SIORs Help Clients Adjust to the Need for Flexible Space
The dramatic new emphasis on working from home has had an indelible impact on the CRE industry – particularly in the office sector, as companies have sought to reduce the amount of space they are occupying. However, SIORs are unleashing their creativity to make spaces more flexible and attractive to employees for the times they do come to work. SIORs are also working with clients to help them adjust their own development plans as well as improving in-house resources such as technology.
“What you hear and see out in the market is people creating spaces with maybe ‘doubled-up’ offices, and hoteling offices and work forces, three-days a week in the office – things like that,” says Tripp Guin, SIOR, founding partner of Tripp Commercial LLC, in Charlotte, N.C.
The impact of WFH demands has been felt in Europe as well, as evidenced by the experiences shared by Raffaella Cassese, SIOR, Global Corporate Services, NAI Target Real Estate SRL, in Milan, who specializes in the office market. “Generally speaking, companies allow a maximum of one-to-two days a week at home, and this allows bigger companies to reduce 30% of the space, putting the rest on the sublease market,” she says. While WFH is seen less and less as an alternative (many people prefer to go to the office), she adds, it has finally been accepted by the majority of employers.
The strongest trend in the market is the ‘flight to quality,’ notes Christopher Aquilina, SIOR, whose firm, Spring 4, predominantly operates as tenant rep brokers throughout the United Kingdom. “In other words,” he explains, “Tenants are increasingly understanding that if they want to woo their staff back from WFH, they need to offer best-in-class office space in a convenient location. We’re working with clients to identify lease events that allow them to relocate to release the outdated accommodation that is failing to attract staff back to the office.”
“Our market, like many others across the country, has experienced the consequences of WFH,” says Adam Kaduce, SIOR, senior vice president and office specialist with R&R Realty Group in West Des Moines, Iowa. “Vacancy rates have settled, but remain well above normal, and there are more large office availabilities for lease or sublease. We have adapted to accommodate tenants in the market for office space, witnessing strong demand from local and regional organizations growing their business in Des Moines.”
In Central Iowa, he adds, low commute times and easy access between home and work have led most businesses to adopt return-to-office plans of 3 to 5 days per week.
ADAPTING SPACE, STRATEGIES
But how exactly has Kaduce’s firm adapted to accommodate tenants? “To ensure that our supply of spaces meets demand, we have focused our efforts on optimizing the layout and functionality of our existing properties,” he explains. “This has included creating concept plans to break down large spaces for smaller users, adding more corridors to buildings for new space options, and incorporating corporate campus-style amenities into office buildings. This positions our office listings to meet the demand in the marketplace and offers our customers the quality leasing opportunities they are looking for.” He adds that his firm has also “refreshed” some lobbies and amenities, giving the buildings a new look for the returning workforce.
R&R, he continues, has assisted clients in navigating the pivot in their office space design and technology. For example, he notes, with a focus on enhancing collaboration when employees are in the office, there is a greater need for both formal and informal meeting spaces. “Several of our clients have added additional conference rooms of various sizes to meet their hybrid needs; these redesigns can be achieved through construction or furniture adjustments,” he shares. “Modern-day phonebooths are making a comeback, and 2-4-person private meeting areas with reconfigurable furniture and soft seating are gaining popularity.” Most customers, he adds, opt for glass-walled spaces to create an inviting atmosphere, and maximize natural light, making these areas suitable for both formal and informal meetings.
“We have another customer building out a ‘stairatorium’ to accommodate large meetings (50 or more people), while also providing a space that remains utilized throughout the day for smaller gatherings,” Kaduce continues.
His company is also assisting clients with the modernization of their technology. “Seamless video conferencing has become the norm and is now a requirement in almost all conference spaces,” he notes. “We help assist with the little things – like ensuring that a strong Wi-Fi signal connects to all parts of the space and providing ample outlets in all collaborative spaces.” He’s even supported a customer in adding Wi-Fi to their outdoor patio space and building a coffee bar in their building to ensure that employees take advantage of the various work areas.
“Companies are modifying their layout in favor of more common spaces, such as meeting rooms, brainstorming areas, even big kitchens,” adds Cassese. “In-office there are Amazon lockers, often a canteen or food service provider, and a high quality of environment.” Landlords, she notes, have “gotten the idea” and are trying to modify their services to incentivize tenants.
“Increasingly, our clients are asking us to provide travel time analysis using anonymized data for their staff to ensure that any new options they look at are easily accessible for their teams,” says Aquilina. “In the pre-pandemic era when office attendance was generally accepted as the norm, employees still used to grumble about their commutes. Now that the balance of power has swung to the employees – who know that there are an increasing number of fully remote roles available to them – they’re much more resistant to long and expensive daily travel and simply won’t come in. The biggest ‘win’ to get them back into the office is to provide accessible premises.”
Tenants are increasingly understanding that if they want to woo their staff back from WFH, they need to offer best-in-class office space in a convenient location.
In London, Aquilina continues, the U.S. investment banking giants are leading the charge with mandated office returns – although this approach has not been popular with staff. “Lawyers in particular are struggling to get their staff back to the office,” he says.
