Richard Smith of Office Evolution | Flexible Workspaces: A Journey In Time

ABOUT THIS EPISODE

Frank Cottle takes a deep-dive into the flexible workspace industry with Office Freedom’s Richard Smith, discussing everything from workspace branding and the misconceptions around the term ‘shared space’, to traditional leases and the type of office environments that companies are choosing as we emerge from, or learn to live with, the pandemic.

GUEST

Frank Cottle [00:00:17] Welcome to the Future of Work podcast. Today, our guest is Richard Smith, the founder and CEO of Office Freedom, a well-known entrepreneur, sharing his time between his homes in London and Boca Raton, Florida. Over thirty-five years and counting in a real estate career which started in 1986, it was during his seven years at the Central London office leasing specialist, it was by chance that Richard brokered a serviced office deal in Mayfair’s Berkeley Square in 1992. Richard is a regular speaker at corporate real estate events, as well as on the Office Freedom podcast “Flex with Richard Smith”. Richard, welcome, very glad to have you today — you and I go back a long way, not to 1992, but I think it was 1993 that we first met when you first started your company.  

Richard Smith [00:01:14] Yes, thank you very much for having me, Frank. It’s a pleasure to be on here and an honor, actually, I feel very privileged to have this opportunity to have a conversation with you via podcast across the pond. Yeah, it was early ‘90s when I set up the company in ‘93. I don’t remember the first time we first met, but it was soon after. And I remember very much enjoying all of the great events you put on.  

Frank Cottle [00:01:43] Well, thank you. Thank you very much. I think that one of the things we’ve both seen a lot of is the evolution of flexibility in the workplace. I guess when we started back then, we were referring to things as executive suites.  

Frank Cottle [00:01:58] Then they evolved into business centers and now we see some the serviced offices and coworking centers as labels. How do you define this evolution, and what have you seen and the way people are using offices? Or really, has there been any change beyond the critical mass that has grown up around the industry?  

Richard Smith [00:02:19] Yeah, I think the way you just described the sector and the fact that you had to give it several different descriptions and definitions has actually been part of the problem for our industry. And I think what stunted the growth of our industry was the fact that there was no single term globally that the whole world could actually relate to. As you say, executive suites, which was very, very common in the U.S. for many, many years, it was never a term in the UK. Business centers and then serviced offices in the U.K., coworking. I think the fact that now the industry is coining the phrase flexible workspace, flexible office space, has really helped the industry evolve and move forward. Also the coworking phrase, which is very big in the US and a little bit more 50/50 here, but in recent times I’ve seen such dramatic changes, unrecognizable from the early days. The investment that the industry has received over the last 10 years has created properties and buildings and office space that is much more fit for purpose than ever before. And now we are seeing major corporates and large corporations embrace flex, as well as the SMEs and startups that have always been at the party.  

Frank Cottle [00:03:55] That’s really true. I think as we look at defining our industry for the audience in broad terms, we can say that our industry is comprised of all providers that combined people place and technology into a single bundled product that’s delivered with a highly flexible service agreement.  
 

Frank Cottle [00:04:18] Not a lease, but a service agreement, for all three of those products bundled together and that we have various industry sectors – or let’s call them brands – that each have a brand promise. The classic serviced office or business center brand would say ‘people, place, technology’ and add professional services and image. And coworking might add those same ‘people, place and technology’ but maybe the collaborative growth through a cooperative community. An incubator would be one of those two with mentoring. An accelerator would be an incubator with access to capital. So, as we look at it, it’s kind of like different models of cars, in the automotive industry. You have the automotive industry, but then you’ve got the luxury model, and SUVs, sports cars, etc. All of those things, together, comprise the industry.  

Richard Smith [00:05:17] Yes. 

Frank Cottle [00:05:18] I’d be interested… as the industry has evolved and as it has grown, one of the reasons we focus and think about, is that we think the shift in the industry’s growth came when all businesses, not just SMEs or the professions, which were always big in the industry, but the large corporates and even government, started to use our industry strategically as opposed to tactically. Instead of coming and going when they needed the short-term office, now they say, no, we need an office, but we want the flexibility. And primarily they did that because they wanted to get the debt – large corporations in particular – off their balance sheet from a long-term lease that allows them more capital for growth, number one. Number two, they found that, they couldn’t hire staff. They couldn’t hire talent unless they had a flexible workplace plan, which requires our industry. What’s your thought of how we weave all that together?  

