Chapter 3
Provider Transformation
Flexible Office Space 2022
8 Minute Read
Flexible office providers have traditionally been third parties that lease space from landlords, build out and outfit the space, and then sell memberships at a premium to companies and individuals who utilize the space. However, this traditional model is giving way to more partnership agreements between landlords and flex providers to eliminate the risks associated with the parties operating together under traditional lease agreements.
01 TREND
Growth of owner-operator models.
Flexible office space owned and managed by landlords is growing in popularity. Shared meeting space and flexible office space ranked among the most desired building amenities by respondents to CBRE’s 2021 Occupier Sentiment Survey. Landlords that offer flex space say it has allowed them to maintain direct relationships with tenants, retain those looking to downsize, help tenants grow strategically and efficiently within the building or portfolio and even win new relationships from competitors. They view it as a building amenity that enhances the tenant experience and can increase revenue as does a conference center, coffee shop or fitness center.
Landlords are still in the early stages of providing their own flexible space offerings. Models range from turnkey pre-built suites to coworking space and many variations in between. Landlords are also focused on providing shared amenities, such as conference facilities and hospitality spaces. The right model of flexibility, services and amenities in each building is very dependent on the market, asset, ownership group and tenants. Therefore, landlords' ability for a consistent portfolio wide flex strategy to satisfy occupier may be limited. Some advantages of an owner-operator structure are that the quality of the product, stability of the operator, customer service and integration of the tenant experience are usually unmatched. The owner-operator model also allows for easier execution of the Core Plus Flex arrangements that some occupiers are exploring.
Figure 5: Most in Demand Building Amenity of the Future
Source: 2021 CBRE Occupier Sentiment Survey.
02 TREND
Transition to partnership agreements.
Landlords are becoming more receptive to management and partnership agreements with third-party providers due to the time, capital, resourcing and expertise required to build, manage, operate and market full-service flexible office space. Marketing and branding play a more central role in attracting customers to flexible office space since consumers are often the decision-makers. Therefore, landlords can achieve important synergies and gain marketing expertise when they partner with flex-space providers.
This strategy is sometimes called an asset-light approach to flexible office space where landlords and flexible office providers share in the risk and reward. The pandemic provided the catalyst for landlords and providers to come together and strike deal terms that made sense in a quickly changing office environment.
Provider Highlights
- WeWork has adapted its growth strategy to focus on management agreements and revenue-share structures to optimize use of capital and strengthen landlord partnerships.
- IWG also is pivoting to a capital-light growth model through management agreements, franchising and joint ventures.
- The business models of Industrious and Serendipity Labs are nearly 100% management or partnership agreements today.
Matrix of Owner Operated Models
We try to provide all the attributes of coworking but do it in a way for companies that want their own branding, that want privacy, that want it to be about their own company. It’s a related but different product from coworking.
We strive to deliver the art of what’s possible and let the customer land on what makes most sense for them.
03 TREND
Designing the next generation of flexible office space.
While first-generation coworking remains appealing to individual consumers, it is the medium and large team requirements that will help the flexible office industry evolve and scale. In a hybrid-working arrangement, the office represents a place for collaboration that links the physical and digital world via technology. As a result, flexible office designers are challenged to develop the right mix of private and open space to meet the needs of users. Privacy may be needed for a team meeting, a Zoom call or for individually focused work, so offering the right mix of spaces is important. Medium and large team requirements also value data security, company branding and highly agile space that can be reconfigured easily. They also value access to shared amenities and specialty spaces and services, such as conference rooms and catering, that can be purchased on demand when needed. While the offerings are getting more complex, delivering them in a way that makes it easy for occupants to engage is more important than ever.
Industrious Insights:
In a survey of its members, Industrious found that workers are coming into the office primarily for two reasons: a desire to collaborate with coworkers (53%) and a desire to work without distractions (45%).
Industrious also reports an increase in demand for spaces that accommodate focus work. As a result, phone booth offerings have increased by 20% across its portfolio.
04 TREND
Continued growth of on-demand and subscription-based membership structures.
On-demand and subscription-based membership structures are highly configurable models that allow providers to flex their supply of real estate with real-time demand and manage it using technology-driven apps and dashboards. Traditional subscription-based membership structures allow users access to all spaces in the provider network for one monthly fee. Emerging on-demand membership structures allow users to access and purchase spaces by the day or hour, requiring a mobile tech interface to use efficiently. Both structures give employers more flexibility to accommodate fluctuating demand as workers return to the office.
The trend toward a more distributed workforce is placing less dependence on centralized hubs and more reliance on a larger network of spaces to get work done. While urban-core locations still play an important role, they will be only a part of a larger ecosystem of locations. Flexible office space will be one component of this ecosystem and will offer a ready-made network of locations that employees can seamlessly access through mobile technology. While not all types of employees may benefit from this model, those who are more mobile could achieve productivity gains. This model’s impact on portfolio strategy is nascent but rapidly growing.
Use Case:
Shorten commute, escape work from home, touch down point between meetings, flex office for employees in locations with no corporate office, project- and team based collaboration work, host external customer client meetings, business travel base.
CASE STUDY: Modern Hub & Spoke Concept
Large U.S. Unicorn Switches to a Hybrid Workforce
The Solution
- Custom Headquarters:
A customized Canvas suite that aligns with the client’s corporate workplace standards. - Rotational Usage:
75 desks, access for 150+ employees and the technology to coordinate and book desks with teammates. - Access Memberships:
Access memberships for hybrid employees to use and pay for offices on-demand.
The Impact
- Increased workplace choice for employees.
- Increased overall utilization across different spaces.
- Significantly reduced long-term real estate costs.
The Results
- Industrious delivered a bespoke workplace solution in under six weeks that eliminated upfront capex and, to employees, feels like an extension of the company HQ.
- This solution-set is becoming a key component of the company's portfolio strategy, which it has already employed in at least three markets.
The issue of flexibility at work has come to a head as a result of COVID, and the stakes are high for most companies. Employees desire companies that give them a say in where and how they work. Flexible workspaces have emerged as a natural solution because they are uniquely positioned to support the shift to distributed work and meet employees where they are.
One lasting legacy of the pandemic will be the ability to work in different ways, in different places and with distributed workforces empowering their teams to work closer to or from home.