Flexing Their Muscles

By: Phil Mobley

As tenants struggle to fill literal and figurative seats, their expectations for landlords are changing

We are now about a year into The Great Resignation, a period of unprecedented voluntary job quitting. The trend emerged last spring in overworked, understaffed sectors like logistics and hospitality. By the end of 2021, it was rippling through the knowledge workforce (see Figure 1), with quits exceeding historical norms in professional services, finance, information, and even government. The battle to attract and retain talent is impacting organizations across the economy as wages grow rapidly and office-using employment is back to normal.

Figure 1

Note: Seasonally adjusted Source: US Bureau of Labor Statistics, Avison Young Insight Workplace environment now plays a key role in this battle. Specifically, knowledge workers now demand the flexibility to spend at least some working days at home (or at another remote location). Even some who were initially skeptical of the “hybrid” model have now accepted it as a new reality. A year ago, for example, JPMorgan Chase CEO Jamie Dimon was a prominent supporter of the 5-day, in-office workweek. But in April, he acknowledged that “working from home will become more permanent in American business.” Going forward, roughly 40% of the firm’s employees will work some form of a hybrid schedule.

Persona-based Flexibility

Dimon and others are acquiescing to a desire that has been expressed in innumerable surveys of workers over the past two years. “The data we have collected suggests that 75-85% of employees across all industries want some degree of flexibility to work remotely,” says Rick Ybarra, Principal, Americas Consulting at Avison Young. The challenge for employers is to adapt their policies and workplaces to keep these workers both happy and effective. Ybarra says it begins with employee personas: “As we have engaged with clients on understanding the mobility and activity profile of their employees.”

Once employee mobility and activity profiles are established, the next step is defining the appropriate policy. Ybarra stresses that no single

arrangement will be best for all companies, or even all groups within a company. Still, some general patterns have already emerged: “There has been some consistency across companies starting to define 2 or 3 days a week for the hybrid employee, as well as targeting TuesdayThursday as these in-office days.” Hard data now show that this type of hybrid arrangement is effective in retaining employees. Stanford economist Nick Bloom recently directed a formal study comparing a flexible model (with 3 days in the office and 2 at home) with a fully inoffice model at Trip.com, an online travel company based in Shanghai. The researchers found that the rate of employees leaving their jobs was 35% lower in the group with the 3/2 schedule—with no difference in employee performance or likelihood of being promoted.

Policy is only part of the equation. Offices themselves also need to adapt to accommodate hybrid workers. The consulting team lead by Ybarra helps clients implement dynamic work environments (DWE) that support both the individual and collective activities of teams. The concept of DWE has been around for a while, especially in the technology, media, and information sectors. Over the past two years, however, it has gained broader adoption. “There has definitely been a recognition that the places and spaces employees desire is materially different than what it was pre-pandemic,” comments Ybarra.

Flexibility is More than “Hybrid”

If workers are demanding personal flexibility around where to work, then their employers will need to adapt to provide it. This means flexibility in the types of space they occupy and the way in which they acquire it. Employers who can bridge the gap between the centralized office and the work-from-home (WFH) experience will be the winners in the end. So says Charlie Morris, Practice Leader – Flexible Office Solutions at Avison Young. “We need to stop believing we can provide companies a single solution that will work for all employees,” states Morris. “Some of our largest enterprise clients are exploring an entire ecosystem of flexible workplace solutions when making real estate decisions today to satisfy the particular needs of individuals or specific business units.”

That ecosystem is evolving and expanding. Even within serviced office offerings (like Regus executive suites or WeWork coworking spaces), there is a wide variety. Typically purchased via a license agreement on terms of 12 months or less, options in these spaces might include hot-desking, dedicated individual offices, or private team suites. Sometimes the flexible provider leases the space from the building owner; but in other cases, they might enter into an agreement to manage the space on the owner’s behalf, effectively sharing the revenue with the landlord.