Richard Smith [00:06:29] Well I think when you started off that question, you mentioned brand. Branding was a huge problem and one of the areas that set us back as a sector. Because there were names of operators all over the suites, the spaces, and it was something that was off putting because it meant that companies didn’t feel independent.  

Richard Smith [00:06:48] They felt that they were hiring something temporary in someone else’s space or someone else’s building. And that was one of the areas that… the sector held its hands up and said, look, we realize that we’re not the perfect solution yet and we’re going to work on some of those issues. And one of them was that. And now in most properties, in most flexible, serviced offices you walk into, you won’t see branding. And it’s something that does help companies feel that they are an independent office space. So, and you also mentioned the coworking phrase and the coworking comment, which the original definition of coworking is several people in a room that don’t actually know each other. And that was the original definition. But now it’s evolved into a general term that people now would refer to as, yes, I took a coworking space for 150 desks; it’s actually their own space, their own floor or even their own building. So, I think with the advent of less branding, bigger spaces that can accommodate bigger requirements and an increase in the level of I.T. security, now, I think that this sector that we’re in is a complete, viable alternative to traditional leasing. And personally, no matter what size is required, I don’t really see why a traditional lease with all of the inflexibility that comes with it would be a solution anymore, because if somebody did want to acquire 500, or 1,000 people, those deals, you can still do those in our industry.  

Frank Cottle [00:08:33] It’s funny, I would kind of put what you just said a little on its head, which is normal for me and you, by the way.  

Richard Smith [00:08:41] Yeah.  

Frank Cottle [00:08:42] The audience, we argue, points back and forth regularly. But I would say relative to the branding comment that the two most well-known companies in our industry, the two-thousand-pound gorillas, if you will, have really overbranded, and yet they’re still massive in size – Regus, and its affiliated companies through IWG, Spaces, etc. — in which, you can’t get away from Regus Blue anywhere. It’s way serious about its brand. And then we look at WeWork, which was all about, when they even defined their company, they said, well, we are a lifestyle brand. Their whole structure was around their branding environment. And yet, the rest of the industry has gone, as you’ve said, has said no, we’re going to provide services and make the client feel as if this is their space, not our space. It’s interesting. The two largest companies, or the most well-known, fall into that heavily branded category, and the other needs are more client sensitive than brand.  

Richard Smith [00:10:04] This is true. As you know, we both attend many conferences, corporate real estate events, and when I’m speaking to most end users, mostly large corporations, the two companies that most of them have ever heard of are Regus and IWG, and WeWork. But the reality is, there’s probably a thousand providers of flex space globally in probably 20, 25,000 locations. And that is the beauty of the sector, the diversity of the sector, the diversity of the offering. And really, one of the things that we pride ourselves on is letting the end user, the clients know, what’s out there in any given marketplace, because whilst WeWork and IWG are on our radar, obviously, there are also many providers that also need to be, you know, educated to the end users.  

Richard Smith [00:11:01] And yeah, although I do think Regus, to be fair to them, have actually dropped back on the branding quite a lot compared to maybe 10, 15 years ago, 5, 10, 15 years ago. 

Frank Cottle [00:11:12] I think that’s right. I would probably say that one of the reasons they’ve done that, is they’ve switched from Regus only to International Workplace Group, IWG, and that is now a multi brand company, with the second primary brand being Spaces. So that makes a lot of sense strategically.  

Richard Smith [00:11:36] I don’t think they did that, Frank. I don’t think they did that because of that. I think they did that because they listened and they realized that people didn’t want to see branding everywhere. Although you are right, WeWork have bucked that trend and they are quite, you know… it’s obviously a WeWork building when you walk into the building. Once you’re actually in the WeWork building, it’s not as in-your-face in terms of the branding, but outside 100 percent. But look, it’s horses for courses. People like a whole different variety of things and choices in life. And our industry is no different.  

Frank Cottle [00:12:09] No, I agree. I liked what you were saying about the definition of coworking and the evolution overall phase. And we would say, individuals cowork. Companies need privacy. So, if you and I were to go into a coworking center and you’re a broker, and I’m a developer, we might cowork together and create a project. But as soon as we create that project and have an operating company and hire employees etc., we start to need privacy. And I think the industry, the classic open space coworking model that that part of the industry has evolved as their client companies’ needs have evolved, where you see new coworking spaces being built 50-50 or 60-40 with private space as opposed to open public space, they still have the open public space of course, and that’s needed; but with more and more private space so that companies can grow within the project as opposed to incubate in the projects and then move out to another type of space.  

