The Future of the Physical Office

On October 7th 2020 I was delighted to participate in a webinar on the, Future of Work, where I contributed on the future of the physical office. It was a great experience working alongside Rachel Druckenmiller, Unmuted, who was a wonderful host and covered Employee Engagement and Craig Teahen, Freeman Clarke, who covered Digital Transformation. The whole webinar is here and below I have transcribed my contribution.

As vaccinations rollout and a return to the office more certain. I hope it will give you some ideas on how to align your post-covid office space with your future business plans.

"Where I see the biggest impact, going forward, is on how we procure and consume office space"

"........In my 30yrs in the industry this is by far the most extraordinary time. I mean, I’ve been through several recessions, but nothing has impacted the commercial real estate markets like the WFH phenomenon created by this pandemic.

But no one I speak to sees it as the, death of the office! I think after 6 months of this, everyone has had the chance to experience the best and worst of WFH….and most people are looking forward to getting back to the office at least a couple of days a week.

Every conversation I’m having with my clients is that they see a need for a physical office, but it will be smaller because they will blend WFH policies requiring less desks, coupled with the desire to cut costs in this recession.

The role of the office is also changing with the emphasis on it being a social hub, an anchor for people to congregate and where the focus will be on collaboration and innovation with task based work taking place at home. And I think that really marries into what we've just been talking about in terms of building trust and building culture.

So where I see the biggest impact, going forward, is on how we procure and consume office space and I think there will be a much greater demand for flexibility and pressure on traditional leasing.

What I mean by that is that traditionally offices have been treated like a commodity. You pay a landlord a rent per square foot and sign a lease typically in New York over 5yrs, typically 7 to 10. The longer the lease the more the landlord will give in way of incentives, like a contribution to fit out and rent-free period, but you’re investing in a medium to long term solution. 

However, in recent years we’ve seen the rise of flexible offices, where you can sign short term agreements on a month-to-month basis, with no capital expenditure and everything from furniture to cleaning bundled into one monthly fee. And this is on a per desk basis as opposed to square feet. It’s more akin to the hospitality industry and just like 1-5 star hotels, you have a range of operators in terms of quality and price and this is commonly referred to as procuring, “space-as-a-service”. So that's what we've seen in the shift from traditional to flex, it's the way we procure away from the longer lease to the more, 'space-as-a-service' model.

 “Craig, we’ve obviously adapted the SaaS acronym for our industry but how is the “as-a-service” model driving your business……

I think it is going to give businesses and their employees a much broader choice of how and where they work.

Craig: Rich, how is this flexible and agile approach to the physical office going to evolve….

I think it is going to give businesses and their employees a much broader choice of how and where they work.

Traditional leasing will still work for some companies and subleases particularly are flooding the market and will be a great cost-effective solution in some cases. I'm not ruling out traditional leasing as it's obviously a good solution for many of my clients.

But with the rethinking of the role of the office, I can see good quality, well amenitized space becoming more in demand and in fairness this is a pre-covid trend which is just accelerating.

We’re going to see more providers of flexible space. For example, traditional landlords, like Tishman Speyer had already started creating and managing their own flexible product called, Studio. And other landlords are looking to get in on the act through partnering with operators like Convene and Industrious – and they are bringing them in to manage flexible solutions in their buildings.

Another exciting trend we’re seeing accelerate is the ability to book office space, on-demand, by the hour and even half hour.

The industry is anticipating a demand for, 'third spaces', between the office and the home. And you’re going to see more and more the acronyms WNH and WFA --Work Near Home and Work From Anywhere.

The idea is that if you have a distributed workforce you give them more options, these are known as ‘hub & spoke’ or ‘city as a campus’ models.

In just the last month WeWork, Breather* and Industrious have all come out with on demand apps and ‘passport’ style packages.

There are also Apps like Deskpass or UpFlex which aggregates available desks across multiple operators that you can book on their platform. And so a real change in the way we are going to procure space.

Some of you may have also seen that, in Japan, Starbucks have collaborated with a company called “Think Lab” where people can book these little booths in the coffee stores where they can go and sit and do “focused work”. Now I don’t know if they plan to bring this to the States but if you think how many people have the Starbucks App and how much bricks & mortar they have, it could create an incredible network of new workspaces to drop into.

Of course having such a distributed network throws up other challenges.

Craig, I’ll pass this back to you, how is IT and Digital Transformation keeping up with this?

Craig: Rich, there’s a lot of talk about the exodus from the City to the suburbs, do you see more office leasing happening in the Burbs.

I think its one of those unintended consequences of WFH, that it is quite inequitable and favors the older more established work force over the newer and younger workforce.

The third quarter data is now out and it does not support any evidence of a pickup in leasing in areas like New Jersey, Connecticut or Westchester County.

It could be just too soon with people on the hook on their existing leases. One thing is clear from the data, and that’s everything is very much on pause and we’re heading for one of the lowest leasing years on record in New York.

But I think people in the suburbs tend to work from a much nicer home office so do not necessarily feel the need for a 'third space'.

I see the 'third spaces' happening more across the City for the young work force who are in more cramped accommodation or sharing.

I was just touring yesterday with a company who want to keep their Manhattan based hub, but have a lot of young staff in Brooklyn, so we’re looking at downsizing their Manhattan office and providing on demand access to offices in Brooklyn.

I think its one of those unintended consequences of WFH, that it is quite inequitable and favors the older more established work force over the newer and younger workforce.

I feel we’re continuing to learn from this WFH experiment…"

*since the webinar Breather has entered into insolvency procedures

Richard Sexton, MBE, is the CEO of Office Concierge and helps companies navigate their office leasing options. If you would like a free consultation please contact [email protected] +1 917 412 7478