As Companies Shift To A “Flex First” Approach, What’s The Future Of CRE?

Published on January 28, 2021 - By Cecilia Amador de San José

• As more companies embrace remote work permanently, the market demand for office space is changing. 
• The supply chain must evolve to adapt to current client needs, and accelerating trends. 
• A recent report by the Instant Group suggests that the future of the CRE industry lies with flex space offerings. 

The role of the office has changed. Thanks, in part, to the coronavirus pandemic.  

As more companies embrace remote work permanently, the market demand for office space is changing. As a result, the supply chain must also evolve to adapt to current client needs.  

According to a recent report by the Instant Group, the power is no longer in the property as an asset, but rather “with the people that use it.” 

As a result, the CRE industry must adapt its product offering; which will prove to be a challenge given that “the office sector has produced too much of one type of product.” 

Not only is there too much of one type of product, but that product has now lost its appeal and value.  

One core change happening within the CRE industry at the moment is a huge shift to flex. Although flexible workspaces only account for less than 1% of the total global office market, the future of the CRE industry lies with flex space offerings.  

“Despite the pandemic, many markets globally have shown increased demand for flexible workspace, and on shorter terms. We forecast flexible workspace supply growth of over 21% in 2021 and a greater variation of end product than ever before as agile operators seek out new niche options in the market.” 

According to the Instant Group, 75% of corporate clients are hoping to reduce CAPEX on workspace in the next year. One way they will do this is by adopting more flexible workspace solutions. 

One main driver behind this shift to flex is the move towards remote work. As more companies allow their employees to work remotely, the corporate footprint is expected to disperse and incorporate diverse locations.  

Specifically, many organizations will search for office space in regional and suburban locations. Many will aim to create a network of offices that will allow employees to work closer to home, rather than have them come in to corporate headquarters in tier 1 cities.  

The Instant Group argues that “the focus of the central ‘hub’ office will shift to collaboration and office footprints have to incorporate this change. This means more emphasis on collaborative design, better use of shared spaces and enabling reductions in portfolio size by as much as 40% in the short-term.” 

In fact, the Instant Group found that “just 60% of office portfolios will be fit for purpose by the end of next year. Future portfolios will be made up of multiple locations with balanced exit dates.” 

The CRE sector needs, therefore, to provide a greater variation of product. Specifically, property owners and flexible workspace operators will need to start prioritizing the personal experience of the end user.  

“Future CRE leaders will drive performance of the office portfolio against a wider set of goals around people, process and place. This will include new metrics founded on people-led outcomes that reflect broader value to the business such as ‘Shared Experience Value’.” 

To make this change happen, the flexible space, as well as the larger CRE sector will need to work closely with corporate HR and IT departments to create this new shared experience value. One particular key area of focus that will take center stage as the personal experience becomes a top priority is staff wellbeing.  

The variation of product needed in the CRE sector goes beyond focusing on personal experience. It goes deeper than that and will require the CRE to make agility a part of its DNA.  

As company preferences shift to a flex first approach, landlords and property owners will be faced with the challenge of adopting more innovative and agile deal structures. Otherwise, they risk losing their big clients to flexible workspace providers. This is one of the reasons why increasingly, the flexible workspace industry is seeing an uptick in landlord competition and involvement.  

The good news for the CRE sector is that new technologies will facilitate this shift to agile and flex first approach. PropTech will make it easier for landlords to focus on the end-user experience by providing key data points and insights about space utilization and end-user preferences.  

Technology, if deployed correctly, will allow for “a more dynamic approach to the office portfolio and facilitate the introduction of more flex.” 

In fact, “technology will become an essential part of the dispersed workspace infrastructure.” 

While flexible space is already an attractive solution for many companies, there remains an untapped market by flex providers.  

“The market is still not working for some growth sectors such as pharma, life sciences and healthcare. Demand is up from these sectors but the level of deals that are closing less so. The flex market needs to adapt workspace to appeal to these firms of the future.”