While serviced offices took a hit at the beginning of the COVID-19 pandemic, it is now surging back. By the end of March 2022, the FlexIndex, a measure of the sector’s health published by the flexible space platform OfficeRnD, had almost fully recovered to 2019 levels. In response, OfficeRnD, CEO & Co-founder Miroslav Miroslavov pointed out that, while desk occupancy has recovered fully, “What’s also very exciting is the fact that the meeting room utilization is also gaining momentum and reaching pre-pandemic levels!” The flexible ecosystem includes options beyond serviced offices. On one end of the spectrum are agile suites, also known as managed or flex suites. These are private, secure spaces intended for use by a single organization. For occupiers, agile suites offer a step up from shared spaces. For owners, they can be a way to differentiate their existing spec suite program that, for various reasons, might have difficulty competing in the flexible leasing market. With their offerings HQ and Canvas, the flex giants WeWork and Industrious, respectively, both offer their own branded versions of agile suites. Owners, too, are getting into the game. Bridge Commercial Real Estate now offers Abridge as a more flexible solution. Similarly, Granite Properties has introduced Evolve. Both seek to fill the market’s need for dedicated space with shorter-term commitments.

At the other end of the spectrum are on-demand spaces designed for single purposes, such as meetings or events. These can sometimes be booked directly on proprietary technology platforms for as little as an hour at a time. For companies leaning into remote work, ondemand spaces meet a need for occasional gatherings, as well as the opportunity to explore a wider variety of property classes and geographic locations. For landlords, they offer an opportunity to maximize both utilization and value.

“These flexible solutions have become a key topic of conversation in almost every enterprise occupier presentation we have been involved in over the past 6-8 months,” explains Morris, adding that it is a trend that he fully expects to continue.

The Amenitized, Experiential, Tech-enabled Workplace

In a workplace universe with so much flexibility, choice is the crucial element. When employees make the commute to a corporate office in the middle of town, it is because they have chosen to do so. Rather than the default, a “day at the office” is now an experience intentionally sought. If building owners, property managers, and tenants want their spaces to attract workers, they must cooperate to deliver that desired experience.

Randel Waites, Principal & Managing Director, Real Estate Management Services for the U.S., sees amenitization as an important element in providing this experience. “We are seeing amenities moving closer to workers,” he explains. “Closer to the buildings, inside the buildings, and from the common areas to inside the suites.” The trend toward amenity spaces was in

full bloom before the pandemic and included everything from coffee bars and fitness centers to state-of-the-art video arcades and climbing walls. But with people coming to the office less frequently, landlords need to think more creatively about amenities.

“We know the things that help employees do their best work,” says Waites. “Access to natural light and green spaces, high-quality food, and customizable furniture all contribute to a productive, collaborative, and relaxing environment that is good for workers and their employers too.” Technology allows landlords to offer these things and more to their occupants, even when they may not all be available inside the building’s walls. “There are abundant cost-effective technologies to pull in services like food trucks and yoga classes, as well as to convert under-utilized spaces into areas for art exhibits or meditation,” he says.

The growth in tenant engagement platforms is one example of the explosion in PropTech that has only accelerated during the pandemic. According to CB Insights, investment in PropTech increased from $9.0 billion in 2019 to $9.5 billion in 2021. Aside from experiencefocused offerings, there has also been greater interest building access and reservation systems and tools to operate more efficiently and sustainably. This last point has particular resonance with Gen Z, the newest generation of workers. According to a Deloitte survey, more than three quarters of adults currently aged 25 and under say it is important to work for an organization whose values match their own, and climate change tops their list of important issues.

A Chain of Experience

This underscores a key point in the battle for talent. Ideally, a company wants its brand identity to resonate through its employees to customers. To do this effectively, employees need to be on board not only with the mission of the company, but also with the way it does business. The workplace—including both remote work and the in-office experience—remains one of the most powerful mechanisms available for organizations to demonstrate its identity authentically.

And now, real estate plays a more important role than ever in this chain of experience. No one wants a scenario The Economist recently called “the worst of both worlds,” where employees commute downtown only to sit miserably at their cubicles on video calls with distributed coworkers, thus missing out on all the benefits of an office. But the risks of this scenario are all too real, and avoiding them means changing the way commercial buildings work. Delivering a highperforming ecosystem of workplaces will require tighter alignment among a growing number of constituents, including building owners, property managers, flex space providers, technology companies, and tenants themselves.

About the Author Phil Mobley

Phil Mobley has served the commercial real estate (CRE) industry as a researcher and consultant for over 15 years. He specializes in providing analyses that help the industry deliver high-value workplaces for tenants, a need that continues to evolve. As Director of US Occupier Research at Avison Young, Phil shapes and leads the firm’s approach to understanding occupiers’ businesses and their dynamic need for commercial space. His work supports multiple service lines by identifying new ways to meet both landlord and occupier client needs.

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