The Adaptive Corporate Real Estate Strategy for a New Modern World:

JLL and CBRE have predicted that up to 30% of the entire office market will be flexible office products. The catalysts that are the driving forces behind these predictions were employee engagement in the war for talent, new lease accounting standards, shortened business cycle planning, and capital management. Moving forward, those catalysts still apply, yet we now have new factors to consider – which will create supersonic adoption of flexible office.

I spent nearly 20 years in corporate real estate and always found some real estate portfolio strategies perplexing. Many strategies never considered portfolio agility, talent distribution strategies, or much of anything beyond the nuts and bolts of a traditional real estate transaction and workplace solutions. Some strategies were superfluous in transacting for more space than what was currently needed or would be needed in the near-term because the company was in a growth cycle. Alternatively, a “just in time” strategy would then require adding square feet as necessary, even if that meant the space was not adjacent or in the same building.

All these strategies led to ineffective use of real estate and higher direct and indirect costs. It is highly likely that a company’s real estate spend is a single digit percentage of the overall operating costs annually. When comparing that to the cost of attracting, retaining and more importantly engaging talent, the real estate costs start to look incredibly tiny. Flex office solutions can be very cost effective and more efficient when compared to traditional long-term agreements, the capital needed, and the operationally intensive requirements that come with those workplaces.

Adaptive portfolio strategies must be deployed by corporate real estate executives, some of these strategies should include:

Flexible Office Solutions:

Traditional long-term leases and asset ownership by occupiers will likely continue for core or strategic locations. These include headquarters, regional headquarters, or business essential facilities such as a manufacturing or customer service centers. Everything outside of that typically has more volatility and uncertainty even in growth cycles and should be thoroughly evaluated. A flexible office solution solves this.

Enterprise Ready Flex: Oftentimes when people hear flex office solutions, they immediately think of coworking. Not all flexible office solutions are shared office spaces with other individuals and companies. For example, CommonGrounds, among others, offers proprietary spec-suites and Bespoke (build-to-suit) options for teams of 50 to thousands. Companies have the benefit of a 1-3-year flexible agreement combined with all the programming, services, and hospitality that a coworking space provides. This is a proprietary, modern, enterprise-grade, plug and play office solution for a Fortune 1500 company. An agile built space that is curated and able to be changed quickly in the future to adapt and meet a company’s brand, culture, and way of conducting business and work.

Hub-and-Spoke Flex: There are other creative ways to use flex office solutions in a new post COVID-19 world. The first is in a return to work strategy. According to a recent CoreNet global survey of 11,000 members, 84% of survey respondents indicated they plan to bring employees back in waves. One solution is to offer remote employees, or employees who may have traveled a long distance to the office, a membership at a local flexible office space. This will provide remote employees access to a workspace other than their home complete with all the amenities, meeting rooms, community, and more. Companies could use the hub-and-spoke solution by using flex offices in cities where they have a physical office presence, when looking for a more creative way to adhere to physical distancing requirements or policies. By taking space within a nearby flex office provider companies may offset the loss of space due to increasing densities at their offices.

Rightsizing CRE Portfolios: Some companies returning from coronavirus may now have more real estate than they require and will begin to look to restructure their real estate portfolio to find savings. The simplistic and uninspired solution that many companies immediately turn to in a crisis is to reduce staffing. It is easier to execute staff reductions than real estate reductions. Rightsizing a real estate portfolio full of traditional lease agreements typically lags 36-48 months after a recessionary cycle, with a restructuring of a company’s workforce.

Warehousing Flex: An alternative solution, such as CommonGrounds’ “Curated” Workplace-as-a-Service product, is to partner with a flex office provider and adapt unneeded space into a flex office product, which would essentially open unused space to other companies, individuals, and people. A company can consume or divest flex office space much faster than traditional spaces, sometimes within a day versus several months or even years for traditional real estate spaces. This could be a win/win solution for the enterprise company, the landlord, the operators, and the companies who have a newly defined need for flex office spaces. The result is the company offsets their real estate burden, the landlord finds ways to offset rent revenues that may be lost, and it provides the company a warehousing mechanism if they believe they may need that additional space again sometime in the near future. This model can also be used in growth cycles to warehouse additional space for future growth and offset the cost of that space in the near-term.

Remote Work:

A Gallup survey in 2019 found that 82% of the workforce is demanding to work at home at least one day per week with 57% at least three days per week. At the time of the survey, 43% of Americans were working at home occasionally with greater than 5.2% of workers working at home completely. Currently during the shelter at home ordinances, greater than 50% of the American workforce is working at home full time. According to a CoreNet Global survey, 66% of survey respondents report having a more positive view of remote working and only 1% of respondents say they have a more negative view of remote working than they previously held. I expect that following the shelter at home ordinances for COVID-19 and a return to a safe workplace program, that the number of Americans working from home occasionally will increase to include nearly two thirds of the workforce. Full time work at home Americans will increase 400% to roughly 20% of the workforce.

Employee Flexible Work Programs: Remote work will not only include work from home solutions. Remote work should include a complete re-evaluation of a company’s flexible work benefit program for its employees. Corporate real estate executives should be partnering with their internal human resourcing departments to create solutions for employees to work remotely. This should include the tools, resources, and workspaces an employee may need during any given work week. Some of the greatest benefits to flexible work programs are access to a distributed talent base and an increase in employee loyalty, wellbeing, and engagement. This decreases costs to attract and retain talent and increases productivity and innovation.

Flexible work benefit programs should include providing employees who work remotely, options outside of their home. Working from home can be nice, but it can also be distracting, unproductive, and socially isolating. Offering employees options to be members at a local or nearby coworking or flex office community can increase the employee’s productivity, wellbeing, and social circles, resulting in higher employer and employee engagement. Having a trusted partner in flexible solutions can offer both sides of the coin. Employees can be comfortable working from home, while having a cost-effective solution for when they need to go into an office.

Amenity / Ancillary Solutions:

Why is that we continue to build large board room style meeting rooms, event spaces, kitchens, wellness, and game rooms into our workspaces? We should be leveraging buildings and landlords that provide these amenities and ancillary solutions as part of being their customer. Many asset owners “amenitized” their buildings over the past decade, yet the utilization rate of these ancillary spaces is typically less than 10%. Many tenants’ purpose-built meeting and amenity spaces have a better utilization rate than the building owner’s amenity space, but not a significantly higher utilization to justify continuing to buildout these spaces. Spaces such as these are rarely ever, or to a very limited capacity, utilized as originally intended. A flex office operator also builds and sometimes operates these types of spaces on behalf of the landlord. Choosing a location with a flex office operator, or a location with one nearby, opens the opportunity for companies to begin to create elasticity in their portfolio and better workspace services for its employees. Additionally, the company may more effectively design their office spaces with productive typologies of spaces for its employees and utilities the amenity and ancillary spaces already offered by landlords and flexible office operators.

Be adaptive and not reactive:

Companies need to start using adaptive portfolio solutions that include the optionality to toggle on or off real estate and workplace solutions as flex solutions have shorter-term commitments. Companies need to exercise this agility before negatively impacting a company’s most valuable assets, which are – people – with staff reductions, restructures, or disruption. Stop using superfluous and just-in-time reactive real estate strategies. These are wasteful of company resources, bad for our environment, and are not talent centric. Find real estate partners such as flex operators who can help you navigate towards an adaptive real estate strategy.