As for how his firm is advising clients, “Without question, the strongest recommendation that we are giving clients is that if they want their staff to be happy and back in the office then they need to be providing high quality and functional real estate,” says Aquilina. “Generally speaking, teams aren’t interested in whimsical fringe benefits like free pizza on Fridays; they want resilient IT and a variety of flexible workspaces that truly reflect their needs: quiet space for focused work and separate, more creative areas for collaboration.”
Guin says he’s not really changing the way he does business. “When they’re looking at space, clients give me the direction, and I tell them whether the market is hot or soft,” he says. As for office building owners, “They’re doing their best – constrained by insurance policies and capital partners,” he shares. “Some banks are pulling back on office lending, and that can affect their improvement dollars. You do what you can; perhaps I can give you free rent in lieu of capital improvement dollars.” Construction costs, he adds, are “prohibitive,” which also mitigates against new buildouts.
SOME CHALLENGES REMAIN
Although owners are adjusting as best as they can and many employees are pleased to retain at least some days a week to work from home, some of the challenges of the WFH model continue to plague the industry.
“Our clients have expressed concerns about the work-from-home model,” says Kaduce. “They share team members’ worries regarding mental health and the adverse effects of operating in an isolated work environment. There’s a concern that team members might struggle to form connections with their colleagues or establish a strong bond with the organization.”
Des Moines’ primary sectors are insurance and finance, he continues, and these businesses emphasize the positive impact that having their teams together has on their culture, training, mentorship, and innovation of new ideas and products – and many employees agree. “Central Iowa has a strong young professional community, and we’ve seen demand from this group to be in the office, engaging and socializing with coworkers,” says Kaduce. “They’ve recognized the importance of gaining the necessary tangible and intangible skills needed to grow in their careers.”
Increasingly, our clients are asking us to provide travel time analysis using anonymized data for their staff to ensure that any new options they look at are easily accessible for their teams.
But some businesses have implemented greater flexibility or full-time WFH for those in their technology, programming, or customer service departments, Kaduce supplies. These jobs can be performed independently, and productivity can be effectively measured.
Beyond that, he says, clients also express business concerns; productivity, innovation, and customer service are at the top of their worries. There is concern that business performance and the overall financial health of an organization could be impacted by team members who are distracted at home, or prioritizing commitments unrelated to work while on the clock.
“To address some of these challenges, some of our customers have replicated WFH features in their office spaces,” he shares. “This includes providing outdoor work areas, introducing soft seating and casual work areas, improving dining options and healthy snack options in their breakrooms, elevating their coffee experiences by partnering with local or national coffee merchants, and coordinating food trucks for unique dining experiences.”
“The problems associated with working from home were most eloquently addressed by Malcolm Gladwell (author of Outliers and The Tipping Point: How Little Things Can Make a Big Difference) in the ‘Diary of a CEO’ podcast,” says Aquilina. “Gladwell makes the point that humans aren’t always that great at making decisions about what’s best for themselves – for example: a poor diet, drinking excessive amounts of alcohol, and smoking. He equated that with people’s decision to stay at home to do their work.”
Despite its benefits, he explains, there are long-term costs. “Gladwell asks the very direct question of ‘What have you reduced your life to?’” Aquilina shares. “By sitting at home all day in your pajamas, people very quickly lose the benefit of being part of something bigger than themselves – which is a very real human need with intrinsic benefits.”
Developers, Aquilina says, need to be part of the solution and ensure that the offices they are delivering provide the amenities that staff actually want. “In the U.K., that means bicycle storage, showers, gyms and changing facilities to reflect new commuting patterns,” he explains.
For Cassese, however, things don’t look that bad. “Nothing went wrong, I would say.
Simply, a good mixture between modalities is the right answer,” she asserts. “People need to meet, to share ideas, to know each other, and [Microsoft] Teams or other instruments cannot completely replace human chemistry.”
NEED FOR FLEXIBILITY WILL CONTINUE
As long as there is a desire to work from home, say SIORs, they and their clients will continue to address them. “As home space in Europe is very reduced, many new-built multi-family buildings are organizing some common rooms at ground floor to facilitate WFH,” Cassese notes, “but flexibility will be always required as it gives a good opportunity to accommodate personal and professional requirements.”.
Aquilina, however, is not convinced that WFH is a ‘forever’ trend. “It’s too easy to be swept along by current trends and assume that an asset class is permanently damaged,” he asserts. “In 2006, when I first started working in commercial real estate in the U.K., industrial buildings – including logistics – had no apparent future. No one in their right mind would have wanted to get into the industrial real estate sector! With the rise of Amazon and e-commerce, it’s suddenly the hottest market, and offices and retail are now apparently ‘dead ends.’
In many markets around the world outside of the U.K. and the U.S., Aquilina insists, WFH is already consigned to history. “In 2024 and beyond, I expect to see this trend continue,” he predicts. “Office attendance will continue to rise back to pre-pandemic levels. There will be change and pain involved, but it’s simply part of the evolution of the market. We’ll see obsolete office buildings and sites converted to residential and logistics, with an increasing supply of top-quality new and refurbished office properties.”
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