How will flex be part of next-gen office buildings?

[00:00:00] James Cook: I get my work done in a lot of different places. So some days I'm working from home. Some days I'm traveling. Some days I work out of a coworking space. I need flexibility in where, when and how I work. I think that old school, Don Draper office space does not work for a lot of people.

Welcome to a special live episode of building places where we look at the world of commercial real estate through the eyes of the people that study it every day. My name is James Cook and I research real estate for JLL.

Today we have a panel of flex experts or flex spurts. Discussing flexible space and how essential it is for today's office buildings. this is especially true in a world where lots of people have gotten used to working at home. And they're not really all that excited about getting back into the corporate office again.

[00:01:07] James Cook: So let's meet our panelists. first up, let's welcome. Jacob Bates. He is the head of flex by JLL.

[00:01:15] Jacob Bates: James, how are you?

[00:01:16] James Cook: And also let's say good afternoon to Stasha Anderson. she builds investor partnerships and grows. JLLs flexible space footprint. Welcome. Stasha. How are you today?

[00:01:28] Statia Anderson: Thank you, James. Doing well.

[00:01:30] James Cook: Finally, we're going to welcome my friend Caz Anderson, who works with occupiers and their representatives to find flexible space. Welcome Kaz.

[00:01:40] Kez Anderson: James. How are you, sir?

[00:01:42] James Cook: One thing about office space. And most of my work is spent in retail where we're really on the cusp of creating amenities and being customer focused. But I think office has lagged in terms of white glove service in terms of just amenities that they offer. It seems like now we're in this place where tenants are starting to have more control. what do tenants want and what are the current trends that are going on?

[00:02:12] Jacob Bates: We spent a lot of time and energy and effort trying to get people out of their house to go to shop, go spend money

And that became very experiential we're in the same place with office. We got to get them to go to the office. But when we do that, it's gotta be a destination  so we've gone from, the amenity war for office buildings and a monetizing their assets to now it's an experience war I think we're going to be a big change and shift and where we go from here in commercial real estate.

[00:02:35] Statia Anderson: Talking with a few of the brokers they've expressed that the business cycle for innovative changes and trends have started at 10 years, moved closer to five years. And now we're looking at two to three that also plays into what they're thinking for the real estate strategy and what they're willing to commit to. The flexibility element is becoming more critical as they, assess what their real estate portfolio strategy is. we surveyed occupiers and 60% of those said that they want to have flexible space within their portfolio. And 40% said they want to expand that footprint as it currently stands.

[00:03:05] Kez Anderson: I can do everything that I can do at work. and my house was going to get me all from my comfortable couch and into an office where I'm excited to be. I can feel productive. I know when my friends and my colleagues are going to be in there, it's more about creating that environment.

[00:03:17] Jacob Bates: we surveyed our occupier clients.and only 5% of them have a return to office strategy. and I think they're all in this kind of unknown, a number, very uncertain place in terms of the return to office and investors have got to step in and help with that. asset owners got to figure out how they support that it can't just be an occupant and employer problem anymore. there's a billion square feet of commercial office space that it's set to expire in the next four to five years.

Some of it's going to go away. Some of it will expand. Some of it will just move into a different market and media. But all of it is going to get challenged. And so we're really in this experience more than how do we get people back to the office. They were companies right now that are uniformed status that were founded after COVID and have never had an office to begin with at all.

[00:03:59] Kez Anderson: So investors kind of have the field of dreams, ability of we'll build it and they'll show up. That's not the case anymore. There are companies that are being built, being successful and, they were billion dollar companies without having any kind of office strategy. So how can we make it value out of the company rather than a mandate? It's something you've got to have.

[00:04:15] James Cook: How do you define flexible space?

[00:04:18] Jacob Bates: it's gone from the executive suite era, to the business centers, to now coworking But where are we going to see things shift? I think the next 10 years is the sweets versus coworking conversation. And so co-working, it's either a densified space for one to 10 person companies.

We shared amenities typically targeted towards a constituent group that is more entrepreneurial and startups. but enterprise has used it and adopted it because they've determined. They want flexibility But they're now going to be full service. They're going to be fully plug and play, when you move to a suites, they're looking for digital and physical proprietary space that they can license flexibly on a one to three-year basis but get all the services and amenities that they're accustomed to in coworking. flexibility has to go beyond just term definition of, you know, what's the term length it has to now incorporate the design and the bill that has to be very flexible and agile, and also has to go into the service offering you can customize to a occupier to meet what their talent wants from an experience perspective.

[00:05:14] Statia Anderson: most of coworking has been focused on smaller businesses, Now you're looking at portfolio strategies. You're working with enterprise clients that have a brokerage team that is helping. Placed them across the country. So making sure that, spec suites are wonderful and each landlord is building those out and hoping, this is going to solve for a lot of those problems, but that's not necessarily helping them fill those sites. By marrying the flexible space suites concept into the right sales channel, you'll be able to fill those in properly, get the template, the eyeballs that you need for those to be successful.

