Launching A Flexible Space: 6 Strategies For CRE Owners

After the health crisis, the flexible space sector is expected to bounce back.
The trends driving people to flexible space are being amplified, which puts the industry in a strong position.
These 6 strategies will help CRE owners understand the options available and introduce flexible space to their portfolios.

Flexible space has become a core component of commercial real estate. Despite the health crisis and its sudden impact on the workplace, the value of flexible space has not been diminished. If anything, it will come out stronger.

Prior to the pandemic, at the close of 2019, research by Instant predicted that globally by 2023, 12.5% of commercial real estate will be flexible workspace. And by 2023, 35% of corporates will be using flexible real estate.

Longer term, JLL predicted that flexible workspace would increase to 30% (versus the current 2%) of office inventory by 2030.

These figures will be revised due to the pandemic. But aside from the short-term hit, those figures could actually be accelerated.

Long-term “mega trends” will drive more demand for flexible space

Speaking during an online Q&A for GCUC this week, Steve King from Emergent Research noted that while the short-term shock on coworking and the wider commercial real estate sector is significant, the long-term outlook for flexible space is extremely positive.

That’s because the long-term “mega trends” that have been driving demand for flexible space are being amplified and accelerated by COVID-19. In business, this includes a desire to become more agile by reducing long-term commitments.

Two major long-term commitments include real estate and the workforce. Following the global credit crisis of 2008, the shift to flexible space shows that companies have been working to become more agile in their workplace strategies, while greater flexibility in their workforce – both in the rise of independent workers and an increase in distributed teams – shows that companies are also adapting to a more flexible workforce.

The sudden shift to remote work in 2020 has amplified these trends and shown companies that they are possible, and what’s more, have the benefit of enabling companies to cut cost and retain productivity.

The pandemic is therefore likely to push more companies towards flexible workspace – particularly in regional areas that are less congested, as this will enable companies to maintain social distancing while getting their staff back to work.

“So to me the long term effect for coworking is quite strong,” added King. “Once things settle down in 18 months to 2 years, coworking is going to be in great shape.”

A key opportunity for the CRE sector

This offers a key opportunity for CRE owners to meet future demand for flexible space. But for those looking to enter the market, it’s not simply a matter of providing space with flexible terms.

At the start of 2020, essensys released a guide for landlords seeking to capitalise on demand for flexible space and fill vacant space, while driving revenues.

The guide walks potential operators through the many moving components of the business model to enable landlords to get the operation right from day one and decide how to position themselves in this new – and evolving – market.

6 Key Strategies for CRE Owners

A summary of the guidelines are as follows. These include recommendations from industry experts Christine Andrews (The Deco Group), Giovanni Palavicini (Avison Young

Flexible Office Solutions), Liz Elam (GCUC), and Jerome Chang (BLANKSPACES).

1. Shift your mindset from space to service.

Flexible space is usually classed as part of the commercial real estate sector. But it’s actually considered a service industry. Success requires a shift in mindset; anyone can provide short-term space with desks and chairs – it’s your service and hospitality that counts.

Demand for flexible space means owners must focus on differentiating by delivering agility, flexibility and the amenities that drive value and productivity. Occupiers look for service excellence and frictionless experiences, which requires workplace management and seamless technologies to meet expectations.

“Meeting expectations underpins a higher price for space as well as long-term value.”

2. Common flexible space models.

For building owners, Giovanni Palavicini notes some of the different operating models commonly used in the flexible space market:

Traditional lease. Leasing commercial space within your portfolio to a flex-space operator gives your portfolio an edge of flexibility, which can add value given the high demand for this asset class.
Non-traditional leases such as joint ventures and profit shares are becoming more common. These generally include some combination of profit-sharing or management fees between the landlord and the operator.
Management agreements are also becoming increasingly common. They define an exchange for operational services in return for a management fee.

3. The case for leaving it to the pros.

Unless you have the knowledge and resources to run a flexible space operation, it’s generally best left to seasoned coworking operators. That’s why many landlords now choose to partner with an experienced flexible space operator who takes care of the day-to-day running of the space, along with its members.

In addition to service, your chosen operator can also execute your brand and culture across your space, which according to Christine Andrews, directly impacts member experience, occupancy rates and your bottom line.

“With a greater focus on tenant expectation and the broader market shift from product to service, brand is a top priority.”

Andrews advises creating a brand that your tenants and members can buy into without having to abandon their own.

“For many corporates, flex-space must offer the flexibility, security, agility, privacy and benefits of a shared environment. They want to keep their brand identity and will expect it to be visible in their workspace.”

4. “Community is king”

Don’t underestimate the value of relationships and connections between your occupants.

“Community is king” in a flexible space, and according to Andrews, you can foster these networks by providing common spaces that enable people to socialise and collaborate on business projects together. This will help the network to thrive and sustain itself.

“Happy customers bring word of mouth referrals which drive occupancy and therefore demand, accelerating growth. And it all begins with your brand identity.”

Liz Elam from GCUC takes this point further. “A coworking space is more than putting a bunch of desks in a room … The most important element in this operation is the ability to manage ‘the humans’, and if you miss that piece, you won’t succeed in this market.”

Among other reasons, people use flexible space to avoid loneliness and isolation. Make spaces where members can communicate, collaborate and connect. You will need the right staff to help drive your network – ideally an engaging and service-focused community manager who will integrate the community and set your brand apart.

5. Design and build out.

Flexible space isn’t just open, shared office space. It’s a combination of private office suites and open coworking, which ideally needs to be designed by a specialist architect.

Jerome Chang from BLANKSPACES notes, “In these shared office environments, every square foot can generate revenue, so optimization is crucial. Keep this key distinction in mind when selecting your architect.”

Chang recommends evaluating your money makers – which includes private space, shared space, and meeting rooms. Space and size matters and each area earns revenue differently (i.e. monthly versus hourly or daily).

“Design flexibly so that a larger boardroom could be arranged to accommodate high demand for classroom or training space. Private offices are great money makers, but they require additional investment. Each private office requires electricity, connectivity ports, AC, heating, and lighting, making it more costly than other spaces.”

6. Let’s talk tech: How to power your flexible space.

Traditionally, real estate tenants are responsible for their own technologies. However in a flexible space setting, it’s up to you – the operator – to provide connectivity. That’s your opportunity to differentiate your workplace offering by providing a seamless, friction-free experience.

The right tech will also allow you to analyse data to understand which components of your space are performing strongly, and which can be capitalised. Having data visibility and a means to analyze it to understand business trends and performance is therefore a critical component for success.

Partnering with an established IT and connectivity provider that knows the market and the needs of flexible space occupants will enable you to implement a solution that’s fit for purpose – both for your members, and for you.

Suggested: For landlords and asset managers, implementing flexibility will be critical in the coming months and technology is a key enabler to activate flexible space.

Dive deeper into the best practices for launching a flexible space operation here: A Landlord’s Guide to Flexible Workspace