Richard Smith [00:13:22] Yes, I think what you’re raising here is another very interesting topic about privacy. I think in the U.S., in North America, much more than in the U.K., there’s a big problem with the word ‘shared’, ‘shared space’. I hear it a lot. And there is a misconception that the clients think that they are just sharing space. They’re not. The space, in the world that we’re in, it’s private, most of it. I don’t really do single coworking or coworking deals whereby clients are sharing space with strangers. I know that market exists but it’s not something that we do much of. But this phrase ‘shared space’ is a massive problem for our industry, Frank. And we need to do what we can to eliminate that myth because our business is all about placing companies in private, self-contained space. The only space that’s shared in the world where we do business is the communal areas. The communal areas are shared spaces, obviously. And if a company wants to build their own communal areas dedicated, they can, and they’ll pay for it, but they can. But the beauty of our industry and I think what’s taken us to the next level is the fact that we have such incredible communal areas in the buildings, in the flexible work space industry, literally thousands of square feet in most of the properties that the clients are not directly paying for. But they can enjoy those amazing facilities and amenities. And this is so important, especially as we come out of Covid and the pandemic, that people will be able to enjoy their office space, but also enjoy the fact that they can step out of their office space, intercommunal breakout areas, gyms, you know, they can ride in, park their bike, showers, and event spaces.  

Richard Smith [00:15:08] All of this communal space in these buildings is amazing. But not to be confused with the office space, which is private.  

Frank Cottle [00:15:17] Absolutely agree with that. And it’s much like if you were building a quality apartment or condominium complex, you would have a lot of amenities such as a gym, public areas, pools, etc., and services that you wouldn’t necessarily find accessible if you just had a private home or renting a private home. And so, I think the amenity factor, particularly business amenities that help the customer succeed in their business… You remember the old adage that has been around for decades, that says well, we’ll run your office while you run your business? Well, most companies, particularly branch offices of large companies, aren’t prepared to run an office. They have a task to do. They have work to do. But they shouldn’t be running an office and they shouldn’t have resources and capital tied up in things that they only use part time. You know, most companies use their meeting room or their conference room one or two days a week for about four hours at a time. And yet they pay for it 24/7. And there is a model, the flexible workspace model that is only pay-as-you-need. And that’s one of the primary benefits of the model overall. How do you think our model has stood up during this pandemic? How do you see us as a solution and now that we see so many large companies reducing the amount of office space they have when they renew — do you think our industry will actually become the client, or the partner of choice, to the large property companies for what we do overall? 

Richard Smith [00:17:18] Well, I think it’s very difficult not to be biased because of the sector that we’re in or that I’m in, but I’ve spent many years in the conventional leasing sector.  

Richard Smith [00:17:29] I still do leasing transactions. I mean, we represent many serviced office coworking companies that ask us to help them expand their footprint. So you know, I’m still in that world and I’m well aware of that sector and the benefits. But I have to say, to me, it’s entirely obvious that as we come out of this pandemic or even if we live with Covid ongoing, but it’s under control and it becomes part of life, as we come out of the seriousness of the pandemic into something that is much more, we can cope with the day-to-day, the flex industry has to be the perfect blanket to catch the business world as it returns to the office. It has to be. It’s the amount of agile, flexible hybrid solutions that you can enjoy in our sector enables companies to come back to the office in a way that it suits them, whether it’s coming back 100 percent, whether it’s coming back 50/50, whether it’s working locally in suburban offices close to home, or whether it’s working in a central business district, whether it’s a day office, meeting room, you know, two or three days a week office, or, coming back how I’m coming back in my business, coming back almost back to normal, because that’s how my team want to work and they want to come back and they want to enjoy the benefits of being together. But I think the flexible sector that we’re in offers all types and all varieties of officing and a mixture of working remotely or working from the office or in between. So, I do think that going forward, the sector is the perfect solution for companies to think about for their return to work.  

Frank Cottle [00:19:29] Well, most of the companies that we work with, large companies, tell us, I mean this is everybody from Google on down, tell us that they’re going to be renewing their conventional office space and they’re going to continue to grow and take new conventional office space. But their renewals are only going to be about 75 percent of the prior space. If they had one hundred thousand sq ft they’re going to renew 75. And that means that the property companies are going to suffer that vacancy, so to speak. And as we look at the new hybrid office, which we should probably define a little bit, all the officing models that companies are using, I see the flexible sector as being the primary repurposing agent, if you will, or conventional space into this new model. And I see a lot of property companies that are looking to the model, not just the industry, but the model as a new way for them to be working and generating revenue as well, and a way for them to partner with the industry as opposed to have conventional leases from the industry.  

