Office space providers need to be aware of the challenges that come with delivering flexible workspace. During a recent virtual event, industry leaders discussed this very topic and shared what’s important when it comes to de-risking the operation for the long-term.
- Giovanni Palavicini, Principal, Avison Young
- Dan Zakai, CEO, Mindspace
- Jeremy Bernard, CEO, essensys
- Moderated by Jamie Russo, CEO, Everything Coworking
The risks for landlords
The return to the office is imminent and landlords must react quickly. As we move out of the pandemic, flexible office is in-demand as the solution to support hybrid and distributed working models. For those landlords not yet offering flex, time is of the essence. Not adapting, and not doing it quickly enough leaves them at risk of not attracting and retaining tenants.
Jamie Russo highlighted that there’s a broad range of models when it comes to flexible office, from spec suites and short-term leases to smaller footprints and coworking space. The bottom line is that landlords need to provide it all to appeal to occupiers. The right tech is also critical; it ensures that a building can continue to provide solutions tenants need as their workspace and service needs evolve.
“We’re experiencing a digital transformation of the office right in front of our eyes and it’s important that landlords and operators get it right,” said Jeremy Bernard. Aside from picking an experienced and reliable operator partner or landing a favourable deal structure, they must focus on providing the right technology to deliver flexible real estate solutions. Implementing technology for flexible workspaces comes with complexities but it’s essential in creating the flexible solutions and frictionless experiences that keep them relevant in the market.
Rolling out flex-space is complex
A flexible workspace operation is inherently complicated. Managing multi-tenanted environments, shorter leases, shared resources and multiple buildings or locations requires a unique toolkit. Technology is critical in effectively handling these dynamic components. But implementing the right technology, and at scale, is riddled with challenges as well.
It’s not just access to space and services, but the countless security standards that landlords must fulfil as well. “Today’s occupiers want instant, secure services and they want to book and pay for them quickly and easily,” explained Jeremy Bernard. Enterprise users are making security a top priority and valuable tenants would dismiss a space that doesn’t have a secure network at its core.
The average cost of a security breach is $3.8m. Taking a lax approach to ensuring privacy, compliance and network security poses serious business risks – not to mention the hit to brand reputation. Office spaces must be planned out with the right systems so that data can be safely managed, securely accessed and constantly monitored to spot malicious users.
Risk: Reward in operator-landlord relationships
Dan Zakai and Giovanni Palavicini described the importance of landlords and operators aligning. Dan described how Mindspace adds value via partnership models. “Operators understand the demand and how to tailor the right solution. We see our offering as a platform for landlords to activate their buildings in smarter, more efficient and exciting ways.” Established operators are well positioned to deliver services and amenities. When extended to the wider tenant base, the landlord can effectively create a richer experience in the building.
Giovanni explained that it’s ultimately about adding value to the asset and finding groups that see the long-term reward in flexible models. But it still comes down to appetite for risk. “Some landlords aren’t willing to take on risk,” said Dan Zakai. “It depends on the entrepreneurial spirit of the group and their willingness to be flexible. “You have to put skin in the game or uniquely structure the deal in a way that gives comfort to the landlord. Be creative and willing to get the deal done”.
Some commercial real estate groups simply cannot enter into deals because of lending limitations, as is the case for REITs. For other groups, it might require going back to their lenders or bankers and figuring out how to work towards an appealing deal that fully aligns both party’s interests.
Deliver flexible models with confidence
Covid-19 may just be the nail in the coffin for the traditional lease arbitrage model. Historically a safety zone for landlords, this model has lost relevancy in the fast-changing office sector. Occupiers want more services and amenities. They demand flexibility and better in-building experiences. Flex models – whether delivered directly by landlords, flex operators or management agreements – is the future of the office. The key to de-risking a flexible office operation is to attract and retain tenants with the secure, turnkey services and workspace journeys they’re demanding.