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Market Perspectives: Covid’s impact on the flexible workspace industry

By Amanda Fanoun
20.05.20 ·
essensys post covid webinar recap

The coronavirus pandemic has forced the world into uncharted waters. Many of you are wondering what covid’s impact will be on the future of the flexible workspace industry. We brought together Liz Elam, founder of GCUC, John Williams, CMO at Instant Offices, and our CEO, Mark Furness, to discuss the topic and share first-hand how the flex-space market will be affected by the pandemic.

Here are the key takeaways.

Covid-19’s market impact

One of the most notable consequences of the current global pandemic is that it has forced people to be adaptable. With a move to remote working, people are now aware of a better quality of life, and businesses will respond by developing operating models that can respond to that demand. Mark Furness is optimistic about the future of the industry. He commented, “the new normal will be different, and the outlook for flexible real estate products is exciting.”

The panelists agreed with Furness that the pandemic “is a major catalyst event in the move to flexibility.” John Williams noted the appetite for getting back to offices, spending time with colleagues, and renewed contact with professional networks. Despite specific inhibitors such as mass transit and vulnerabilities to catching the virus, “those who can, will go back to offices.” He pointed to the rebirth of regional office space, an increase in spaces in suburban areas, and other non-CBD workspace locations.

According to Williams, for smaller operators, making it to the other side of the pandemic means they are on fertile soil and have a tremendous opportunity to grow. But, “cash is king,” he said. Liz Elam conferred that right now, your balance sheet must be in good order. “If you’ve tried to grow too fast or over-built your spaces, you’re going to suffer,” she said.

Elam also highlighted the importance of location aggregators such as DeskPass, Croissant, and Upsuite. She points to an influx of people who will continue to require meeting spaces. Those operators who make it easy for corporations to find them via third-party sites “will win.” She remarked that people are looking forward to “fleeing back to their offices” post the pandemic. Elam is also excited to see a 4th revolution where people will thrive with humans as the central focus in the workplace.

The Return to the Flexible Office

Instant Offices has been tracking demand region by region. They combined their proprietary data with Google data and found that since Covid hit, Asia markets lost about 40% in traffic. Demand began to rise again in March, followed by Australia. The first wave came from corporates, particularly those who are eager to get staff back in client-facing environments. While they don’t yet seem to be ready for long commutes or a full return to dense CBD areas. Instant has seen requirements in their corporate segment for 50 desks sized workspaces (“bounce” spaces) across multiple regions.

Williams noted that this could be a swing point. Corporates may now see flex as the long-term answer, rather than a short-term solution to a real estate need. He pointed to Asia’s previous experience with SARs, which forced lock-downs in the past, alluding to a sense of confidence in bouncing back from such situations. For the western world, it may take a bit longer to bounce back. Instant’s data in USA and UK markets point to a drop in demand by approximately 60%.

Driving Landlords to Flex?

“The Covid situation is accelerating trends we saw before the pandemic,” said Williams. In that vein, Furness has a firm conviction that the days of traditional long-term leases are over. “Renewal rates will go down significantly in the traditional space,” Furness predicted. “The march towards more flexible real estate products has caught pace in the value chain, moving from corporates to the enterprises,” he said.

“Landlords are being forced to respond by their occupiers. It’s moved from a supply-side challenge to demand-side led. And they’re struggling.” Furness mentioned landlords who are debating flexible models, how to approach them, and are weighing tech and service operating models. Many are on the back-foot, having forecasted entry to the market five to ten years out. The reality is that the opportunity to capitalize on flexibility is now.

According to Williams, “it’s inevitable that landlords will make a play” for flexible, but they’ll have to be more amenable to their clients.” Tenants are weighing the risk of signing a long-term lease and are pressuring landlords to provide more services. “Landlords aren’t comfortable looking after the clients in the long term,” noted Williams. For Liz Elam, landlords should “stay in their lane and do what they do” and let coworking operators what they do best – enter management agreements.

“Operators that prove the value of their brand, their services, and create relationships with the right landlords” find success with management agreements. “They will be critical in suburban locations where the market is seeing growth.” However, Williams continued, “getting landlords to play nice and realize the value of those operators is a barrier we need to knock down.”

Technology: What to Expect

The pandemic we’re facing is undeniably a significant catalyst for the evolution of real estate technology. “It’s a once in a generation event that will force spend that we would’ve expected over future years,” said Mark Furness. “We’re seeing people ask more and more about building security and environmental security.” The most immediate requirement for operators, however, is the ability to manage occupants and understand if they are at risk.

Lockdown has forced many companies to pay more attention to their tech stacks than ever before. Now is the time for CRE and workspaces to make their investments in technology and integrating smart platforms that can drive transformation in their businesses. Those who don’t will be left behind.

Brokers: The Next Phase

Elam asked Furness and Williams about their outlook on brokers. Furness predicts two strands of brokers that will emerge from today’s situation: those who are strategic partners to companies and can handle a wide range of requirements and those who are massively technology-enabled and can handle high volume transactions. For Williams, “aggregating the internet won’t be enough for now or in the future.”

It’s about fostering relationships and finding a middle ground. Purely transactional businesses may not stand up in a post-Covid world. As agents of the market, it’s critical for brokers to accurately represent what’s happening in the market and give informed advice.

MARKET PERSPECTIVES

Industry experts discuss the impact of the pandemic on the flex-space industry.

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