New Flexible Office Leases Could Spell Trouble For Landlords
Both IWG and WeWork have announced closures for some of its locations in Australia in order to focus on suburban and rural communities. This move is being echoed by many flexible office operators as remote workers demand for offices closer to their homes.
Recently, IWG’s Regus brand filed for Chapter 11 bankruptcy for several of its locations in the U.S., allowing it time to renegotiate its leases with landlords or simply close spaces that aren’t working.
The restructuring of leases has left landlords exposed to these operators. For instance, Kroll Bond Rating Agency found 157 properties that served as collateral for $13 billion in loans with exposure to Regus.
Kroll Analysts also stated that IWG seeking rent deferrals and lease renegotiations could allow the company to walk away from rent obligations, which could be detrimental to landlords.
In the UK, IWG has also threatened to put Regus into insolvency, potentially leading to £790 million of leases being dissolved.
However, the stark difference between IWG and WeWork is that the former was profitable last year. Still, the company saw pre-tax loss of £176 million in the first half of this year.
In short, remote working has caused the flexible workspace industry to completely uproot its normal operations in an effort to stay afloat and boost revenue.
Some operators are banking on the fact that major companies looking to de-densify their main offices will look to flexible workspaces to disperse their workforce.
Flexibility Will Transform The Real Estate Industry
According to the Urban Land Institute and EY’s “Future of Work 2020: A global real estate players’ point of view” report, the real estate industry will heavily focus on flexibility over the next three to five years.
The survey of 555 real estate experts found that 96% of respondents expect home working to increase, while 67% anticipate increased use of satellite offices outside of large cities.
While the research indicated that the majority of employees would be spending time working remotely, 96% of respondents said that the role of a physical office will still be crucial in supporting workplace culture.
Over half of respondents also said they anticipate a drop in office space usage, while a staggering 96% of respondents expect that demand for health-related amenities will grow.
“While the total office space is likely to decrease, the quality of real estate will be even more critical. The physical office space will play a key role in preventing a loss of corporate culture, less effective talent management, a higher staff turnover and a loss of creativity,” said Vincent Raufast, EY Consulting Associate Partner. “It will need to meet new demands including healthy building amenities and more space designed for collaborative work, as well as formal and informal meetings with colleagues.”
Flexible Office Operators Optimistic About The Future
Despite the global coworking market taking a massive hit due to the COVID-19 pandemic, operators remain optimistic about the future of the industry.
“In March and April, new members were nearly zero as everyone was assessing their workplace situation, trying to make do at home, and making their best guess as to how long shelter-in-place would last,” said Keith Warner, managing partner at San Francisco-based Pacific Workplaces.
Now, workers are seeking on-demand workspaces that are available to them whenever necessary. Short-term leases are just the tip of the iceberg.
Additionally, Pacific Workplaces is finding that tech companies in the Bay Area are looking to support their remote workers by turning to flexible offices.
According to Elton Kwok, head of California for WeWork, the company has seen a spike in demand from individuals and companies looking to accommodate a hub-and-spoke model.
This trend is just one of many that companies are adopting in order to pivot to a more flexible workforce as the future of public health remains in limbo.
Even more than that, some organizations have found that working flexibly has improved business operations and left employees feeling more satisfied in their positions.
“We have always benefited from hourly, daily and month-to-month deals, which is why over 60% of our members are month-to-month or shorter,” said Warner. “We benefit now with the increase in demand by having been prepared in advance.”
Aayat is an editor for the Daily Digest based in Lexington, Kentucky. She has worked with local coworking spaces since August of 2017 and enjoys taking her firsthand knowledge to write about the fascinating, constantly evolving world of flexible workspaces.