Home Strategy Real Estate Four Shifts Shaping The New Reality Of Office Real Estate

Four Shifts Shaping The New Reality Of Office Real Estate

Dan Zakai is the Co-Founder and CEO of Mindspace, a global provider of boutique flexible spaces in 16 cities across Europe and the U.S.

There were changes afoot long before Covid-19, but the pandemic has truly upended everything we know about what it means to work in an office in the modern age. Nearly 50% of the 32.6 million U.K. workforce are now working from home, compared to 1.7 million adults before March 2020. After more than half a year of living with Covid-19, we can confidently say that people have experienced what it is like to have worked productively from home, commute-free. Yet many people are referring to the workplace (r)evolution in a binary way. In other words, it’s the office versus work from home. I don’t think that’s correct, as what’s clearly missing is also being questioned: connection, collaboration and creativity.

This shift has sent shockwaves through not just the working world, but through society as a whole. Workers gathering in offices have served as a cornerstone of company culture for decades, and its purpose is now being redefined. Remote work is chipping away from that cornerstone, extending from the traditional four-walled office to online, local hubs and even sandy beaches.

As companies find their physical footprints contracting and their needs in their corporate spaces are changing, the office real estate sector is adapting as quickly as it can. Here’s what we have learned, more than half a year into this pandemic:

1. Tenants seek out new and different amenities while landlords look to optimize profitability.

The circumstances created by the pandemic have increased vacancy levels in many office buildings, and as a result, it’s easier than ever before for tenants to negotiate the terms of a lease agreement. Although in the months ahead we are sure to see demand increasing for lease lengths that work in tenants’ favor, the bigger question landlords will need to solve is how to adapt to the new office building needs that have changed dramatically.

Employers who want to attract the best talent will need to offer them what they really want — the things they can’t get at home, such as spaces to socialize and collaborate, lounges and cafes. This will lead landlords to evolve, not simply by offering cheaper leases, smaller deposits and larger amounts of flexibility, but at the asset level, become much more end-user focused. Those landlords who will democratize experience will eventually thrive.

In anticipation of this, landlords must be looking for ways to offer flexibility while optimizing profitability, by investing in amenities and technologies and by trying to streamline their businesses. There’s been an upsurge in landlord deals with flex workspaces as they develop the “office building of the future,” proactively meeting tenant needs in a sharing economy. Even before the pandemic, some of the largest global companies sought such arrangements with landlords. At Mindspace, globally, 41% of our occupancy rate is with large global enterprises. Covid-19 has accelerated the shift away from conventional lease arrangements, and landlords and brokers should seize opportunities to refine their business philosophy to reduce vacancy rates.   

2. Tenants are seeking transparency and viable exit strategies.

Conventional commercial office spaces often require a five-year lease. But we are no longer living in conventional times. In a post-pandemic world, many companies will suddenly need an exit strategy that allows them to be flexible and adapt in both size and scope. Offering a lease of no more than 12 months is an incredible asset during these times, which minimizes risk. So does offering flexible workspace, which minimizes upfront CapEx expenditure and offers predictable operational costs. The office of the future will become more agile, more hybrid and service-oriented. And that’s good for everyone.

3. Covid-related compliance headaches must be managed.

High-touch surfaces need to be sanitized. Closed corridors need to be widened. Elevators are restricted to carry a limited number of passengers according to their size and distancing restrictions. There are so many rules and regulations to follow and keep track of in order to maintain Covid-19 cleanliness and compliance that a company might even want to consider hiring a new staffer simply to stay on top of all of the rules. A simpler solution is to let someone else handle it all for you, which is what some office providers will begin to include in their offerings.

4. Subleasing will be a major trend.

Tech companies with months to burn on their long-term leases have found a loophole by renting out their empty office space. Here in the U.K., the NHS has opened up flexible space for private rental, and we should expect other industries to quickly follow suit. But it shouldn’t be done blindly. Bringing on seasoned operators to manage it increases profitability, lowers headaches and maximizes space utility, all at once. In the foreseeable future, large fixed-cost investments in traditional office space will be more infrequent.

Creativity, innovation and adaptability thrive, not only within office environments but also in those that provide them. The key is to remember that tenants’ needs have changed, and office space operators that shift and flex in accordance will thrive, whether by upping amenities, offering ample exit strategies, keeping Covid-compliant for clients or subleasing spare space. As we kiss the traditional office goodbye, now is the time to be more open-minded and embrace our new reality.


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