With Long-Term Lease Signings on Hold, Flex Offices Find Their Time to Shine

COVID-19 has brought great uncertainty to the office market, between shelter-in-place orders, workers’ fears of being too close to others indoors, and the success for many of the forced working-from-home paradigm that the pandemic caused.

All of this presents a unique opportunity for flex-space services, as Breather CEO Bryan Murphy shared with Commercial Observer reporter Nick Rizzi during a recent Commercial Observer Power Briefing. The conversation, presented by flexible office space provider Breather, was held on Wednesday, June 24, and viewable to all online, titled, “The Future of Flex: Tailored Plans Leading Post-Coronavirus Office Strategies.”

Murphy kicked off the conversation by noting that crises tend to accelerate trends of disruption.

“If you think about the great recession 10 years or so ago, that caused significant acceleration in the adoption of software as a service, because it was more flexible and more cost effective for businesses,” Murphy said. “I see a similar trend happening here with the COVID pandemic. I see it accelerating companies’ desire for [flexible] spaces because they’re looking for ways to reduce their financial risk and have greater flexibility. We’re taking an accelerating trend and accelerating it even faster because of the benefits.”

Rizzi followed this by commenting how work from home has taken hold in the pandemic and asked what impact that may have on the broader office market. Murphy referred to it as “one of the largest social work experiments in the history of mankind.”

“Work from home has been around as an idea for a long time,” he said. “Current work from home is less than 5 percent, maybe 2 or 3 percent. I wouldn’t be surprised to see some form of work from home go far north of that into the 20 percent range. I don’t think it works for all companies all the time, but people recognize that it’s a significant benefit to your lifestyle with a significant reduction in costs. I think it will be incorporated pretty broadly.”

Delving deeper into what’s driving this, Murphy noted that one of the major trends he’s seeing is that “no one wants to sign a long-term lease right now.”

“It’s about managing financial risk,” he said. “There’s a huge capital outlay, and there’s a tremendous amount of uncertainty short term because of COVID and the economy, and longer term because of this work-from-home trend. [So companies are] trying to figure out, what’s our policy going to be? How much space do we need? What does that space need to look like? It will be very different.”

It’s this uncertainty that has led to Breather closing many deals of late, and what leads Murphy to place future work-from-home trends in the potential 20 percent range.  

As successful as work from home has been, Rizzi asked what’s driven companies to still require offices, and what is therefore bringing them to Breather.

“I miss the office,” said Murphy. “I miss my colleagues and my friends and the interactions we have there. Working remotely can be productive, but collaboration really suffers, new-idea generation suffers, and the attachment people feel to their companies and their colleagues suffers. It’s a little strange to be remote. You can only do so much on Zoom.”

But returning to offices, Rizzi points out, brings up stark issues of safety right now. Murphy described how Breather is basing office safety on what he called the three pillars.

“One is design–working with our customers to make sure the spaces themselves are ready to support social distancing,” he said. “The second is FF&E (furniture, fixtures and equipment)– working with our customers to make sure they have sanitation stations, that there’s plexiglass sneeze guards in place where they need them, different types of furniture, etc. And the third pillar being operationally–rethinking how we handle all of our cleaning and maintenance to comply with CDC guidelines so our customers can have the safest experience they can have.”

Breather also provides an advantage in that the company’s spaces are private and also roomier than average coworking spaces, both lending confidence in terms of safety.

“[Companies are] concerned about the density of coworking,” he said. “I think on average, [coworking spaces provide] about 55 rentable square feet per head. Our customers enjoy an average of 110 square feet. We’re considerably less dense.”

Murphy said that Breather has been doing deals in the six- or 12-month range, which, he notes, “takes all that liability off the balance sheet” for a company, in addition to saving money normally spent on buildouts and furniture.

Breather is also benefiting from the suddenly popular “hub-and- spoke” trend, where companies based in big cities seek to downsize city headquarters and open smaller satellite offices due to their safer and less dense environments. 

“Companies in really dense urban areas like New York and San Francisco, where commuting is an issue, are saying, we want to reduce this commute. Let’s set up satellite offices near where people live, where they can still be in New York City or San Francisco.”

Given all these factors, especially the unexpected change in what companies look for in a space, this has become a unique time for Breather to orient their business model toward the new needs of the present and the anticipated needs of the future. Their greatest challenge, then, will be to take the current opportunity and optimize it long term, creating the best possible office environment for the post-COVID economy.

“Commercial real estate is a very long-term game and capital investment,” Murphy said. “You build something now, you put millions into it, and you’re going to live with that for the next 10 years. So we’re trying to be very thoughtful about how we build out these spaces. All our new spaces will have touchless fixtures, for example. But we’re not going to make any changes that would make it economically unfeasible for companies to use. I do expect that sometime in the next year we’ll have our arms around this pandemic, and it will be behind us. So you want to make sure that these spaces are as safe as they can be during the crisis, and then also make sense three or four years from now.”