Forget flex versus traditional offices: the future is a blend

COMMENT Not long ago, traditional office leases of 10 or even 20 years were the norm and dominated the commercial real estate market. But gone are the days when landlords could sign away one of their offices for a chunk of time and not have to give it too much thought. Over the past decade – even pre-pandemic – there has been a definitive shift towards shorter, more flexible occupancy agreements as businesses seek adaptability in their workspaces amid economic volatility, political disruption, climate change and changing working patterns. While these leases are shorter than the traditional examples, they are steadily growing longer. This raises a question: is the market moving towards a new, hybrid workspace leasing model that bridges the gap between flexibility and stability? So long The Covid pandemic highlighted the need for businesses and employees to have flexibility. Employees were forced to work from home; large offices were left empty. The problem was that once offices reopened, many businesses had successfully adapted to a hybrid working style. Once well-populated office space in the heart of the city observed falling occupancy. We have also seen a change in the way businesses want to grow. Rapid, agile changes in company size, whether scaling up or down, are common, and companies need a space that can cater to those changes instantly – not in 10 years when the lease has expired. From a landlord’s perspective, is easy to see why there is some reluctance to move away from the long-term financial predictability of traditional leases to a more agile offering, but we have seen a gradual shift to adapt to modern market demands. The joy of flex Flexible workspaces were initially designed to react to the needs of startups and small businesses looking for short-term office solutions. And while they can still accommodate those businesses, flexible workspaces are being increasingly adopted by companies of all sizes who value the flexibility and scalability they require. Businesses are expanding the length of their stay with flex providers as they can claim both stability and adaptability. For businesses, this bespoke way of operating alleviates the risk of being stuck in a space they have outgrown, giving them the option to scale at a rate that meets their specific needs. Meanwhile, for landlords, the lengthening of leases provides steadier income streams but flexibility, allowing businesses to scale as appropriate, aids with retention. It also allows landlords and operators to build a space around a sense of community as they know the changing needs of all their members. Another benefit for landlords is that they can gather valuable data and diversify their offerings to meet changing market dynamics, keeping them relevant. Lastly, businesses are willing to pay a premium for move-in ready office space with shorter commitment terms, which increases overall income for landlords. Meeting in the middle As landlords and flexible workspace providers seek to balance their business objectives with changing demands, the two models will reach an inevitable convergence; a middle ground that combines the security of a traditional lease with the adaptability of a flex option. This might entail contracts that combine short-term desires with long-term incentives – for example, businesses committing to multiple years while retaining the option to scale or modify their space when required by obtaining workspaces on a shorter-term, more flexible basis, in flexible workspace that is in the same building provided by the landlord, in partnership with a flexible workspace provider. Even though the working world has changed, businesses that have moved to a flexible solution still want the perks that come with having their own office, a space where they can nurture their unique company culture and foster employee engagement. Allowing them to consume additional space as and when they need it can be an added attraction for potential occupants while boosting retention as businesses reduce unnecessary overheads. The meeting point between traditional and flexible occupancy terms is getting ever closer, with an equilibrium on the horizon. If they collaborate, landlords and businesses can build long-term relationships that are mutually beneficial. The era of the blended model is coming and, if both landlords and occupants embrace it, they can create a win-win scenario for all. Wybo Wijnbergen is chief executive of InfinitSpace