Emerging real estate strategies post-pandemic
Analysis by independent research and advisory firm Verdantix identifies areas of disconnect between landlords and commercial occupiers regarding expectations of flexible workspaces.
PlaceTech and essensys pulled together a panel of expert presenters and panellists to explore the state of the flex market.
The event started with an overview of research carried out by Verdantix, and commissioned by essensys, and then a panel of experts delved into the capabilities of landlords, and the expectations of occupiers, as we emerge from the pandemic.
Mark Furness, chief executive, essensys
Stuart Neumann, vice president of advisory services, Verdantix
Ibrahim Yate, industry analyst, Verdantix
Mark Furness kicked off the event by explaining the motives behind wanting to understand how business models for commercial real estate are evolving.
“We commissioned Verdantix to investigate these changes in the hope of tying up what’s happening between landlord and provider, and tenant and occupier perspectives,” he said.
The aim of the research was to shed light on any disconnect between landlord, occupier and tenants’ expectations, and how the latter’s demands can continue to align with the capabilities of the real estate industry.
The research highlights, he said, the significant role technology has to play in landlords meeting tenants’ expectations.
“It also shows that rewards await for landlords who refine and renew propositions the most effectively and fastest,” he said.
Stuart Neumann agreed, adding that the pandemic will drive “greater investment in technology, whether that be landlords or tenants themselves, because of this anticipated shift of different working styles – and the need to accommodate and deliver that through technology is increasing,”.
Ibrahim Yate introduced the findings, based on two surveys of landlords and corporate enterprises operating in industries including business, consumer retail services and energy and manufacturing, spanning the UK, Europe and North America.
The main drivers of demand for flex space, the surveys found, are a growing focus on productivity and the occupant experience, rising customer expectations around tech in buildings, and an increase in demand for shorter-term and flexible lease contracts.
“The previous traditional office, the 10-year lease with minimal tech options, that didn’t really focus on…ensuring the occupant had an experience that was conducive to productivity,” Yate said.
In addition, economic uncertainty means people don’t want to strongly commit to investments now, Yates said, and flex space offers an alternative that’s agile, and more resilient to economic uncertainty.
For occupiers, he continued, it’s important they can measure and pay only for the space that’s used, with tailored service provision options.
The surveys highlighted an alignment of market trends between landlords and occupiers. Regardless of whether tenants are looking to increase, decrease or maintain their portfolio size, the majority of landlords plan to add flex space into their portfolios.
Antony Slumbers, co-founder, Real Innovation Academy
Andrew Butterworth, commercial director, Bruntwood Works
Rupert Sheldon, head of core REIM, Fiera Real Estate
Emma Swinnerton, international partner, EMEA head of flexible leasing solutions, Cushman & Wakefield
Dominic Dugan, design director, Oktra
Ibrahim Yate, industry analyst, Verdantix
In this panel, chaired by Antony Slumbers, landlords and other industry actors discussed how trends in flexible workspace reflect the current state of the market, and whether these trends pose any challenges for landlords.
Dominic Dugan predicted that landlords will become increasingly attuned to tenants’ needs.
“Tenants are starting to tune into the needs of the business and the flexibility they require. It will shake up the market,” he said.
He and Emma Swinnerton agree that these changing needs and expectations present a positive opportunity for landlords.
“For landlords, it’s how they’re looking at their entire buildings,” Swinnerton said.
“There are lots of ways they can offer that space to their clients, lots of different routes to market for landlords in this area.”
The panel then moved onto the question of how landlords should approach flex space, for example, whether they need to hire specialists, and whether more landlords will leave the market as it demands more from them. Getting this right, they agreed, is a huge factor for landlords in making flex space work.
A landlord’s approach depends on their asset strategy, and whether they want to self-deliver or find the right partner, Butterworth said. However, Swinnerton explained why it might not be that straightforward.
“The last 15 months have been incredibly difficult for anyone operating flexible workspace, so we’re seeing a consolidation in the industry anyway,” she said.
“If they’re looking to partner with an operator, landlords have less choice now, which might encourage landlords to do it themselves.”
One issue, Sheldon said, is when landlords provide flex space through circumstance rather than by design, when they get to the end of a lease on an old building and decide to turn it into flex space, and end up offering less than what occupiers want and need.
“A lot of landlords make the mistake of thinking they can do it themselves, and it doesn’t work,” he said.
However, Butterworth said landlords just need to make sure they do their due diligence on the type of operator, and ensure they’re capable of providing what say they do. They must also, he added, ensure that the leasing strategy that the operator wants to implement is aligned with the landlord’s leasing strategy.
“There’s a lot of learning going on, and this will continue over the next 12 months,” he said.
It seems, though, that landlords who are less experienced in flex space are more likely to look for help. Among landlords who haven’t offered premium flex space products, 70% said they’d interested in partnering with a specialist operation, Yate said of the survey findings.
And what all landlords need to focus on, Swinnerton said, is getting the basics right.
“From a lot of users’ perspectives, a lot about doing flex space really well is to get the basics right. This includes delivering the right tech,” she said.
“Some of the things operators have done over the years can be seen as quite gimmicky. It might be a good marketing story, having sleep pods, but do they get used? Over time you see those things disappear.”
Butterworth agreed that technology needs to enhance the customer experience and be easily accessible – and to be healthy, by controlling air quality and temperature, for example.
The panel then discussed whether flex space is or should be limited to just city centres.
“Large corporations are increasingly interested in providing office space nearer to where employees live,” Yate said.
However, Sheldon argued that out-of-city-centre flex spaces need something to offer workers.
“It’s about the experience you’re getting once you’re there,” he said. “There has to be a pull.”
Slumbers pointed out that, in central business districts, the demand for less, but better, space may spell a big change for landlords in that they no longer aim to lease as much space for as long as possible.
“You’re going to win by having a really good space,” he said.
“It feels that there’s a paradox going to go on. Customers start taking less space for less time; talking to a landlord, it sounds bad, but I think it’s good. You’ll be able to charge quite a big premium.”