Corporates Are Switching From Fixed To Flex: Are You Doing Enough To Support Their Needs?

Published on October 9, 2019 - By Robert Kropp

• IWG’s Global Enterprise Director, Puja Kapur, discusses the opportunities and challenges of moving from a fixed-to-flex workplace structure.
• A major challenge faced by larger organizations is the alignment of real estate strategy with business drivers.
• Although cost reduction is a significant incentive for organizations, the shift in strategy to flexible space has a much wider value proposition.

 Today, the CRE industry is “undergoing a structural change from fixed to flex” in order “to better align real estate strategy with business drivers, reduce occupancy costs (CapEx and Opex) and volatility risks while enhancing talent recruitment and employee experience.” 

These past few weeks, I had the pleasure of connecting with the new Global Enterprise Director of IWG (Regus, Spaces and No18 etc), Puja Kapur.  

She will be leading the strategy for the Enterprise Team that provides customized “Space-as-a-Service” solutions to global mid-large cap and Fortune 500 companies. 

Challenges & Opportunities

According to Puja, one of the most significant challenges experienced by larger organizations today is the alignment of “real estate strategy of global portfolios with business drivers” due to the given “limitations of the traditional model of long-term leases.”

With flex office solutions, these organizations can experience a variety of benefits such as:

1. Better aligning headcount with real estate
2. Improving utilization rates 
3. Reducing risk
4. Reducing occupancy costs

Although occupancy cost optimization (ie. cost reduction) is a significant incentive for organizations, “the shift in strategy from fixed to flex has a much wider value proposition.” 

Flex Office Value Proposition

Puja believes that “agility is a big driver in the evolution of flex as is speed to market and scalability, ability to recruit and retain talent, enhanced employee experience and compliance with FASB standards of accounting.”

How Can Flex Office Operators Support this Transition?

1. Customization is key.

“Enterprise clients want customized solutions that are designed for their culture in terms of space design and service standards.” 

One size does not fit all.

Puja also says that “flex operators are expanding their enterprise solutions to meet the varying needs of enterprise” and are “becoming strategic partners capable of planning, sourcing and site-selection, custom design and build and ongoing operational management.”

2. The Talent War

Organizations around the globe are increasingly facing challenges to find, attract, and retain the right talent. 

By improving the experience of an employee through a better place to work, more flexible work options closer to home, and more, operators around the globe have an opportunity to help organizations build the best workplace solutions for their current and future workforce.

3. FASB Changes

If you weren’t aware, starting on January 1, 2019, the FASB standards for how leases were recorded on their balance sheets changed for public companies. Instead of condensed into the footnotes, all leases that are longer than 12 months need to be recorded as both an asset and a liability. In 2020, these changes will be applied to large private organizations as well.  

The potential impact is that instead of a 10 year lease, an organization might be incentivized to seek out more flex office solutions in order to have shorter lease agreements to keep them off the books or to show more favorable books. 

Are there any Industries Lagging Behind in this Transition?

As expected, the tech industry is the most willing and able to adopt a different way of working, “however the value proposition of Fixed to Flex is not industry specific and is evolving into the model of the future for workplace and portfolio planning.”

“While not industry specific some corporate real estate leaders will be slow in adopting the flex office and will continue to use the traditional model as the move from Fixed to Flex involves a significant degree of change management.”

What’s Next?

“While there is a premium in the short term given the shorter contractual term of flex office compared to traditional leases, the financial benefits far outweigh the short term costs given the enhanced agility and utilization of portfolios.“ 

It was great connecting with Puja and I look forward to seeing what IWG and the industry is doing to further support larger organizations’ transition to flex offices and workspaces.  

If you would like to chat about this topic or others involved with flexible workspaces, coworking, and how larger organizations are adopting this change, contact me here.