Global Workplace Trends: Ingrain the Co-Working Mentality in Real Estate Strategy

by | 29 June 2017

We’re more than halfway through exploring the five key shifts that companies must make in the workplace over the next five years. So far, my global workplace solutions colleagues and I have discussed the ways businesses can:

Today, we’ll zero in on the trend that is shaking up the traditional workplace model — co-working. In 2016, there were approximately 11,000 co-working locations around the world. But this figure is expected to more than double to 26,000 by 2020. By comparison, there are approximately 24,000 Starbucks locations worldwide. Taking a cue from the popular reference to the coffee giant’s location strategy, that means there may soon be a co-working space on “every corner.”

Initially, co-working was simply a term for the use of a shared workspace that businesses (many of them individual entrepreneurs or small startups) could use on flexible terms, working in close proximity and often collaborating with one another. But today, the model is much more complex, nuanced and applicable to a wide variety of businesses.

As a result, we like to refer to this concept as “flexible workspace.” Flexible workspace can be the way a company provides all employees with everyday workspaces, or it can be a strategic location for just one department. Or, it can be a “third space” available to employees who occasionally need an alternate option away from the central office.

The biggest shift we see in the coming years is that flexible workspace will become a key component of many companies’ workplace and real estate strategies — for occupiers and building owners alike. Flexible workspace is not just for millennial freelancers or tech startups anymore. Large, multinational companies are increasingly taking on space at flexible workspace operators or integrating shared working spaces into their own environments.

For example, Microsoft recently shifted 70% of their sales staff in New York City to flexible workspace. Large employers already make up the fastest-growing market for shared workspace provider WeWork, and many businesses’ preferences are moving toward short-term real estate contracts with flexible provisions.

Some companies are leveraging flexible workspace operators to manage their spaces. For example, IBM recently signed a deal to shift 600 employees into an entire building in New York City, designed and managed by WeWork.

Companies like IBM and Microsoft have begun to outsource the design, building and management of some of their workspaces to third parties. But many companies try to do all of this themselves. Every 10 years or so, they assemble teams to design and deliver new workspaces, and then they manage those spaces themselves.

In the same way we now purchase many technologies as services rather than as software, the future of “space as a service” looks bright. This model provides companies with a way to access space in an on-demand fashion, drawing on the knowledge of outside experts in a way that frees them to focus on their own core businesses.

Building owners are also finding opportunities to revitalize underused spaces by transforming them into the type of shared work areas that are increasingly in demand. Already, many occupiers won’t consider a building without available flexible space. To remain relevant, commercial office buildings will need to create spaces that attract people to connect and collaborate — both within the office and outside of it.

The rise of flexible workspace has created many different service models targeting different needs. Companies like Breather focus on short-term office and meeting room rentals, used for everything from individual work to hour-long meetings to multi-day team off-sites. Convene operates on a similar model, focusing on conferencing spaces and high-touch event support.

B. Amsterdam, the largest startup ecosystem in Europe, focuses on creating a sense of community by connecting startups, “scale-ups” and corporate organizations to boost creativity and innovation.

Companies like LiquidSpace connect businesses and individuals looking for space with flexible workspace providers. Recently, the company partnered with furniture manufacturer Allsteel to help landlords transform unused spaces into pop-up flexible workspaces. LiquidSpace has begun to lease spaces and fit them out with a templated kit-of-parts including sit/stand desks, huddle areas, bleacher seating and other elements. Individuals and companies can rent these spaces in 30-day increments — meeting their needs and enabling landlords to utilize spaces without furnishing the capital for full fitouts.

Roadmap to 2022: Change the way you think about space needs

In the future, companies will need to think more about accessing office space than owning or leasing it. This paradigm shift will require an evaluation of “core” and “flexible” space needs.

Core space is the real estate a company must rent or own over the long term for the business to function. In evaluating how much space a business needs, it’s important to remember that today’s requirements may not be the same as tomorrow’s — especially as businesses increasingly go paperless, shift data centers off site and increase workplace densities as organizational structures change.

