What does the flexible workspace revolution mean for landlords?

Adapt, adapt, adapt

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The increasing growth of flexible working, and with-it flexible workspace, around the world has gained a lot of recent coverage. In 2017, JLL released a report saying 30% of corporate real estate would comprise flexible workspace by 2030.  That’s three in every ten buildings. In the same year CBRE released its own report about flexible workspace, stating 71% of occupiers believe they are vital to delivering corporate real estate objectives, and the flexible office market is growing at 13% a year.  But where is this boom coming from, and what does it mean for landlords?

The boom in flexible working

According to IWG – owner of Regus and Spaces in South Africa - there are a few reasons why flexible workspace has been taking off. The first is that technology has changed what’s possible. Within two years, 80 per cent of the world’s population will own a smartphone and 4G connections will represent 61% of the total (up from 34% in 2016).  The cloud has grown exponentially, while artificial intelligence is helping us do daily tasks from a variety of sources. Indeed, over 50% of internet traffic could come from Internet of Things (IoT) sensors by 2025.  Put simply, it’s now increasingly easy for a person to plug in and work from anywhere – and workers increasingly want to do so.

Second, the ability to work whenever, wherever, helps boost personal productivity. Interactions with others in the right community or location can help spark great ideas, and the benefits of moving to new places keeps employees from falling into a rut – and having their productivity get stuck along with them. Finally, as employees see the potential upside to flexible working, businesses, too, are seeing gains. Financially the cost savings of flexible working versus fixed real estate can range from 5% to 75%, while strategic scalability is becoming ever more important in our fast-paced world.

For landlords, this boom means three key things for the way they view – and conduct – business in the era of flexible working. 

1. Meeting demand

The best way landlords can ensure they’re keeping up with the workplace revolution is by joining in. This doesn’t mean abandoning conventional leases completely of course, but rather by adding flexible workspace into their portfolio. Doing so will provide an option to tenants without removing the choice to have a long-term, traditional lease.

Partnering with a flexible workspace provider

One way to do this is splitting the project down the middle with a flexible workspace provider. This allows the same building to cater to businesses that may only be in the market for a flexible lease as, well as larger businesses interested in long-term contracts. What’s more, opening even a few floors in a classic office building that are designed for flexible working can help attract tenants that may become long-term customers with more traditional leases.

Offering a long-term lease

Another way to do this is by flexible workspace providers meeting traditional landlords ‘in the middle’ on lease terms, by signing a long-term lease and taking on the risk of the space. By committing to a ten-year lease, agile working companies can offer property owners the security of a long let while giving tenants the shorter-term, adaptable contracts they crave.

Either way, partnering with flexible workspace providers can help traditional landlords make this leap. Agile office experts will be able to offer the service quickly and efficiently due to their experience in the area. Otherwise, traditional landlords face a steep learning curve when trying out the new model – and they may not be able to adapt quickly enough to meet demand. A strategic partnership can close this gap.

2. Looking at a portfolio as a whole

A vibrant co-working centre, with a changing cast of energetic business people, has knock-on benefits for the surrounding community and land-use, whether that is retail or longer-term office lets.

Additionally, having flexible workspace has ramifications far above a single building. It can boost an entire portfolio, as well as real estate within a larger area. The availability of flexible working can have knock-on effects for the community as a whole and be a key perk for businesses nearby.

3. Managing the impact of IFRS16

Finally, IFRS16 comes into force in 2019 – and is changing the cost of traditional real estate. The legislation requires businesses to include all operating leases, including real estate, of longer than one year on their balance sheets, and corporations are looking at ways they can access a more effective real estate portfolio. Picking up shorter leases is one way to respond, and flexible workspace provides a profitable way to offer such contracts. The new regulation will also likely force greater scrutiny of real estate leases by an organisation’s finance team, which could trigger the start of such a conversion to flexible working.

The good news is that landlords are already realising the need for a shift away from traditional ways of doing business. According to that same study by CBRE, those who have started to offer flexible options are reporting a boost to property values, happier tenants and increased ability to attract new business.  Continuing to embrace the workspace revolution can help today’s landlords adapt to the demand for flexible workspace, both now and in the future

About IWG:

IWG is the global operator of leading workspace providers. Our companies help more than 2.5 million people and their businesses to work more productively. We do so by providing a choice of professional, inspiring and collaborative workspaces, communities and services.

Digitalisation and new technologies are transforming the world of work. People want the personal productivity benefits of living and working how and where they want. Businesses want the financial and strategic benefits. Our customers are start-ups, small and medium-sized enterprises, and large multinationals. With unique business goals, people and aspirations. They want workspaces and communities to match their needs. They want choice.

Through our companies we provide that choice, and serve the whole world of work: Regus, Spaces, No18, Basepoint, Open Office and Signature. We create personal, financial and strategic value for businesses of every size. From some of the most exciting companies and well-known organisations on the planet, to individuals and the next generation of industry leaders. All of them harness the power of flexible working to increase their productivity, efficiency, agility and market proximity.

We’re reaching a tipping point. The workspace revolution is coming.
 
Join us at www.iwgplc.com.

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