Let’s face it, the office hasn’t evolved much over the last 30 years. But a global pandemic certainly changed that. Faced with tenants seeking spaces that match their new working models, landlords are stepping up, offering office spaces that are designed, amenitized, and even leased in new ways.
Flexible leases, with lengths as short as month-to-month, make real estate decisions easier for tenants, many of whom are still trying to figure out their long-term workplace strategies. And leases aren’t the only new offering. Flex space brings additional variety to the office category, giving companies more options for what type of space they may need.
When most people think about flexible office space, they typically think of co-working, but the spectrum of flex office space has gone far beyond just communal, open office co-working spaces. Flexible office options work for any building depending on which space is available, where the building is located, and the type of tenant it attracts. Those traditional hot desks and meeting rooms rented by the day or hour are now joined by full-fledged event and collaboration spaces designed for gatherings of distributed teams and off-hour events. In addition, flexible office suites marketed to startups and small businesses are now accompanied by their more mature sibling, enterprise flex suites.
New target tenants for flex emerge
A growing subcategory of flex space is designed and marketed for larger companies. These 3,000-10,000 square feet enterprise suites typically offer a higher level of customization for the space itself, along with additional services that bring the company’s culture and brand to life without putting internal pressure on the tenant to do that themselves.
Big companies looking for supplementary spaces and companies growing faster than their corporate real estate footprint are ideal tenants for these spaces. Today’s flex offerings have matured to meet their needs, offering better IT infrastructure, elevated workplace experiences, and exciting amenities, time and cost-intensive aspects of having an office that tenants don’t have to manage anymore.
Investors are intrigued by this enterprise suite model because of its predictability to revenue projections. Enterprise suites typically have one-to-three-year lease terms vs. monthly leases for smaller co-working flex suites. This higher suite class is also leased to more creditworthy tenants, another check in the pro column for investors.
Enterprise flex suites give companies the agility to grow or shrink their office portfolios with less risk. But perhaps the bigger draw of these suites is offloading the pressure to curate in-office experiences that lure staff back to the office. Instead, landlords and asset management firms take on this responsibility when they offer flex spaces. They own their positions as experts in the new workplace, taking what they’ve learned across their portfolios to place more of a focus on experience, wellness, and collaboration.
Flex for any building
Rather than leasing space to co-working providers, landlords are investing in their own flex space offerings, diversifying what they offer to the market and their existing tenants. Right now, collaborative spaces are the biggest growth driver for flex space overall.
Melissa Schilo, Vice President of Account Management for Flex by JLL, explains, “We always knew that meeting rooms were complementary to an office or flex suite, but that category is now running its own race. The demand for collaborative meeting spaces has increased by 40 percent as companies look for thoughtfully created environments designed for collaboration.” These rooms (that can be reserved by the day, hour, or week by tenants or non-tenants) are perhaps the easiest entry point for landlords to enter the flex game.
Flex suites, dedicated spaces for a company to rent on a monthly or annual basis, are still in demand but need a bit of a makeover to thrive in a hybrid work setting. Instead of an open office set up for five or even thirty people with one or two small huddle rooms, that ratio of desks to meeting space within a suite might need to be close to a 40-60 split with added semi-private spaces for hybrid collaboration or small group working areas. In short, there will be more thoughtful spaces for people to work together, rather than solo.
In comparison, the cost of building out a traditional co-working floor dominated by hot desks and open spaces is more prohibitive. The conventional co-working revenue model isn’t as attractive to many landlords and investors, given its lack of predictability. However, it’s a promising option for buildings in prime, central locations for business travelers willing to pay a premium for easy access to amenities.
The importance of activation
Simply offering flex space isn’t enough to make it a viable revenue stream. It’s not like the Field of Dreams. Just because a building has it doesn’t mean people will want to work there. Creating a memorable experience that tenants and guests want to repeat is just as important as the space itself.
Activating a space is often referred to as the ‘art of placemaking,’ creating both a buzz and a community that gives a place its personality and purpose. Pre-pandemic, programming in offices often revolved around a few large events for tenants, but now, space activations are becoming smaller and more frequent, given people’s varied and sometimes inconsistent in-office schedules. Meghan Rooney, Vice President of Operations for Experience Management at JLL, says this programming approach is a win for building managers in terms of both budget and time. She says, “People aren’t looking for large-scale events. They’re looking for consistency. They want to feel that personal touch on a more regular basis.”
These space activations could be pop-up events that let occupants explore and connect with the building in new ways. For example, the Aon Center in Chicago holds “Breakfast with the Bees” events to let tenants interact with the beehives housed on the building’s roof and take home some honey harvests. Rooney’s team is also working with clients to experiment with underutilized spaces to see which activations gain the most traction with tenants, like turning a conference room into a meditation space or doing a series of food and beverage pop-ups in the corner of a lobby.
Green spaces, food and beverage options, or just space to rent for private events and meetings can also be made available for the broader community. Jacob Bates, Head of the Americas for Flex by JLL, emphasizes that, when done right, this type of placemaking has a powerful potential to extend the brand of the building beyond its own four walls. “Flex opens up the building to new customers, bringing spaces and experiences to the community, to the public. Suppose you can activate an amazing event space that was originally only built for the tenants. In that case, you’re not only creating new revenue streams, but you’re curating a new future tenant mix by going directly to the consumer,” he explains. These consumers, particularly those who work at large companies, are new to the flex game and come with more buying power and choice than ever before.
The pandemic has grown the demand for flexibility in the office. The increasing popularity of flexible options like collaboration spaces, flex, and enterprise suites is also turning landlords into advisors for their tenant’s workplace needs. Beyond the diversification that flex space brings to office buildings, it creates a model that allows companies to have a long-term, multistage relationship with their landlord. A tenant can grow from a one or three-person office to a flex suite, then an enterprise suite until they are ready to enter a traditional lease. A tenant can grow and mature within the new ecosystem of the building or the broader portfolio. And that is a true evolution of the role of the landlord.
Thank you to Propmodo for this article. To read more, click here!
For Additional Blog Content, Click Here!