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.
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.