Flexible space is the real estate that can be deployed quickly without long-term commitment, adjusting in near “real time” based on needs. It is an acknowledgment that it is sometimes impossible to forecast space needs in a location in a way that justifies a standard lease. Flexible space might include space at an outside location, a gathering space for team meetings or a “pop-up” office for a specific project or client need. It might include space within a company’s own building that changes based on requirements over time.

By categorizing space needs this way, businesses can make better decisions about how to execute a real estate strategy that minimizes cost and maximizes opportunities.

One of the best examples of large companies adopting the flexible workspace approach in Asia is HSBC’s recent contract for 400 desks in WeWork’s Tower 535 in Hong Kong.

“Creating the right environment for our staff, working in the same location as other like-minded teams, including Hong Kong’s fin techs and other startups, is important to us as we continue to attract, develop and invest in the talent we need to meet our digital ambitions.” — Andrew Connell, Regional Head of Digital, Retail Banking and Wealth Management, Asia Pacific HSBC
Source: Colliers International Asia Pacific Flexible Workspace Outlook 2017.

Roadmap to 2022: Realize the impact of flexibility on the bottom line

By making flexible workspace an integral part of an organization’s workplace strategy, companies can not only provide employees with a valuable opportunity for choice and connectivity, but they can realize meaningful benefits thanks to flexibility.

In balancing core and flexible space needs, companies can reduce financial risks related to long-term space needs and be nimble in making changes as needed. Building owners can benefit from transforming underutilized spaces into shared working areas, which in turn can help attract and retain tenants.

Many commercial landlords own a number of properties, and some are beginning to apply the co-working mentality by offering programs that provide tenants with access to the facilities of their entire portfolio of buildings.

Consider a tenant who travels frequently to markets where a landlord owns buildings. Think of the value-add if that tenant could seamlessly access amenities in each of those buildings, such as parking, after-trip facilities and even office or meeting spaces!

Some companies may also be interested in flexible space due to new lease accounting rules coming into effect in 2019. As a result of new guidance from the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB), listed companies must start analyzing the impact their office portfolios have on financial statements — but short-term leases under 12 months will be exempt from the new standards.

Beyond the financial opportunities, businesses stand to gain in other ways from adopting the flexible workspace mentality. In Europe, employees from companies like Heineken, IBM and Red Bull make a practice of working in shared office spaces on a regular basis to meet new people and think creatively in a different environment. In our experience, this works most effectively when the practice extends to all levels of the organization — the behaviors that leaders model become integrated much more rapidly into accepted practice.

In the U.S., companies like Silicon Valley Bank and KPMG find flexible workspace to be essential to their strategies in building relationships with prospective clients. Colliers’ client Silicon Valley Bank utilizes its WeWork spaces as a way to enter new markets, adapt to the company’s rapid growth and to be near particular clients. The company thinks of flexible workspace as the “cloud for workplace,” through which they can access space whenever and wherever they need to without a long-term commitment or significant capital.

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Think about how you can organize your space needs into categories of “core” (long-term usage, unlikely to change) and “flexible” (likely to change in the short term). As you look ahead to future needs, think about the role that flexible workspaces might play.

As you consider this, it’s important to clearly define the goals you want to reach by using a flexible workspace strategy. Is it achieving flexibility? Encouraging connections to other innovative people and companies? Providing multiple options in a rapidly evolving competitive landscape?

In defining these goals, consider the impact on employee experience and how you can ensure your brand and organizational identity remain strong across the various types of work environments you provide.

For more on the way flexible workspace is evolving in my market of the Asia Pacific region, be sure to visit our Flexible Space site and read our recent Flexible Workspace Outlook Report.

This post is part of a series on the five workplace trends that Colliers’ global workplace experts see as the most crucial for companies to align with in the next five years. Stay tuned for upcoming installments and a full white paper coming soon. In the meantime, contact the workplace expert in your region for more insights and information.