COMMENT Depending on your point of view, the present is either a challenging time for commercial real estate, or an exciting one. The entire sector has been upended, as the world questions if offices are even necessary anymore. On the other hand, this turbulence presents an opportunity for the sector to reinvent itself and delivers opportunities for growth that simply can’t be matched by working-from-home.
Prior to Covid-19, a shift away from traditional offices to flexible workspaces, especially among larger organisations, growth companies and established SMEs seeking high-quality spaces that could offer tailored solutions was already beginning. Research published last year signalled a growing market share for flexible office space and Covid-19 has only accelerated this, with CBRE confirming that nearly three-quarters of businesses are now considering flexible working as a result of the pandemic and a shift in working behaviours.
What we are seeing is a shift away from traditional, long-term leases, driven by a number of factors. Firstly, the challenge of long-term visibility. It’s difficult to predict what your business’s headcount is going to be for the next five years, let alone the next 20. Secondly, the large capital expenses associated with traditional leases. Why would you want to allocate resource to a fit-out when you are trying to preserve capital? And finally, the flight to quality as customers become more demanding and savvier, seeking a crafted experience that has deeper appeal and benefits.
We are also seeing a second trend – prudence, which is justifiable with the level of uncertainty permeating every sector. Across the economy, real estate investment volumes are modest, M&A is low, and pitching for new business is lethargic. We are seeing a slowdown in all parts of the economy. The resulting behaviour within companies has been a retreat to their “engine rooms”: cutting costs, protecting revenue and accessing government support. A shift away from traditional, long leases falls squarely in the bucket of cost cutting.
Our fundamental belief is that the confluence of these two trends will result not in the end of the office, but rather in an evolution. An intentional shift to tailored and adaptive workplaces: physical spaces that take into consideration utilisation and choice to deliver productivity, engagement, and wellness. This is where flexible office operators can capitalise on evolving behaviours and generate demand to stabilise the market.
It is undeniable that humans are social beings who require interaction and also that companies need to bring their people together face-to-face to drive culture, innovation and productivity. The need and desire to go to a workplace will not be extinguished, rather, the level of quality of those workplaces will need to be raised to deliver quality experiences.
Now, as never before, businesses are thinking about commercial real estate in a different way, prioritising human need and productivity. Operators that are able to offer quality in a capital-light structure will grab a greater share of the market.
Working from home over the past few months has been about hunkering down, both physically with your family and metaphorically with your business. When a vaccine, a cure, or a fully repressed R rate is achieved, we will emerge from our “defensive” business practices and focus on growth again.
That growth can only be achieved through human interaction – the role of the office is evolving, not disappearing. Commercial real estate in London will undoubtedly be impacted by the events of the past few months, but flexible workspace operators provide a solution that meets business needs – the current situation gives us an opportunity to deliver on the sector’s forecast growth.
Enrico Sanna is chief executive and co-founder of Fora