- A report by essensys found that landlords are lagging behind the expectations of their tenants.
- Flex space offers a significant opportunity for landlords — but first they must resolve disparities between their offering and what occupiers are looking for.
- 60% of occupiers said they will incorporate flex space into their real estate strategies, regardless of whether they plan to expand, maintain, or shrink their portfolio size.
The latest report from essensys — “Landlords Must Adopt & Refine Flex Strategies to Survive a Rapidly Changing Real Estate Market” — discovered that landlords are lagging behind when it comes to tenant expectations.
Specifically, the report found that there are “several disparities” between what landlords are offering and what commercial occupiers are looking for.
The Rise of Flex
Demand for flexible workspace has been on the rise for the past several years. The coronavirus pandemic accelerated this demand, as companies worldwide realized that they need their operations to stay agile, nimble, and lean.
The research report found that today’s demand for flexible workspaces is underpinned by three main reasons:
1. Appealing Interior Design & Office Layouts
“When respondents to the landlord survey were asked about what they thought were the most pressing market trends they must respond to, the top pick was tenants’ rising focus on productivity and the occupant experience.”
Commerical occupiers believe—and with good reason—that the right design and layout can drive company performance. 60% of surveyed occupiers said that “supporting employee productivity through an enhanced occupant experience was either the first or second most important benefit” of improved workplace design and layout.
2. Access to High Quality Tech
The second reason why many commercial occupiers are increasingly turning to flexible spaces is because these spaces tend to incorporate technology services that create a more seamless workplace experience.
A more seamless experience = a better overall workplace experience.
“Occupiers revealed that perceived access to higher quality technology was a top three market trend driving demand for flex space amongst their peers, with one third describing it as ‘very important’”.
3. Flexibility, Plain and Simple
Space needs are changing and fluid. Occupiers need access to spaces that can respond to changes in a timely manner.
Unsurprisingly, among the top reasons why companies are making the switch to flexible workspaces is the need for more flexibility, specifically lease flexibility.
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“86% of landlords said it [lease flexibility] was either a ‘very influential’ or ‘influential’ factor driving growth for flex space. Occupiers also rated lease flexibility as the third most important market trend, with 66% saying it is either ‘very important’ or ‘important’”.
An Opportunity for Landlords
The report found that both the majority of landlords and occupiers will leverage flexible space in their real estate strategy in the next five years.
It’s worth noting that “60% of occupiers said they will incorporate flex space into their real estate strategies, regardless of whether they plan to expand, maintain, or shrink their portfolio size.”
The research found that the top flex space products are:
- Premium serviced offices
- Light touch serviced offices
- Flexible meeting spaces
- Coworking spaces and short leases (less than a year).
However, despite the fact that landlords are already incorporating flex space into their portfolios, there’s more that needs to be done, as only 13% of occupiers think that traditional landlords have a strong flex offering.
This means that less than a fifth of corporate occupiers believe that landlords are well-positioned to meet their new office space expectations.
The Case for Flex: Charge a Premium and Meet Tenant Expectations
Landlords that prioritize their flexible space offerings stand to benefit in two main ways:
- They can charge a premium, therefore increasing their revenues.
- They are better positioned to meet tenant expectations, which can prevent vacancies in the long-term.
Below are some key data points from the research report that point to the above:
- “Of all the flex space products that landlords are offering, the most common are flexible meeting spaces (69% currently offering), and premium serviced offices (53% currently offering).” However, flex spaces must satisfy key criteria in order to attract and retain occupiers. These criteria include:
- strong connectivity
- IT security
- seamless access
- ease of move-in
- layout adaptation.
- Tenants would be willing to pay a premium of 20% or above for flexible spaces with tech-driven amenities.
- Over 40% of landlords surveyed believe having at least 15% of their portfolio as flex space can lead to the greatest portfolio value.
- 67% of landlords surveyed believe that incorporating flexible space can create revenue generating opportunities.