In a recent study of market demands shaping the growth of flex space, conducted by independent market research firm Verdantix, the trend most frequently cited by office landlords was “rising focus on productivity and the occupant experience.” But that doesn’t mean landlords are giving equal priority to both elements, points out Chris James, VP of Business Development at essensys, the leading provider of software and technology to the flexible workspace industry, who commissioned the study.
“Productivity and occupier experience are two different things,” James tells Connect Commercial Real Estate. Landlords aren’t as focused on productivity, but their tenants are.”
Moreover, tenants will have different metrics to gauge and measure workplace productivity. “Tenants want to get people back into the office—so how are they going about it? In comes occupier experience,” says James.
From a tenant satisfaction standpoint, that means looking at assets to liven them up: James says it’s not about amenities or services but the overall experience in the space. “What enhanced experiences are tenants and their employees going to find when they head back to the office?” he asks.
A key consideration is simplifying tenants’ ease of entry. In other words, how quickly can their employees access the space? Furthermore, tenants are keen to understand employee movement through the space and productivity of employees within the space. There has been a shift in focus “from external to internal components of both the space and the building,” he says.
Regarding the actions landlords are taking, James says, “There is a general understanding that they need to provide something better than just the four walls of a space. They need to know how they are enhancing the space, what services and technology tenants require – everything from – access control and security to booking and occupancy tracking. Deliverables that were never previously considered part of a landlord’s offering are now a core part of the conversation – practically a utility.
“What software and technology can deliver is what occupiers are looking for,” he continues. “These are now key utilities – they won’t rent a space without them. The top trend is flex – and the above are the things that are expected.”
The Verdantix study found that the most commonly cited demand driver for flex space was the diminishing role of the permanent office due to a rise in remote working. But James felt additional context was needed.
“I don’t believe the idea that remote work is the future,” he says. “We live in a world of necessities – the pandemic drove us to find ways to work remote; we didn’t have an option, so we had to make it work.”
As the pandemic recedes in the rearview mirror, at least in terms of dictating the office-using work environment, the way we think of remote working will change. “It’s now about how landlords can connect their entire portfolio to create a network of offices where employees can work from different locations with the same consistent in-building experience – from technology and access control to security and privacy.” says James. “Remote working is not the same as working from home. It’s about having optionality to do your best work consistently whether you’re in an HQ, flexible workspace or home office.”
He continues, “Offices are here to stay – and we’ll see them make a strong come back.” However, the way office leases are structured is different now. Terms like experience, technology and services are part of the package. essensys recently launched the Flex Services Platform, which provides all the software and technology required to deliver next-generation flexible workspace experiences, including secure digital infrastructure, effective space setup, seamless operations and mobile-first occupier interactions. “Our software and technology offers an all-in-one platform for landlords, bringing their entire portfolio onto the same network, enabling them to deliver the flexibility and services occupiers require today,” James says.
The question of how landlords that effectively provide flex space can benefit financially boils down to “whether or not they believe tenants will pay more for added value,” says James. “Tenants are more likely to pay a premium for a turnkey, enterprise-ready office space. It removes the hassle of sourcing and managing utilities on their own and thinking about big-picture office components such as access control, security, connectivity. They’d rather invest in a premium, flexible and inclusive product than spend the time and resources on managing it themselves.” In fact, half of the tenants surveyed by Verdantix were willing to pay a premium of 20% or more for tech-driven flex space that offered strong connectivity, digital security, ease of move-in, and seamless access.
James sees a persistent gap in how the market perceives the value of an empty office space versus a fully serviced, turnkey office space. “Conversations need to be had about the true cost of services and amenities to a tenant,” he says. “These dialogues are starting to happen and we’re seeing the added-value to tenants when the landlord provides a tech-enabled and fully-serviced office product, albeit at a premium, versus if they provision their own technology and services.”
He points out that the leading lights among office landlords—e.g., Brookfield, Hines and EQ Office—now offer flex propositions and are having success with the format. “It’s making the wider CRE world realize that if they don’t act now, they will miss out,” he says. “There will be long-term penalties if they don’t start thinking about flexibility across their entire portfolio. The longer they wait, the more difficulty they’ll have competing with landlords that got a head start.”
The ability to deliver an array of services and options to tenants in a building, or an entire portfolio of buildings, gives a landlord “a competitive advantage when attracting and retaining tenants,” he concludes. “The more you can put on offer, the better chances of winning the deal. If landlords aren’t feeling the pressure, they should start to feel it now.”