27th April, 2020

How COVID-19 is making workplaces more flexible

Despite the short-term impacts, flexible workspace will emerge as a strong offering for both tenants looking for flexibility and landlords wanting to diversify.

Once this work from home stretch is over, people will flood back to their offices, as we are already seeing in Asia. We will always crave that human interaction and sense of community at the workplace.

But, the way that we will work — from a behavioural and workplace design perspective — will be forever changed.

Challenges posed by COVID-19 for landlords and co-working business operators

1. Short term challenges for traditional operators

Large operators that have significant capital reserves will be able to get through this, but we will likely see many co-working companies potentially try to renegotiate and exit lease commitments with their landlords.

2. Different ways of working

The co-working companies that can survive these uncertain times and also adapt to the changes post pandemic will emerge as benefiters to the boost in corporate demand for flexible workspace.

Some of these adaptations will require traditional co-working operators to rethink their business models and diversify their income streams.
This is partly because an expected outcome of Covid-19 will be the carry-on requirement for cleanliness and social distancing, meaning office space will have to de-densify their number of desks.

Highly desk dense floor plans are a primary revenue stream for traditional co-working operators hence this change will require them to also focus on income channels such as food & beverage operations, meeting and project spaces, etc.

The hospitality element of their holistic offering will become more important as a service provider.

3. Landlords take over flexible workplaces

The closing of co-working spaces will also significantly impact the responsible landlords as it creates sudden vacancies in their assets and leaves them with a floor(s) fitout for co-working.

This is an opportunity to bring in another flexible space operator to run the space for them under a management style agreement, with the expectation to refit and refresh the space after maintaining normalcy.

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What are management agreements?

A management agreement is defined as an agreement made between a property owner and a management company, which could be a co-working startup or real estate services company.

These agreements will result in landlords taking on a greater share of risk and fitting out their asset with a flexible workspace. In return they receive greater share of revenue without having to deal in the detail of running a co-working operation.

READ: Are management agreements the next big thing in co-working? 

Under this style of partnership, the landlord will own this flexible space, allowing them to brand it and be in more control with a direct relationship with the flex tenants.

Commercial real estate is going to change

The ‘hotelification’ of commercial real estate is an emerging trend where landlords are providing bespoke and premium services including their own branded flexible workspaces paired with food and beverages to provide holistic offerings.

This is a strategy to attract and retain tenants, and promote loyalty to their building and portfolio.

This will be further emphasised in response to the pandemic, with lounges, cafes and event spaces becoming more and more important for employees to connect and collaborate.

Owning a flexible workspace also allows landlords to package up a bunch of important costs that their flex tenants will not have to worry about, including cleanliness (which will be especially important after this pandemic).

How could the future of your workplace change if more flexible options were made available?