As the global coronavirus pandemic continues, the flexible offices sector continues to suffer. Cities are full of empty buildings, plummeting investment levels threaten the ability of many small businesses to return and large businesses are putting plans on hold. Large operators including WeWork are being forced to ask for rent reductions as their buildings empty.
“Services income fell off a cliff,” Yardi Regional Director Justin Harley said, having gained insight from Yardi’s coworking software platform Yardi Kube. “There is no coworking revenue right now. The benefits of short-term leases and flexibility has given businesses the ability to reduce quickly.”
There is light at the end of the tunnel, Harley said, but only for those operators that look ahead. Although a business might be entirely focused on the here and now of plummeting revenue, the most savvy operators will already be adjusting their business models for either a post-pandemic environment, or a world where we learn to mitigate pandemic risks.
“No one knows how and when we will exit lockdown, but the human need for contact will undoubtedly benefit the flexible market,” he said. “There are things a serviced office operator can do to prepare now.”
Get Out The Dustpan
First things first, if you’re managing an empty office, it’s time to spring clean. Now is the time for an operator to do all the jobs that have been put off, to make sure the customer experience is better than ever. Paint the walls, install new facilities, take the time to plan new services to offer customers, or as much as can be planned under current pressures. On top of this, start to consider how your space could mitigate pandemic risks.
“What level of social distancing operators will need to put in place is unclear, but some are already looking at how it will work,” Harley said. “Could you consider converting communal space to office space, for example? Will hot desking still be popular, or will everyone want a fixed desk? These areas are already cleaned thoroughly, but perhaps cleaning will have to step up a gear. Could there be a greater need for outdoor communal space rather than indoor?”
On the technology front, innovative businesses are turning their minds to products that could help the built environment manage the risks of spreading disease. “We’re at the brink of people talking about health or med tech, such as sensors in buildings to check people’s temperatures, but no one knows what it is yet or how it will work contractually,” Harley said.
Spring Clean Your Finances
In a downturn, no matter how good your service offering, price becomes an even more dominant factor — for serviced office operators as much as their customers.
“If I were running a flexible workspace, I’d make sure I fully understood my cost base, my forward order book and how my sales department will be slicker than ever after this,” Harley said. “Businesses need to understand the capacity they have in their spaces and be clear about what a revised offering could look like.”
Harley predicted that although the flexible office market will weather the coronavirus storm as a whole, some operators might not make it. Until now, the hotbed of flexible working was driven by early stage businesses that might now struggle for funding. The number of these enquiries will drop and in cities such as London some argue there is already an oversupply of flexible space.
However, large companies will continue to demand more flexible space as they increasingly see the benefits, creating latent demand that will fuel the flexible office sector’s underlying growth.
“The pressure is on those operators that focus on startups,” Harley said. “A lack of leads and dipping occupancy levels will put enormous pressure on pricing. Will they be around once this crisis lifts? Possibly, but not in their current guise. They need to be crystal clear about what deals they are prepared to do. Incentives and step deals will be essential, avoiding the pitfalls of 2008, where operators allowed customers to sign longer-term contracts at below cost rates. Operators need to be creative in the deals they do whilst ensuring they’re commercially viable.”
Double Check Your Reporting
Forecasting tools are the most important tools in an operator’s armoury. A flexible office operator needs to understand where voids could be and how to plan for risk. As we prepare for an exit from lockdown, thorough scenario planning could provide the lifeline.
“Put the right management reporting in place to ensure that three months after the crisis lifts you can analyse what actually happened and what speculation has come to pass,” Harley advised. “You need to be able to act and change your business model if you need to.”
For a serviced office operator that can adapt to a new world that is highly conscious of pandemic risks, the future could be bright. The global demand for flexible space will still increase, Harley argued, particularly as businesses are even more conscious of the benefits of taking space as and when they need it.
What is likely, however, is that cities will see a correction in the nature of space being offered, focusing far more on larger businesses than fledgling firms. The operators that plan now for this changing environment are much more likely to emerge intact the other side.
This feature was produced by Bisnow Branded Content Studio in collaboration with Yardi. Bisnow news staff was not involved in the production of this content.