Richard Smith [00:20:59] Yes. Well, the two questions there, number one, I don’t understand why these large companies are looking to renew conventional traditional leases when they can take large chunks of space in flexible environments. Maybe it’s a question for another day or maybe one day we actually have that conversation with another guest together and we can brainstorm the pros and cons from their perspective. But I’m seeing larger and larger transactions where companies are opting out of traditional leasing into flex. So, I think there needs to be some more education as to the benefits there. And maybe what I discussed before about some of the myths that exist in our industry about sharing and that type of thing, maybe they are a factor.  

Richard Smith [00:21:45] But in terms of the traditional landlords embracing this concept of flex, it’s been a long time coming. I mean, you and me have been flying the flag as ambassadors of flex for decades. And, I have been referred to recently as the grandfather of flex. And I mean, if I’m the grandfather I affectionately refer to as the great grandfather, I hope you don’t mind that.  

Frank Cottle [00:22:19] Let’s go with Guru or something, you know, can give me the long beard and the white robe.  

Richard Smith [00:22:24] “GGG” Great Grandfather Guru. We’ll stick with that for this session. But look, we’ve seen it for so long. And how many years have we seen our sector rebuffed by conventional real estate brokers and landlords? And it was quite soul destroying for a long, long time. But guess what? The penny finally dropped. And not only of conventional real estate brokers all of a sudden embrace flex, mainly because the reality is that their clients no longer want to jump into traditional leases. They want to be considering flex options. So, they have to be presenting flex alternatives to them, as well as leasing alternatives when they have a requirement, but also flex landlords. I mean, Boston Properties in the Causeway in Boston and Tishman Speyer in New York and Chicago. You know, examples of major real estate companies who have created flex brands. And in the UK, you have really incredible institutional names, like British Land with Storey, Legal & General — Capsule. And you have The Crown Estate. And there’s so many brands that have absolutely embraced the fact that they should be incorporating flex within their portfolio. And it’s just a perfect example of how far our industry has come.  

Richard Smith [00:23:54] And I think the journey is definitely taking a couple of big steps. But I still think we have a long way to go until we reach the optimum of where this industry is going to go.  

Frank Cottle [00:24:06] Well, you know, I would agree with you, but a lot of our audience are not just operators within the industry and service companies or brokers and agents, but a lot of our audience are actually the decision makers within large companies and government, that are looking at our industry and seeking solutions as part of their operating format. You ask the question, why would anybody even renew at that seventy five percent rate? I think most companies are looking for the mix of stability, they like to know what they have as opposed to being quite as flexible. So I think that’s an evolutionary issue that, 25 percent today, 50 percent tomorrow, there is an evolutionary issue there. And then what we’re also seeing is a lot of large companies, they look at our model and they say, I love that model. Let’s build our own for ourselves. And so much of the space goes out. And you look at Deloitte back in the mid 90s, you know, the inventors of the term hot desk. So I think a lot of companies would be repurposing their own space into our business model, our industry model. What do you think would be… can you define what you think the perfect flexible workspace would look like?  

Richard Smith [00:25:57] The perfect flexible workspace would look like exactly how the client would want their perfect flexible workspace to look like, and you ask 10 clients what their flexible workspace wants to look like, they’ll give you 10 different answers.  

Richard Smith [00:26:14] Well, guess what? Welcome to the flexible industry. The operators will create what you want. This industry is not about walking into an office building and seeing the inventory and thinking I need to make a choice about what I see. The beauty of our sector is that most of the providers will say, right, if what you see doesn’t fit, we will move walls, we will customize, we will bespoke for exactly what you need and it will just be office space, private, flexible office space with the communal areas, which means that you can attract staff, you can retain staff, and you’re going to need to be doing that when everybody comes back from the pandemic, especially people that have had a tough time, you know, there are many people with a lot of anxiety and they’ve had depression, people won’t even realize how much they’ve been hit by this for a while. I mean, it’s quite a sad statistic to say this, but in 2007, 2008, when they had the crash, the big financial crash, the suicide rate only really massively increased after three or four years. It took a long time to manifest itself. And we can help that by actually talking to people about being low. You don’t need to bottle it up. I did a recent podcast talking about this, it’s slightly off topic, but I’m just saying that if anyone feels low and anyone feels like they’re having a tough time, they can talk to people, they can talk to you, they can talk to me. I’ll take the call of anybody that wants to talk about these types of issues because we don’t want that to happen again. We don’t want three or four years from now this type of sad statistic that I’ve just talked about, to happen again.  

