Commercial Real Estate is Broken - Werqwise | Co-working & Custom Office Spaces

In this world of rapid change agility is key for every modern business. Businesses need flexibility, the largest firms cannot predict how their business will look in five years yet most leases are for 10+ years. Large companies manage this through buying flexibility in-house for example, if you have 100,000 people, leasing 15% extra space allows you to add 15,000 more. This is expensive and has a substantial environmental impact, but it has a much lower relative cost impact than say a 15-person company leasing enough space for 150 people. For medium sized companies, small companies or those businesses in rapid growth mode this guess work results in enormous waste of time, capital and natural resources.

Traditionally financial institutions that lend to real estate such as banks, pension funds and insurance companies are looking for stable long-term income to balance their long-term liabilities. While some lenders may be able to deal with a degree of instability, many cannot. Those that can deal with it have to price the instability into increasing the interest rates and reducing the Loan to Value downwards from ~70% to 50% or even lower. This leads to discounts on the value of the building. As a result, flexibility on terms comes at an excessive cost to the landlord which in turn is passed on to the tenant.

Real estate owners, have to find the balance between the flexibility desired by their customers and the certainty required by their lenders, at the same time trying to cover their costs and deliver returns to their investors. Balancing these needs has been made easier by the rise of flexible workspace operators. The flexible workspace ecosystem covers everything from operators that simply take on the lease term risk and make money out of arbitrage to firms that provide high levels of service, hospitality, amenity and community in addition to flexibility on term. These firms have, to a greater or lesser degree, solved the flexibility challenge allowing businesses to grow, shrink and make rapid decisions as their businesses change.

Simply providing flexibility on lease term is not enough. The glass boxes of modern flex workspace operators or the enclosed boxes of more traditional business centers provide flexibility on contract length, but don’t provide for the changing purpose of the office as it relates to each individual company and their people. Every company wants their office to feel their own, to connect with their brand and mission and to suit their people and their needs. The change in the world of work has been ongoing for years but recent advances in technology as well as more people centric approach and workforce empowerment has kicked this change into a higher gear. Today most companies look at their workforce as their biggest asset and the race to grab top talent is fierce. People need to get high value add from their office otherwise they are better off simply working at home. The COVID pandemic has accelerated the change in the purpose of the office. It is evolving into a place for creativity, development, growth, training, innovation, social interaction and the creation of trust, culture and engagement. Our offices must provide an environment for existing and new employees to feel ingrained and connected to the community. Today a company’s office truly helps define its culture and its whole way of being. The glass boxes of modern flex workspace operators or the enclosed boxes of more traditional business centers provide flexibility on contact length, but don’t provide for the changing purpose of the office as it relates to each individual company and their people. Quite simply the compromise most of the current flexible workspace industry demands is too large for most companies that are serious about their brand and engagement to accept.

It is expensive to create a modern office, furnish it and equip it with the technology that people need to allow them to be connected, creative and productive. In the SF Bay Area, design, build, furniture and tech costs can easily exceed $200 per square foot (some companies spend over $600 per square foot) and takes 6 to 12 months to complete. If you spread this cost over 10 years and divide it between the landlord and the tenant this can work. If you spread it over 6, 12 or even 24 months it does not work for either landlord or tenant. For small businesses that have far more scarce resources this is especially difficult. The businesses are forced to choose growth or having the office that supports their productivity, creativity, team, culture and brand. Furthermore, the costs are not only financial and time. Fitting out offices has an exceptionally high environmental cost. Demolition, manufacturing, transport of all the things we take for granted in a modern office is costing our planet dearly. Buildings and construction account for 40% of carbon dioxide emissions. Experts predict if these processes do not change, emissions can grow up to 1.8 percent in 2030. “Now we need to act with new radical thinking, and we need to do it fast and increase the pact at which we work to reduce cities’ climate impact. We must look for innovative ways to build our societies so that we can move towards sustainability goals” noted by Colin Fudge, Professor of Urban Futures and Design at Chalmers University of Technology, Sweden

So how do we solve this dilemma? The answer has to come from the flexible workspace industry, but the industry needs to wake up to the needs of people and businesses. The needs for true flexibility. Flexibility over office size, time to occupancy, contract length, and work environments for different styles of work must be combined with providing every company with their own space that feels theirs, is designed for their needs, reflects their identity and helps define their culture. All of this needs to be done on a close to turnkey basis at an affordable price and without destroying our planet. To do this we have to think differently, and we need to build differently.

The winners in the flexible workspace industry need to stop playing lip service to the needs of the members. They must create Smart business environments that support performance. They must deliver exceptional hospitality, creating the experiences that attract and motivate people, the environments that foster innovation and ensuring that businesses can focus on their core strengths not on their offices and amenities. They must ensure they are at the very forefront in the advancements of the workplace and help ensure the creation of the workplace of the future. Above all they have to build in such a way that every company can have the size, space and design they need, that works for their people, when they need it and can change this at a moment’s notice. True customization can only be delivered by extreme flexibility, modular construction and modular mechanical and engineering. Every element of basic build and individual customization needs to be able to be reused thereby ensuring financial and time costs are kept down and the impact on the physical environment, on our planet is minimal without compromising on design and performance. This will then allow businesses to focus on their customers, on growth and on developing their talent and culture in an office that encourages creativity, and innovation, in space that is truly worth coming to.