What now for flexible workspaces?

When NZBusiness ran a cover story on flexible workspaces in November 2019 the world was a different place. But despite Covid-19 leaving its indelible mark, the sector is still managing to adapt and grow.

Wind the clock back before Covid-19 arrived on our doorstep when New Zealand’s economy was in overdrive. Businesses of all sizes were embracing workplace flexibility, working from home was still the exception not the rule, and the flexible workspace sector was in expansion mode around the country.

Cue the pandemic.

Now, more than 12 months later, it’s a vastly different scenario.

“The industry was dramatically affected by the pandemic in the short term, primarily due to the flexible nature of customer contracts which are typically short term – the first ones to be cancelled when the lockdowns came into play,” explains Pierre Ferrandon, former country manager for flexible workspace multinational IWG and now head of marketing for DB Interiors, a commercial design and build firm that specialises in future workplaces.

“The revenue impact was severely felt in the first months of the lockdowns, but equally demand started to rise much faster,” he continues. “Companies with traditional leases expiring made the decision to not renew but still needed space to operate. Therefore they looked to flexible workspaces as a solution. Other companies realised they had too much leased space and started to turn towards workplace solutions that could offer a much higher degree of efficiency.

“Flexible workspaces allow companies to consume workplace on-demand and when you consider that pre-Covid the occupancy levels in any corporate office were 52 percent then it makes sense that post-pandemic the attraction for solutions that provide 100 percent utilisation became much greater.”

Ferrandon says there has been some consolidation in a sector that was highly fragmented, but equally many small operators have appeared to take advantage of the opportunity.

“There has also been a shift towards management arrangements between operators and landlords from traditional leases, similar to the shifts we’ve seen in the hospitality sector in previous decades.”

John Moffett, GM of Generator, which runs four sites across Auckland’s Britomart and Wynyard Quarter, says New Zealand’s shared workspace sites were negatively impacted by global business and companies running worldwide mandates.

“These range from 100 percent work from home (WFH) policies to a split team at home and in the office. A number of people are working two-day weeks in the office, the other days WFH. So Fridays, unsurprisingly, have become very quiet in the CBD. 

“Largely we’ve found New Zealand-based SMEs have wanted to be back in the office and working together – collaborating and interacting without the limits of overseas head offices enforcing rules that are irrelevant to our pandemic alert levels. 

“These companies have also started a more relaxed approach to office work and we are seeing more flexibility for all our members,” reports Moffett.

He says the pandemic gave them an opportunity to update some of their products to better fit the coming change in working style and perception of the office. 

The future is not all WFH

Ferrandon predicts significant growth ahead for the flexible workspace sector.

“Firstly, companies will still need offices to operate from. Working from home full time is not a viable option long term with studies coming from Europe already showing major negative impact on mental health, productivity, learning, promotion opportunities and so on.

“Secondly, the key need to come out of the pandemic is flexibility – flexibility for employees to work from where they want and flexibility for the real estate to adapt to company requirements. Traditionally real estate is the most rigid and under-utilised asset of a company and the events of the past year have shed a strong light on the inadequacy of long fixed-term leases for companies.  “A solution that provides the necessary flexibility for the occupier while ensuring strong utilisation for the landlord will become even more attractive,” says Ferrandon.

“Thirdly, remember that the workplace does not only have the function of hosting bums on seats. In reality it services four key functions: focus, socialise, learn and collaborate.”

While the first of these functions can in most cases be done from home, Ferrandon says the other three functions cannot.

He also believes there will be a shift outwards from major urban centres as employers realise their employees can now work remotely and the cost of living is much lower outside the main centres. Geographically companies will employ a much more widely spread pool of staff, says Ferrandon. And companies will no longer need to provide single large HQ locations, but rather a smaller HQ complemented by a network of small office locations.

“In this scenario flexible workspaces represent the best solution, rather than traditional leases which require significant resources for businesses.”

Welcome to the ‘new normal’?

As businesses large and small have now adjusted to our pandemic-driven world, so too have flexible workspace providers. Despite the uncertain future, many realise the sector has yet to mature in New Zealand and are continuing their growth plans. Generator, for example, has new meeting suites opening in Auckland’s CBD, as well as new suites opening in Wellington in Spring, with another planned for 2022.

However, Pierre Ferrandon predicts that with the amount of vacant space increasing across the board, tenants will have more choice and will choose spaces that provide shared amenities.

New small players will enter the market with new points of difference.

“Expect to see a more differentiated product emerge – for example, women-only spaces. Or spaces that focus on a specific industry.”

His other predictions include the rise of more franchise models and workspace brands – although to succeed the latter will require expertise in design and build, marketing and operational management.

Ferrandon also foresees strong growth in the regions “where the opportunity is the largest” and flexible workspace operators will increasingly look to affordable retail space becoming available in suburban areas.

“These would provide touch-down, meeting and collaboration spaces to support workers closer to home.”

A new approach

There’s no denying that the pandemic has affected how people interact, says Cheryl Adamson, GM of the Parnell Business Association.

“This will have an impact on the way we approach space, work and the workplace.

“Covid-19 has accelerated what may have taken another five years for people to realise about flexible office space and, more importantly, office space in general.”

Long-term leases, centralised office locations and rigid working conditions are becoming a thing of the past, she says.

“Making way for flexibility and a new hybrid way of working.”