[00:05:43] Kez Anderson: from my perspective, there's the, what is flex space to an occupier? I think flex space is office space that I can actually use how I want to use it. you kind of think of the old world of office you go in and there's sort of a rigid security process. Nobody knows who you are. you're not really thought of as an end-user as, the customer. Making things frictionless so that you use the office. Like we use all the other tools we use in our lives.

[00:06:05] James Cook: When I think of executive suites, I think of 15 years ago, I was, working at a company and we'd have these small offices and we'd lease out these very corporate-y executive suites. Is that what we're talking about or is there something better that's coming along?

[00:06:20] Statia Anderson: Definitely better. That's coming along and even thinking I'm thinking about the executive suites and how that was a third-party operator. That's acting as a landlord within the building. That's not the case anymore. Investors can control and take advantage and profit on the concept of what flexibility means. So that's tying into the experience element of the building that's tying into the property manager. understanding that, if one group is helping facilitate property management, experience management and flex their staffing efficiencies and a frictionless experience for your end user and your.

[00:06:50] Kez Anderson: Now because there's so much inventory available and this sort of flight to quality is happening. investors need to think about how they can position their, best assets And the best courts of their assets as flexible attractions, come in and use this when you want to use it more often, the biggest thing is it's going from. Afterthoughts secondary space. We'll use it to make a few dollars and find some pennies in the couch to a true revenue generator that can create more value than typical market rents.

[00:07:14] Statia Anderson: Yes. And back to the experience piece, that's, what's going to drive people into the office. So if you're combining the two between flexible space and experienced management and how that collaborates with the amenities piece and that's, what's going to be successful and be the new era of real estate and commercial office.

[00:07:30] Jacob Bates: I think the other evolution is going to be in the agile architecture too. Expanding on the definition of flex from not, just meaning term. We're doing this at JLL, bringing in a lot of demountable systems, a lot of different furniture systems and agile systems so that we can reprogram space based on customer demand, we can't continue to expect asset owners to continue to pour massive amounts of capital into space. We've seen massive changes in how people work, right? now the office is becoming detached. you're going to have to be able to evolve the actual built environment to meet those changes and those needs as we go.

[00:08:01] Statia Anderson: The modular wall system concept, occupiers know that they're going to be growing their company, in, another six months, they could be double the size by allowing them to be able to move those walls. That's a selling point in itself.

[00:08:11] Kez Anderson: You can sort of do things like program the space based on the needs of the occupier by month or by quarter.

[00:08:17] James Cook: Let's pretend I'm an investor. I own a building. why should I invest in flex space?

[00:08:22] Jacob Bates: We're in this world where the office is becoming detached and we have to figure out how to expand and go out outside of just this four walls and a door and a building to bring that experience to the customer.

[00:08:34] Kez Anderson: If you look back at a zoo from the 1980s, you know, it’s a tiger in a cage, it's very trapped. They're very sad. It's not a nice experience. If you go to the zoo, now, it looks like the jungle and more accurately mirrors, the environment that a tiger would survive and live in.

If you look at an office from the 1980s. so now at cubicle is something that not a single person has at their house. how can we make the office more mirror? the environment that human beings actually thrive.

[00:08:58] Statia Anderson: if we surveyed our occupier tenant, our clients, and 60% of them say they want flexibility, that should be incorporated into your asset strategy.

[00:09:07] James Cook: Is there a right amount of flex to incorporate into a building or portfolio?

[00:09:14] Statia Anderson: Asset specific, we've spoken with our capital markets teams. We've understood them a little bit more around the underwriting process. And 20% is still valued creative to the building rather than dilute it. So going above that, it can get questionable as to how, you're potentially looking to sell the building, or you're not necessarily sure what your strategy is going forward.

[00:09:32] Statia Anderson: We might not recommend more than 20% when it comes to the portfolio strategy, flexibility, as we mentioned should be in each of your assets and we can help advise you on that. depending on how big your portfolio is, you should be looking at, seven to 10 different assets and understanding where that makes sense. And then taking it one step at a time

[00:09:49] James Cook: How are you thinking about incorporating hospitality?

[00:09:53] Kez Anderson: giving people what they want before they know they want it the best way to do that, I think is to staff buildings appropriately, You don't need to have a pocket of security. And then a pocket of people who managed the elevators and then a pocket of people who manage one floor If you have that team sort of vertically integrated, and your focus is service to the, an end user, instead of checking boxes and fixing things. That's when the experience begins to change

[00:10:14] Statia Anderson: it's creates stickiness, right? So if people know what's going on in the building and your employees are aware of, okay, they're thinking about maybe moving out of this space because they want to look for something else or, they're looking to consolidate and a flex space. We can facilitate those conversations and make sure that they're not going to leave your building, that they are your tenants through.

[00:10:32] James Cook: Jacob Stasha Kaz. Thank you, so much for your time. Thank you, James. Appreciate it.

[00:10:38] Kez Anderson: easy to do when you have a good moderator.

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This episode of Building Places was produced by Jac Catrambone. Our theme music was written and performed by Joel Caracci.