Change Is Inevitable…Growth Is Optional: The Emergence of the Flexible Office Economy

$Release_Title.getData() 18 May 2020

Eight months ago, we were talking about how the emergence of flexible office has changed the face of commercial real estate. No one could have predicted then the situation we find ourselves in today. In talking about the “new normal,” we know there is still much to be determined. Changes will be driven by the unique situation of individual company’s business plans and built in a more targeted way around the distinct and unique needs of employees. Even before COVID-19, consumer expectations, the on-demand economy, digitization, technological advances, and an increasingly mobile workforce had already begun to change how we work. In May 2015, Antony Slumbers, a technologist and real estate thought leader, wrote a blog post that began with the following statement: “by 2023, “The Office is Dead*”. At the beginning of 2020, this projection may have seemed aggressive. But in the next 24-36 months, we may see Slumbers’ thesis closer to reality. This prediction does not insinuate that the office will become obsolete; rather, we are reimagining the function of the central office for the future. This is often positioned as a binary choice for companies’ future portfolio allocation: fixed/long term leases or work from home. But there is a hybrid model that is rarely fully acknowledged – one that includes flexible workspaces. Importantly, remote work does not exclusively mean “work from home,” in the same way that flexible workspace does not exclusively mean coworking.

Key questions we explore below:

  • What percentage of employees need to be in a fixed location?
  • How can companies provide their employees with workplace options that fit their specific needs?
  • What growth mindset could be adopted for us to embrace remote working?

Meeting employees where they are

Modern employees want more flexibility and optionality from their employers. Through technology, almost every job function in many office settings can be done remotely, at least in part. Pre-COVID-19, agile work models were beginning to gain in popularity, as shown in the Upwork Future Workforce Report. Talent can be difficult to attract if you are geographically constrained. Companies have increasingly used freelancers, gig workers and contractors to satisfy certain project goals. Out of this current crisis, we expect more full-time employees to seek the remote options available in today’s market. While not every function can be done remotely, most companies have been impressed with the level of productivity they have seen from their employees during this difficult period. In just the past few weeks, many large corporations like Morgan Stanley, Twitter, and Nationwide have made bold statements about their own real estate strategies coming out of this pandemic. In the first quarter of 2020 (pre-COVID), Deloitte released a survey that found most professionals take advantage of flexible work options despite perceived consequences to professional growth. The study found that work flexibility was critical to employees’ professional and personal wellbeing. While COVID-19 has brought record-high unemployment through no fault of some talented individuals, we can expect that when the economy cycles back upward the war for talent will be stronger than ever, with higher expectations than before. We foresee that companies that provide workplace optionality will be positioned for greater success in the future. New employee demands, including work/life integration and a de-prioritization of geographic proximity, are driving future employment decisions. Each company and its employees have their own unique needs, but everyone should be asking: what percentage of employees need to be in a fixed location?

A hybrid model emerges

Decentralization will be a central theme coming out of the COVID-19 crisis. Different companies will allocate their portfolio management strategies in various ways, based upon their own unique needs and based upon their existing lease obligations. We expect portfolio management strategies will include some combination of a Hub & Spoke Model:

  • Fixed-Long Term leases (“Hub”) – a central location for a percentage of employees to work full time, while providing opportunities for branding, culture creation, as well as serving as the central point for internal collaboration and engagement.
  • Remote Alternatives (“Spoke”) – options such as flexible workspaces (Coworking, Executive Suites, Agile Suites, etc.) and work from home, whether partial or full time, will become a critical component of a healthy portfolio allocation. Not everybody likes to work from home, but many would enjoy the opportunity to work near home.

Space utilization and workplace strategy were already in a constant state of flux, and this instability will be exacerbated by the current humanitarian crisis. Instead, we need to use this period to reassess the true value of a fixed office and embrace the power of a more refined remote strategy in conjunction with our Hub offices. While hurdles exist in the immediate term, innovative solutions will be even more widely adopted as we come out of the current pandemic.

Are we going to stop asking our people to come into an office? Absolutely not…But how can companies provide their employees with workplace options that fit their specific needs?

Embracing remote working at scale

The concept of the “Line of Sight” leadership style is built around the premise that all employees within an organization or team can understand and appreciate how their role at work integrates with the organization’s core business objectives or larger vision. However, it has largely been interpreted as managers needing employees to be within their physical “line of sight” to be productive in their individual role. With many realizing that remote work does not necessarily equate to a decrease in productivity, we may see organizations moving away from “management” and more toward “leadership” principles. Eventually, many employees will be asked to come back to the office full or part-time. However, we know that many companies are not forcing people back to the office. Those companies who have appropriately equipped their employees with the tools and resources to be productive remotely are realizing that the mass return to their existing Hub office is not critical in these unsettling times. It is also serving as a way for companies to live their values by putting people at the forefront of decision-making, reducing any anxiety around returning to public spaces and transit. Employers who embrace remote work, whether partial or full time, will find that they now have a far deeper talent pool to tap into for recruitment, while also seeing an increase in employee retention. Employees may become even more loyal as they can achieve a work/life integration aligned with their personal needs, which can lead to increased happiness and overall productivity if managed appropriately. As we emerge from this global remote work experiment, we’re seeing the demand for flexible solutions accelerating as large employers have begun to announce their post-pandemic real estate strategies. The supply side of the flexible office economy may have a period of recalibration as certain spaces and offerings will need to be modified to adapt to occupiers’ workplace strategy expectations post-pandemic. Organizations should be taking this opportunity to reflect and ask: what needs to change for us to embrace remote working?

Seeing past the changes

Now is the time where the entire industry, including owners, occupiers as well as the brokerage community has an opportunity to take a step back, reassess and embrace the disruptive services and offerings which have been gaining momentum over the past decade. Employees are the most critical component of any successful business and almost always the largest expense item for any corporation. Everything done in commercial real estate – typically the second largest expense for office users – has been built around providing employers the ability to better recruit and retain talent. This particular moment in time is no different. Let’s acknowledge the disruptive forces upon us, embrace innovative strategies, and ignore the status quo.

For more information, contact Charlie Morris, Practice Leader, Flexible Office Solutions.

The spread of COVID-19 and the containment policies being introduced are changing rapidly. While information included is current as of the date written, the views expressed herein are subject to change and may not reflect the latest opinion of Avison Young. Like all of you, Avison Young relies on government and related sources for information on the COVID-19 outbreak. We have provided links to some of these sources, which provide regularly updated information on the COVID-19 outbreak. The content provided herein is not intended as investment, tax, financial or legal advice and should not be relied on as such.