The future of Flexible workspace looks a lot like managing a hotel.

Despite the obvious impacts of COVID-19 on office space, flexible workspaces will emerge as a strong offering and solution for a return to and future of our work environment for both tenants looking for flexibility and landlords wanting to differentiate their assets. The global pandemic has people working from home, companies rethinking their workplace strategies, and commercial real estate players recognising the need for flexibility.

Once this work from home stretch is over, people will flood back to their offices, as we are already witnessing in Asia. The role of the office environment plays within human natures desire for connection and will always be important. Companies including Yahoo and Bank of America have in the past banned working from home on the basis that communication and collaboration is more effective when people are side by side.

Although this current mass work from home initiative will demonstrate to many companies that remote working can produce comparable levels of efficiency for some of their staff, it is an opportunity for companies to further understand which individuals and teams have benefited and those that have suffered with the shift of interaction from face-to-face to Zoom calls.

The insights gained from this will help companies review their commercial real estate space requirements so that they also focus on workplace strategies and flexible space for the long term.

Despite this learning process, what we do know right now is that the way that we work – from a behavioural and workplace design perspective will be forever changed.

What does returning to the office and the new normal look like?

Office space and flex spaces alike will need to have operational plans formulated to ensure their tenants have the safest and healthiest workplaces possible to return to.

Here is a JLL client webinar on reentry and what the next "new normal" looks like.

On top of clear communication and transparency, there are four key areas being focused on for a safe reentry:

1. Hand sanitizer stations and increasing the frequency of cleaning and disinfection.
2. Implementing touch free testing, temperature checking and optimising any Heating, Ventilating, and Air Conditioning (HVAC) systems.
3. Redesigning spaces to facilitate social distancing, including directional markers to encourage one way circulation and therefore reducing congestion.
4. Food & Beverage services and staff ensure food preparation and delivery to be safe.

The advantage of being an occupier of a flex space is that these health and wellness measures will be designed, packaged up and executed effectively by the flex space operator on behalf of the tenant and the landlord. This is attractive to tenants as it provides a flexible and easier option as well as frees up cash flow for the business.

The below image is an example of a flex operator Convene applying a short-term spacing policy to accommodate professional distancing by removing furniture, using signage and directional markers to encourage less congestive circulation. Due to the flexible nature of flexible space designs, these strategies are relatively easy to put in place.

The demand for Flex during COVID-19.

There is strong interest from many companies seeking more flexible space and even more office space as professional distancing becomes the norm. There will be a boost in corporate companies taking traditional office space mixed with flexible space as they look to de-densify their offices – both to help their employees manage the crisis and transition in the recovery, as well as to avoid similar future disruptions.

Eric Schmidt the former CEO of Google, recently announced he expects that the desire for social distancing in offices will mean there will be an increase in demand for office space and also a potential premium.

With tens of thousands of office leases due to expire over the next six to twelve months, many of these companies will be considering their options and a more flexible approach. In some regions like Asia, we are already witnessing the flex demand from SMEs and larger companies returning to normal as lockdown restrictions are being eased.

Globally, there are currently a large number of companies including banks and telcos who now have switched to a 50/50 split between traditional office space and flex space. There is also a demonstration by companies that have satellite teams of up to 50 people now opting for flex space.

Coworking's short-term inconvenience, Flex's long-term gain.

Coworking as we know it is open desk, entrepreneur heavy style spaces like WeWork and other coworking companies. Flexible workspace differs as it offers a combination of flexible, best in class office suites, project spaces, meeting rooms, cafe, lounge and lobby zones. Landlords can now be empowered with this distinction to use flex space to act as a nucleus for their building and deliver further value to their tenants and differentiate their asset.

The news of co-working spaces shutting down has been quite public during the pandemic with people temporarily working from home and avoiding offices spaces. To no fault of their own, this attendance is the primary source of income for these companies and is, in some cases, now almost zeroed, putting them into survival mode. The larger coworking companies that have significant capital reserves will get through this quarantine period however, many are already exiting lease commitments with their landlords. The ones that can survive and adapt to the required changes following this pandemic will reap the benefits of the boost in corporate demand for flex space.

For those coworking companies that shut down their operations and spaces, the impact on the landlord creates a sudden vacancy in their building and also leaves them with a remnant of a floor(s) fit-out for coworking.

As an immediate solution, Commercial Real Estate landlords have an option to take over the ownership of the space themselves, and work in conjunction with a flex operator to re-design and run the space as a flex space under a management agreement. This allows them to return to a normalcy of operations in their space quickly.

Management agreements give landlords more control, a direct relationship with their tenants and promotes loyalty to their asset. Also a flex space properly positioned and designed can be more profitable to a landlord than traditional leasing.

The growing trend of "hotelification" compliments commercial real estate where landlords are moving towards providing a hotel-like experience in their buildings. Creating their own branded flexible workspace paired with food and beverage offerings, lounge and lobby experiences to achieve a holistic offering helps to embrace this trend and is a strong strategy to attract and retain tenants, and promote loyalty to their building.

Despite the interest and growth in the management agreement model pre-pandemic, the current shift in our behaviours and the environment has aided in bringing the idea of owning flex spaces and utilising management agreements to the front of property owners' minds.

How do Management Agreements work?

In this case, a management agreement is an agreement made between the landlord and the flex space operator.

These agreements are bespoke but generally detail the landlord putting up the capital to fit out the space, while a flex operator runs the space and staff for a management fee. In the spirit of partnership, the management fee can be a combination of a both fixed fee and a share in profits, with experiential and commercial targets.

In return for putting up the capital, the landlord will have full ownership of the flex space, allowing them to work with the flex operator and a design firm to create a bespoke design to truly differentiate their asset while also providing what their tenants' are asking for. Additionally, the landlord will generally earn the majority of the profit generated from the space, which the operator is working hard to optimise by not only running the day to day but also ensuring member experience and occupancy targets are being met.

While management agreements are relatively new to the flexible workspace industry, this type of agreement is common in the hotel industry, where many well-known chains don’t actually own the properties they operate in, but instead enter a management agreement with the landlord.

For instance, Hilton own next to no hotels of their own? They used to own their hotels, but have shifted to management agreements, operating hotels on behalf of their owners under their Hilton brand in exchange for a percentage of revenue and fees.

And the timing couldn’t be better for this new type of agreement, as the flex space industry is gearing for more rapid growth. In fact, JLL has predicted that 30 percent of office space will be flexible by 2030, up from just five percent now.

Management-style agreements will be a significant piece of the future of flexible workspace.

If anything about this article has piqued your interest as a tenant or landlord please feel free to reach out.

tashi.dorjee@ap.jll.com