After spending years in the restaurant business, I learned firsthand that service was as vital to a restaurant’s success as the food and the ambiance. In real estate, the mantra has always been “location, location, location,” but now employees (and thus their employers) are seeking more. The way we work has changed dramatically over the last ten years and the physical space has evolved accordingly. Now, more than ever, the workplace needs to function as a service, and employers, landlords and commercial brokers need to evolve to keep up with this changing landscape.
Rapidly changing technology, the rise of the gig economy, evolving work/life preferences, a tightening labor market, the lingering effects of the financial crisis, and so many other factors have contributed to a fundamental shift in the way we work and how companies view the world. As a result, coworking and short-term furnished spaces have flooded the market as start-ups and entrepreneurs moved from coffee shops to service-heavy flexible space providers like WeWork (WE) and as even established companies seek additional flexibility. However, another macro shift is now shaping the real estate landscape: Flexible Office Solutions. Coworking is so 2018. In fact, you’d need a microscope to find reference to coworking on WeWork’s website. Today, these providers are focused on offering flexible office solutions. What exactly does that mean?
Flexible office solutions, whether from WeWork, IWG Group, Convene, 1776, Knotel or others, offer businesses the opportunity to accommodate employees, in move-in ready space, with an a-la-carte menu of services and amenities such as: furniture, custom branding, modular layouts, coffee/snack packages, state-of-the-art technology systems that monitor space utilization, concierge services and meeting coordination, and, most importantly, flexibility of term. Instead of signing a traditional 10-year lease and being responsible for the full build-out of the space, tenants now have new options and choice. Today, it’s all about speed, simplicity and service. These providers are willing to give organizations the delivery (sometimes in days or weeks), the terms (all-inclusive and flexible) and the space (fresh, new and modern) required to compete for top talent and manage growth by the month or year, instead of by the decade. Some, like Convene, put an increased emphasis on hospitality by providing state-of-the-art conferencing facility with supporting food and beverage operations. Naturally, the increased flexibility of furnished flex space comes at a higher cost per square foot, but many companies find the premium acceptable when weighed against tying up corporate cash flow with longer-term options.
D.C. is more ripe than most cities, given that so many organizations grow and shrink with election results, government funding and advocacy movements. From nonprofits to campaigns and advocacy groups, there are countless organizations that experience changes in real estate needs based on election results, funding from government or a multitude of other factors. The need – and demand – for flexible solutions is already evident in the rapid expansion of numerous providers across the region. Over the last five years alone, flexible office leasing has more than doubled, and accounts for around two percent of D.C.’s leasable office inventory. With more than one million square feet of office space under its control, WeWork is now the city’s largest private-sector office tenant. All signs point to the continued growth of flexible office options.
This shift has forced building owners to become proactive. In addition to offering the best amenities possible, many landlords are either partnering with flexible office providers or offering their own version of flexible office solutions in the form of speculative (or prebuilt) suites. As an example, Hines recently announced it would partner with both Industrious and Convene across its portfolio nationally, while at 1800 M Street, NW here in DC, Columbia Property Trust engaged Wingate Hughes to convert a 21,000 SF block of space into six spec suites with a common lounge area for the tenants. Within 90 days of delivery, all of the suites at 1800 M Street were occupied.
This shift has also required brokers to expand the conversation about all options available for clients. At Savills, we are leaning in by embracing our role as tenant brokers, to help our clients navigate potential confusion in this quickly evolving sector of global office markets. In 2017, we launched Workthere, which is solely focused on helping businesses of any size find and compare flexible office space by aggregating all the various options available in the market. At the end of the day, our job is to help ensure our clients’ real estate strategy aligns with their strategic and financial objectives at the best terms possible. Flexible office solutions provide more options for tenants, and Workthere powered by Savills seeks to amplify the power of choice for our clients.
Whether you are a broker, landlord or flex office provider, we are all in the service business together with a single target audience – the workers of today. The real estate industry needs to provide options that help organizations focus more on people and mission and worry less about real estate.
Ken Biberaj is a managing director at Savills in the Washington, D.C. region.