The office market will be radically different in 2026 – how can homeowners adapt?
Office owners could not have faced a longer testing period than the past 18 months. Real estate markets fluctuate and tenant demands change over time, but no one could have predicted the speed or magnitude of the change that has occurred since March 2020.
The story is well established: the pandemic began, lockdowns were put in place and almost overnight companies were forced to work remotely. Offices have been abandoned for months; some have still not been fully returned.
Fortunately, the rollout of the Covid-19 vaccine and the subsequent relaxation of social distancing rules have allowed the office market to rebound. For example, Savills reported that £ 10.5 billion was invested in UK commercial property in the first quarter of 2021, up 112% from the initial foreclosure period in the second quarter of Last year.
But office owners know all too well that whatever path the post-Covid recovery takes, the commercial real estate market will never return to where it was. Some might call it a “new normal” – in truth, this reality had become apparent long before the threat of the virus surfaced, with the pandemic hastening the abandonment of traditional office work.
Flexible working was already becoming the new normal
Already in 2019, up to 70% of UK employees believed flexible working made a job more attractive, while 30% said they would prefer flexible working over a pay rise. The proliferation of business technologies throughout the 21st century has made it possible for people to work anywhere and anytime. The model agreed to work at an office Monday through Friday 9 a.m. to 5 p.m. already looked outdated five years ago.
Now, however, with the pandemic forcing the majority of organizations to adopt remote and more recently flexible working models, there has been a marked step forward in this trend. Indeed, a survey of UK companies conducted by CBI Economics in July 2021 found that 93% of companies plan to adopt hybrid work models in the future. Only 5% said they plan to work entirely from a desk.
Office owners who had yet to face the reality that the demand for flexible workspaces and managed office solutions will increase now have no choice. The only question is how they can adapt their buildings to meet the new – and always changing – needs of tenants.
Create “The building of the future”
We are in the midst of a truly remarkable transformation in the office market. After all, for about 300 years the industry has undergone very little change, with landlords offering fixed (often long-term) leases to businesses for dedicated space and, perhaps, the facilities hosted there.
Today, however, the design, construction, functionality, management and marketing of an office building is driven by the demand for flexible and managed offices. This means that owners need to create opportunities that are not aimed at having offices for all employees within an organization, but more on collaborative spaces and, most importantly, an improved experience for tenants.
A Knight Frank survey of UK businesses underscored this point. It found that 81% of companies believe they need to implement a new workplace strategy after the pandemic; 53% want their offices to have more collaboration space and 47% are considering their real estate strategies to include more flexible, equipped or coworking spaces.
The experience of the end user, i.e. employees, cannot be overlooked. With remote working now the norm, it will take a whole new proposition to entice them back to the office. There must be opportunities to connect, innovate, and even relax, in a physical space that is ultimately fun to be in. From high-tech meeting rooms to better coffee and catering offerings, companies will increasingly need to choose workspaces that will appeal and excite their employees.
Office owners therefore need to convert their buildings (or parts of them) to remain relevant among the growing number of potential tenants who simply will not consider a traditional office space that offers no services or amenities. In fact, JLL predicts that 30% of office buildings will have some form of flexible workspace by 2030. This is a conservative estimate.
How can office owners adapt?
Office owners must then adapt to the changing market. They may think they have two choices: entrust their building (or part of it) to flexible workspace operators (like WeWork or TOG) and allow them to take full control; or they’ve embarked on the difficult process of converting part of their own building into a flexible workspace and then re-marketing it accordingly.
However, there is a third way. They can outsource the creation, operation and management of the flexible workspace to a specialized third party, while retaining full control of the brand, product, and most importantly, finances. White label flexible workspace providers could give them the balance they’re looking for.
From a practical standpoint, there are a number of steps that office owners (or their chosen partners) need to take. It is first and foremost a matter of modifying the design, functionality and services offered within the building.
It would be wise to consider the important role that technology must play in a flexible workspace. This will simplify building management, while offering tenants the mobile or online platform they expect to use their workspace: booking meeting rooms, viewing organized events, access to exclusive offers from partners, etc.
In addition, technology will contribute to the continuous evolution of the workspace. By using data to analyze how their tenants interact with a space and use the services, office owners (or those who operate their spaces for them) can make continuous improvements to their offering. They can also better identify and manage unused spaces to ensure they are maximizing a building’s potential.
It is not a simple business. It takes capital investment, in-depth knowledge of the makeup of flexible workspaces in high demand, and ongoing operational excellence to ensure everything works seamlessly. Having said that, it is a challenge that must be met.
Until a decade ago, the office market had lasted several centuries without significant change. But the speed at which things are moving now is astounding. Office owners need to embrace this flexible working revolution, and many will need to make noticeable changes to their buildings if they are to find their place there.