How are landlords adapting to the changing needs of occupiers?
We are in flux. The exponential growth of Big Tech, always-on connectivity and increasingly sophisticated cloud-based software has meant that the way we work is undergoing a period of dramatic change. A century of working culture – in which a company’s employees flocked to a corporate HQ each weekday to do their jobs – is up for grabs. All over the world, businesses and their personnel are questioning the concept of the office – is it a physical space or simply a headspace? – and even if they need one at all anymore. And, thanks to the rise of coworking spaces, the relationship between landlords and occupiers is changing too.
These are just some of the issues that were explored at the GRI Offices 2019 conference recently, which was attended by IWG’s senior adviser Vincent Lottefier and UK CEO Richard Morris. Both were invited to take part in panels to discuss topics including “The only certainty is uncertainty? Occupiers driving change and flexibility”, “Factors of attractiveness: projected growth of flex spaces, average desk rate growth, occupancy rates” and “Globalisation of providers, growth of niche, rise of the co-working landlord and hope for transparency”.
As a gathering of the world’s leading real estate and infrastructure professionals, the event proved to be a worthy bellwether for the future of the industry.
While it’s a fact that the serviced-office industry is maturing, the office space demand is still strong – yet the relationship between landlords and occupiers is shifting along with what people want from a workspace in the 21st century. According to IWG’s 2019 Global Workspace Survey, 50% of employees say they work away from their main office for at least 2.5 days a week: this means that a fixed-lease office has become a less attractive proposition for companies of all shapes and sizes, who are increasingly turning to flexible office space as a solution. The benefits for the occupier are clear: no fixed term leases to deal with; no cleaning or maintenance fees; a high degree of adaptability of the physical space; and the option to tweak the number of desks as even monthly demand dictates – all of these make for attractive features. The service economy we’ve all become used to plays a part too: meeting-room hire, call-taking and mail-handling are often included as part of the package, along with various food and beverage (F&B) offerings that can range all the way from simple tea-and-coffee facilities to bells-and-whistles in-house restaurant.
So what does this mean for landlords? It’s certain that today’s is a more dynamic environment than ever before, as the choice at tenants’ disposal suggests a tilt towards a buyers’ market. But at the same time, the fashion for flexspace means there is plenty of potential in the “own-operate” sphere, as demand shows no sign of slowing. As office space providers like IWG-owned Regus look to expand their portfolios to meet this demand, one of the ways a landlord can benefit is via the franchise model. In fact, IWG CEO Mark Dixon believes that’s the only way to satisfy it: “In order to achieve the goal of national coverage – every town, city and suburb – it has to be done with partners,” he told US news media recently. “For us, those partners are franchise partners, building-owner partners and investor partners.”
The benefit of becoming a franchisee with a market-leader like IWG is that you become part of a readymade network with a proven business model, so it takes the guesswork out of investment decisions. And its multi-workspace offering – Regus, SPACES and No18 are all IWG brands – fits the needs of international corporations, which vary according to business division and local territory. “We believe this is a multi-brand market, similar to hotels – different brands, different price points, different working styles,” said Dixon, “and that has been a successful strategy for us.” Huge names like Adidas, Facebook and Microsoft agree, providing a steady revenue stream for building-owners around the world.
No one can predict the future, of course, which is another reason in favour of flexspace. As economies swell and contract, many businesses are wary of fixed-term leases that tie them into lengthy contracts they might not need. This works equally well for the corporate real-estate professional as it does for the franchisee: the former can maintain tight control over the balance sheet, and the latter can put themselves in prime position to attract new clients. “This is an industry that will grow, and will grow even more strongly when the next recession arrives,” Dixon said. “Because the demand from it from corporations is very real and grows all the time – especially with the new change in accounting rules.”
Today, everything is customisable – and that includes workspace. So the workspace-provider who can step up to the plate with adaptable offices and flexible terms is likely to prosper, because the CRE professional in search of a new location is, in turn, likely to respond to that in a positive way. For the landlord-franchisee, it’s a turn of events that offers a real answer to the question of how to adapt office space that’s fit for the world of work in 2019 and beyond: what could have been a costly retrofit becomes a painless pivot to another model when it’s done in partnership with the world’s biggest and most experienced provider.
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