Almost exactly one year ago, the arrival of the COVID-19 pandemic flipped the commercial real estate office from a ‘tight’ supply constrained market with vacancy rates often less than 10% in many markets, to a ‘slack’ market with vacancy rates in some cities at 25% or more. Overnight, the market for offices switched from a sellers’ to a buyers’ market.
This bombshell came just as the industry was in the process of re-thinking office spaces: what they were for, how often employees would use them, how long leases should be, the emergence of hospitality trends applied to workspaces, how to reach tenants in the internet marketing age, and even how landlords should think about the financial returns models for assets and portfolios.
In the past 12 months, as most cities were on lock-down and everyone worked from home, offices have sat mostly empty. But today, we’re on the brink of vaccinating a majority of the population, and plans are underway for the much-anticipated return to work.
The pandemic has triggered the long-anticipated transformation of the office
Offices haven’t changed all that much since they were first conceived a century ago as a way to apply concepts from the industrial revolution—factory assembly lines to service or knowledge work. While the particulars of how an office is designed— from beehive offices to open floor plans—may differ, the very idea of an office is of a fixed and hard-to-change built space designed around a static workforce.
But tenants have been looking for something more for a while now. In particular, surveys over the past 10 years or so have revealed a strong preference for two critical innovations to the traditional, inflexible, paradigm:
- More flexible leasing terms, including shorter-term leases and options to exit leases when business conditions change, as they so often do
- More flexible office designs—the world of atoms—combined with the notion of hybrid workspace utilization schemes less anchored to physical places—the world of bits—so businesses can better align their workspaces with their workforce.
Swivel has a front-row seat to some of the innovation coming down the pike because our digital twin-based visualization platform is integral to many different initiatives. I think tenants are in for a pleasant surprise when they see more of the new options available to them as they return to the office.
I wanted to sketch out five examples of new office innovations we’ve had the opportunity to see or be part of in just the past six months.
Innovation #1: New and improved flex work operators
Flexwork spaces, including both coworking spaces designed to host multiple entities or more short/variable term serviced spec suites for individual companies, are coming back stronger than ever. The business models are skewing towards landlord management agreements which do a much better job than prior business models of risk sharing and attracting tenants with big growth and portfolio prospects.
Industrious and their Canvas offering is just one example of a new-and-improved version of the flexspace concept that I expect to see becoming a key element in the mix for most major owners and operators.
Innovation #2: Better direct sourcing alternatives for tenants
A major complaint on the part of many tenants is that it can be difficult to source office space directly with landlords, without using a tenant broker as intermediary (and in the process, paying their brokerage fees as part of their monthly rent). While brokers usually do add considerable value to the sourcing process, a ‘direct option’ for more savvy tenants is overdue.
New options are on the way that provide these options, such as savvy agency leasing and marketing teams finally embracing digital channels in the form of targeted campaigns on popular social media platforms such as LinkedIn. RealtyAds is just one example of a new crop of agencies springing up to help with this. Additionally, we’re finally seeing the serious emergence of direct to tenant marketplaces such as LoopNet and LiquidSpace.
Innovation #3: New and improved services and technology from tenant brokers
Tenant brokerage firms have used the pandemic to further bolster their slate of value-added consulting and advisory services and tech products, extending their value proposition well beyond the basics of building books, running tours, and negotiating the fine details of lease proposals—much of which can and will be done with technology in the near future anyway.
Firms such as JLL, Colliers, and Lincoln Property Co. are putting together compelling new advisory tools and services aimed at helping tenants to manage complex portfolios of office space and aligning these to changed workforce strategies. All three of these firms are using their venture investing arms to find best-of-breed proptech tools and solutions that can set their tenant advisory services apart in what is fast becoming a tech-driven market.
Innovation #4: Better design services
Maybe no other area has received more scrutiny and re-thinking since the onset of the pandemic than the physical design of office spaces. There has been growing dissatisfaction with the dominant models of the last decade: the cubicle farm, the private office beehive, the open desks petri dish, and the frat house.
What’s long been missing is any notion of the concept of activity-based work design, in which the physical layout, design and furnishing of an office is purpose-built to accomplish an entirely new set of individual and team work functions and styles (the “Zoom Room”, for example). Rather than ‘one-size-fits-all’ test fits that ask how many desks, private offices and conference rooms an occupier needs, new technologies and design services are coming to market that allow rapid, cost-effective, and essentially custom designs to be accomplished for each tenant based on their unique work style.
While these new personalized digital design platforms, service providers, and vendors have become popular primarily in the area of residential design and remodeling, they are fast making their way into the world of office design. Swivel is playing an active role in this trend, and we look forward to announcing more details in the near future, together with some exciting industry partners.
Innovation #5: Better tools for managing workspaces
Lastly and maybe least surprisingly, a spate of new products has hit the market that enable occupiers to use their office spaces more safely and intelligently. These span the spectrum from simple check-in and reservation tools to enterprise-class workspace monitoring, planning and analytics platforms. [disclosure: Swivel has a product offering in this category.]
This fits perfectly in line with the radical realignment in attitude around offices no longer being fixed assets that accommodate static workstyles for a term of 6 to 10 years. Because landlords, operators, and the design industry will be increasingly able to accommodate much more adaptable workspace patterns, it only makes sense for occupiers to develop a core competency in planning, measuring, and managing these dynamic assets.
The last twelve months have been a long and occasionally dark interlude for an industry that has been booming for 15 years or more. That being said, the real estate industry is used to up-and-down market cycles and often uses them to invest in new approaches to reap profits as markets heal.
COVID has been more than a normal market cycle correction to be sure, but in my opinion the adaptations that will come of it will make offices of the next decade much better places to do great work.
I can’t wait to get back to that office.