essensys teamed up with the Global Workspace Association to gain new perspectives on the future of flexible office.
- Annie Rinker, Director of Operations at Hines’ Office of Innovation
- Charlie Morris, Principal at Avison Young’s Flexible Office Solution business
- Jamie Russo, Executive Director of the GWA, Coworking space owner, and owner of the Everything Coworking brand.
- Mark Furness, CEO, and Co-founder at essensys
The coronavirus pandemic has caused massive disruption across all walks of life globally and the office market is feeling the pressure. The panel discussed how landlords and institutional stakeholders are navigating the next few months and approaching the uncertain future that lies beyond.
Below is a summary of the views shared by these market leaders:
Strategic asset management and flexibility
Annie Rinker began by providing some context for the conversation. Historically owners and investors have been cautious about the flexible workspace business model. The influx of demand from the enterprise community – the “bread and butter” of tenants across their portfolios – for coworking and flexible space options as long-term real estate strategies began catching landlords’ eyes.
She defines the three approaches owners have taken to flex-space:
- Direct investment, as Blackstone invested in The Office Group.
- Partner with operators, as Rubenstein partners with MindSpace.
- Bring operations in-house with sub-brands, as Tishman Speyer has done with Studio, British Land with Storey, and Adgar Investments with Brain Embassy
Charlie Morris, who works with owners, operators, and occupiers at Avison Young’s Flexible Office solution arm, emphasized that the demand for flexibility is a reality. He encouraged having an integrated asset management strategy that includes flexible real estate products as well as core office space, and well as a solid understanding the full scope of proptech and the space-as-a-service world. Morris offered a word of advice to flex-space operators: “have a strong relationship with the owner of your space to set you both up for success.”
Embrace the spectrum of flexibility
As a vast majority of the global workforce adjusted to working from home during the coronavirus pandemic, we can expect certain aspects to remain on the other side. It’s vital to note that remote work does not mean working from home. Looking ahead, Rinker encourages the market to “rethink cultural requirements” for remote work. Morris predicts that individual employees will be instrumental in steering real estate strategies. “Forward-thinking companies will provide optionality,” he says. “The middle ground” is what’s missing from existing strategies that combine fixed, centralized, and work-at-home policies. Flexibility in where and how occupiers utilize space will be critical in the coming months.
Both Morris and Rinker noted that flexibility is not limited to coworking, often associated with open plan spaces and low profitability. Flexibility is a spectrum that can range from coworking and private offices to spec suites and even something as simple as shorter-term leases.
Hines’ Office of Innovation is a testament to their forward-looking approach to real estate. They chose to partner with Industrious to manage their flex-space offerings. This partnership model allows them to align with tenants’ needs across their portfolio, remove a layer of operational complexity, and maintain the value of their brand, which is a large component of their overall strategy and product.
Retooling the flexible workspace industry
With the broad consensus that flexible offerings are critical to longer-term real estate strategies, stakeholders must come to terms with how to implement them. Mark Furness described the industry gap between the demand for flexibility and how to deliver flexibility. “The demand default from occupiers is I want a flexible office product,” said Furness. “There are very few asset owners and landlords who have figured out how. They’re used to managing and owning an asset, which is different from operating and delivering a service.”
Furness sees opportunity for the flexible workspace industry. He noted: “Landlords and asset owners are not tooled to provide the products that occupiers are now demanding. There’s a big space in the middle that needs to be filled with operators that have the experience, skill sets, and capabilities”.
To support new ways of working requires a financial investment. Space providers will start thinking more about how to procure office space, activate services, support talent, and offer flexibility. To do so, according to Furness, requires “more efficient real estate solutions.” He predicts big developments in real estate platforms from the biggest players who can leverage their brand and scale.
A shifting operational mindset for CRE
As all industries change over time, commercial real estate must do so too. Rinker encourages owners and landlords to think outside of historical frameworks when planning and managing buildings. If they ignore the needs and expectations of today’s millennials and future end-users, they risk creating a product that no one wants.
From an operational perspective, CRE stakeholders must think about adjusting their business to respond quickly and efficiently to occupier needs. The products and tools used to support long term projects and sales cycles will fall short of getting the job done in the inherently complex flex-space business model.
Flexible and agile solutions demand immediacy, and strong systems and operational platforms to streamline the components of people, spaces, and services. Furness emphasizes the need for visibility in a flex-space operation and having direct control over space management and utilization. He cautions against tech buzz words like sensors, AI, and robotics as they come at a high cost. The ability to invest in them may widen the gap in the industry between operators.
A framework for advancing a flexible offering
The panelists highlighted that there is not one flex strategy that fits all. Companies will be at varying phases of the leasing cycle, which Rinker points to as validation for landlords to “support projects and teams, so tenants in the building and the wider market have a spectrum of flexibility” options.
She cautions about the intricacy of a flexible workspace business model: “It’s a heavy operations game”. There are multiple components to focus on, such as service, operations, hospitality, marketing, and sales pipeline. She stresses that these are not concepts that can be plugged into an existing framework and encourage stakeholders to work with partners who can break down the operational and strategic complexity of flexible office models.
The panelists all agreed that there is no doubt that flexibility is the new normal – and for a long time to come. However, Furness remarked that asset funders at the top of the value chain must properly address valuation models, which continue to be an underlying snag in the real estate market. Once that happens, he predicts: “We’ll see the big wave of industry adoption because it will be both demand and supply-side driven”.
The panelists cautioned about putting too much on the line for de-densification. While larger space and private space requirements are expected to rise in the short-term future, we shouldn’t expect them to persist long-term, especially once a vaccine is available. There was consensus that suburban flex-space propositions will be a growth driver as end-users seek to be closer to home and farther from CBDs. Rinker noted, “affordability and livability” are things that people want during and after the pandemic.
Concluding the webinar, the panelists concurred that the flexible workspace industry would be fundamental in supporting flexible working solutions that ultimately enable a better lifestyle and well-being for end-users.