With over 23 years of experience in commercial real estate, I am the head of Bow and Experience Management by JLL for America.
Flex space continues to attract people at a level the traditional office environment has not seen since before the pandemic. During 2022, flex space had a higher physical daily occupancy than traditional offices and the mandate for this creative workplace solution will grow at a double-digit rate through 2023.
With individuals and companies embracing hybrid work as a necessary part of modern work, many property investors and landlords are seeing the potential benefits of properly implemented flexible solutions.
The extent to which owners of buildings today use flex spaces to monetize their space is also changing the fundamentals of building management, assessment and valuation. Building owners, investors and managers can capitalize on the growing demand for flex space by implementing creative workplace solutions that give employees the versatility they need to thrive in a hybrid work environment. Below are some ideas to get you started.
Experience Management: Creating comfort and hospitality in flexible spaces
When it comes to creating an environment where people want to work, quality alone is not enough. Hospitality-driven, highly anitized spaces are no longer the end game – they’re the starting line. Flex operators and service providers can help support investors and landlords in building tiered services that deliver a personalized and memorable experience for everyone who passes by.
For example, I see classes, lobby-level art installations, and even events like concerts and happy hours becoming the norm. Pop-ups and activations can take over entire floors for pickleball tournaments or a miniature golf installation.
This evolution of service has led to the emergence of property management 2.0 or experience management, which aligns property owners and investors with end users in creating desirable spaces with clear goals. These events and amenities can improve tenant retention and draw on the wider community, creating new revenue streams and potential new tenants.
When setting up a flex space, try to create an environment that offers the comforts of the office, including a variety of areas to support different types of work. You want a mix of flexibility and structure with areas that allow for less distraction and areas for more collaboration and fun.
I see a greater focus on hospitality and placemaking continuing to be a joint effort between investors, property owners, flex operators, property managers and tenants. Creating an experience is the modern way to generate asset income, especially for those who can choose where to spend their work day and beyond.
The Shifting Metrics of Real Estate Performance: Moving Beyond Occupancy
Historically, real estate performance has been measured by what can be done be quantified, whether or not these measures accurately represent the value of a building. For decades, occupancy was the gold standard, but hybrid work turns that standard on its head, along with much of the conventional wisdom about how real estate is used.
Flex space is increasingly measured by visitor numbers, or the number of people entering a space at any given time. While not a new metric, footfall is typically used in retail and entertainment spaces rather than commercial office buildings. Unlike badge swipes, Visitor Tracking relies on built-in sensors to track the number of people in a room.
Now that the private office has made way for flexible and event space, the boundary between working and other building functions is disappearing. I think more investment in technology solutions is needed to track how space use is changing on a macro level and to update construction operations to support that evolution.
In the short term, that could mean capturing data around visitor numbers to determine when the most-used common areas need to be cleaned. Technology is also used to provide access to building functions, such as utility rooms, outside of the 9-to-5 workday. With a thoughtful approach to integration, technology can enhance the tenant experience while stimulating construction activity, allowing resources to be directed where they are needed most.
A new era for building valuations
Rapid shifts in flex space are forcing a change in how these properties are valued. Office leases have been assessed for years on the basis of recent past performance. But that history doesn’t exist with this latest iteration of flex space.
Instead of looking at occupancy rates to determine rental rates, investors and managers can consider the aforementioned visitor numbers. You can also consider additional income streams, such as weddings, which The old Chicago Post Office started offering after the historical renovation of that building.
In general, I see traditional leases being challenged by more contract-driven agreements and the extension of the “flex” of flex space to all facets of the owner/tenant agreement. However, to be effective, you must ensure that new agreements are amenable to all parties and auditable for future review and forecasting.
Exploring the different approaches to flex spaces
We’ve seen the rapid evolution of flex space in just a few short years, from a unique coworking product to a new set of solutions tailored to the diverse needs of property owners, investors, occupiers and even the general public. Those within the industry must remain flexible to continue evolving with the needs and standards of the industry – understanding how additional disruption can continue to change the way these spaces are managed, measured and valued.