Richard Smith [00:27:55] And one of the reasons we can help that is by letting them come back to work in an environment that is a happy environment, with a great foundation and platform and a nice habitat. And that’s what our industry is about. Mental health, staff, wellness and welfare, very, very critical even before Covid, but it’s going to be massively important going forward.  

Frank Cottle [00:28:18] I agree with that. You’re very familiar with our publication, Allwork.Space, and probably if I were to look back over the balance of last year or the last 12 or 18 months, whenever we’ve been dealing with Covid and thinking about it, the content or the articles that dealt with wellness, wellness in the workplace, wellness, work life balance, wellness issues, support in the workplace etc., have been probably the highest trending article as a group. So, people’s interest in wellness in the workplace has really, I won’t say, even peaked yet, but it has really become an awareness factor that we blend all these things together. So, we say ‘people place and technology’, if you were to talk to the pure coworking crowd, they would say, well, all those things are important, but they should be superseded by community. Community includes all of the support structure that you’re talking about through a natural, humanistic approach. It’s so important. I think that is a great part of what we’re going to see in the future in all officing environments, whether it’s corporate or whether it’s a flexible workspace that’s shared on a relative basis. The community is an amenity that comes with our type of space.  

Richard Smith [00:29:56] And it was a big thing before Covid, but post Covid it is going to be even bigger to have an environment where people can feel relaxed and not anxious and have some downtime, let their hair down and just enjoy their working life.  

Richard Smith [00:30:10] Because as you know, Frank, you know probably better than most that up until 10, 15 years ago, going to work wasn’t supposed to be enjoyable. You go to work. You tough it out, and then you get home and enjoy yourself. Well actually, why can’t you just enjoy yourself at work and be happy and enjoy your environment? And that’s why our sector has become such a main part of society. But to try to go back to your question, to give you the answer, in terms of the best basis, I think we can create whatever a client wants. But I think the choice in the inventory nowadays is quite incredible. And I do feel quite strongly that even if a client — you mentioned Google before — would want, say, I don’t know, 25,000, 50,000 square feet, if the existing inventory wasn’t there today, you and me both know that we could approach any one of many operators and say, right, Google, want 50,000 square feet, but they don’t want to have the hassle of taking the lease and the fit-out and the build-out and the IT and the telecoms. You take the lease, Mr Operator, and do an outsource back-to-back transaction to Google or the end user corporate, which they can do. So therefore, they outsource the fit out, they amortized over a period of time, and a solution is there for any size requirement. That’s why I challenge any end user to say I’m going to jump back into a lease because this industry is not just about the small requirements.  

Frank Cottle [00:31:30] I can concur on that. We used to refer to that a decade or two ago, as managed workspace. But the reality is it’s just part of the flexible work model now.  

Frank Cottle [00:31:40] It’s still built into that model. And we can thank people like IWG that have lots of horsepower if you will, lots of bandwidth for pioneering some of that marketplace transition on a large scale and now it’s commonplace for all operators to have that capability. So that’s pretty good.  

Richard Smith [00:32:06] But I don’t think that, that is well known in the business community. And that’s something that hopefully via this podcast or via future communications, we can educate the business public more about the capabilities that this sector can provide.  

Frank Cottle [00:32:21] Well, I’ll challenge you then to have Office Freedom put together a really nice white paper on that topic, and we’ll get it published and distributed. How’s that?  

Richard Smith [00:32:32] It would be a pleasure.  

Frank Cottle Well Richard I want to thank you very much for your time today. It’s always great chatting and, I’m looking forward to my next trip over to your part of the world. And if people want to reach you, how can they reach you or how can they reach you at Office Freedom?  

Richard Smith  Yeah, my email is Richard at Office Freedom dot com and the website is www dot office freedom dot com. And yeah, I’d be pleased to speak to any of your listeners and guests and thank you for letting me be a guest. I really did enjoy it. And it’s great to see you, Frank. And as you say, it would be great to actually be face to face once again in the near future.  

Frank Cottle [00:39:45] I look forward to it. Thank you, Richard.  

Richard Smith [00:39:47] Have a good one. Cheers, guys.