: 1965-1976, Millennials: 1977-1997, Generation Z: After 1997.
The main groups responsible for defining the current workplace in Romania are Baby Boomers, Generation Z and Millennials, generations who are different in sets of perspectives and value. Boomer workplaces have dominated until recently. These are now replaced by the Millennials workplaces, also known as Creative Workspaces. This new type of workspace burnt in avant-garde areas, such as creative environments, design and advertising agencies in alternative, entrepreneurial, cities, is now a pervasive condition that exists across the world and is desirable for all types of industries and organizations, including tradition-heavy professional service and financial service firms.
Large and small businesses have adapted and modified their corporate structure to better align with the Millennial perspective. These have shifted from hierarchy to community, from command to coaching, from training to dialogue, from control to empowerment and from employee to the entrepreneur. This structural change results in a culture of experience where authenticity, diversity, well-being and interconnectivity are highly valued and contributes to informing about the kind of place and common purpose that a Millennial workplace needs to emulate.
Real Estate Markets Are Changing
The occupier war for talent has impacted real estate property types and market dynamics. In Romania, several markets offer occupants a better chance of supporting talent and innovation. In order to determine the innovation potential of a region, we analyzed five real estate markets, using the Prime Headline Rentals – Office (€ /sqm/mth) and innovation index scores as criteria.
For the real estate industry the growing importance of human capital and the war to preserve and attract the most talented people, the kind of people able to drive innovation, growth and economic success in a global economy, are essential to developing the type of assets that are capable to attract the best tenants and to offer the highest return on investment. Workplaces must help accelerate innovation and act as intra-organization cultural touchstones. Facilities managers are looking for creative solutions to meet growing demand, mobility and flexibility. The design of the workplace is driven by the idea that talent must collide as often and as spontaneously as possible throughout the workday. Despite all the interactions that technology facilitated (email, social networking etc. ) people experience on a daily basis, research suggests that the highest impact on idea generation and knowledge sharing still occurs from direct, face-to-face, contact. The current design response to the need to facilitate interaction between colleagues has been bigger floor plates, more open work areas and more interconnections between floors. The results from the first wave of such workplaces are mixed. In most recent U. S. Workplace Survey, we found that workers are struggling to work effectively due to an inability to focus. It seems that mastering the open plan requires careful attention to balancing collaboration spaces with focus areas. Innovation can only be driven by diversity and options.
For the real estate industry, these changes in how companies interact with their employees require a massive change in what key metrics the industry relies upon to inform the design of new workplaces. It applies to how the industry evaluates the efficacy of new and existing buildings, from their cores and shells to the design of their interiors. If we accept the notion that workplaces must contribute to accelerating innovation and function as intra-organization cultural touchstones, we can better understand the impact traditional design considerations are having on “speculative” development. For example, lease depths are getting bigger or are going away as a defining planning attribute as cores are moving away from being central planning barriers. Floor plate sizes are also increasing to maximize the area of unobstructed space for teaming and ceiling heights have increased, as volume and deeper daylight penetration are valued attributes in creating a great workplace experience.
The Real Estate Role in Recruiting, Retaining and Engaging Talent
Despite a future that will certainly be altered by robot work and artificial intelligence, maintaining a talented workforce is essential for our economy to achieve its true potential. The real estate has an important role in assisting the corporate with recruiting retaining and engaging labor. This role is highlighted, first of all, by changing the workplace designs that help foster greater collaboration and give birth to new ideas, amenities that enhance work/life balance. Employees are demanding that certain elements be part of their experience and occupiers are responding with new and innovative ways to use real estate as a recruitment tool. The new high-performance buildings are innovative accelerator (promote hyper collaboration and connectivity, talent magnet, mobility platform and technology enhancements), community integration (pedestrian oriented, close to transit, amenity rich, local indigenous material, sustainable practices, brand beacon (brand identity, user experience, client desired experience, create a sense of pride and ownership, promote a shared purpose) and cultural touchstone (authenticity, engaged workforce, recruitment tool, reflects firm value)
Occupiers: Determine the best markets today and in the future for talent recruitment and retention at a global, regional, and local level. Consider a workplace strategy as a way to contain occupancy costs before compromising on the quality of labor. Know the importance of the employee experience to your current and future workforce. Consider even slight differences between submarkets that can make or break a project. Investors: Integrate work, life, and play into existing and new developments. Consider a reverse site-selection analysis that assesses the competitive advantages of the property, the industries it is best-suited to attract, and the ideal strategy for maximizing its marketability and occupancy. Ensure that the capital improvement budgets focus on making the right investments to attract and retain talent in the industries being targeted for tenancy. Consider ways to improve access to the property.
Real estate has a role in assisting the corporate enterprise with recruiting and retaining labor. Whether through workplace designs that help foster greater collaboration and give birth to new ideas, amenities that enhance work/life balance, or locations that appeal to a broad array of workers, real estate’s role with respect to the recruitment of labor has changed. Employees are demanding that certain elements be part of their experience and occupiers are responding with new and innovative ways to use real estate as a recruitment tool. Real estate strategies focused on recruiting and retaining talent are also contributing to significant changes in real estate market fundamentals and these changes could have profound implications for where and how people work for a generation.
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