The new normal arrives for the commercial property sector

wework-coworking-new-yorkTraditionally, the two principle vectors for change in the commercial property market have been lease lengths and space standards. Both have shrunk markedly over recent years, subject to the miniaturising effects of technological and cultural change. Even so, the effects of this contraction have taken place within an existing paradigm so have been easily understood, if not always acted upon.So it has been that major property organisations such as the British Council for Offices and CoreNet have been able to produce guides and reports based on well understood principles and without challenging the business models and assumptions of developers, landlords, workplace designers and occupiers. For most the challenges remained the same, not least how to resolve the sometimes conflicting timescales of people, place, property and technology that is the defining tension at the heart of office design and management.

All the signs would now seem to suggest that we are entering a new era in which these old certainties do not apply. Both CoreNet and the BCO have issued new reports suggesting that the commercial property market is about to enter a new era as occupiers and workers demand new ways of working.

The touchstone for this new era is the coworking space. Although coworking currently only makes up around 1 percent of all commercial property worldwide, it is already reshaping the built environment sector, especially in major global cities and their tech hubs.  CoreNet have just produced a new report with architecture giant HOK called Coworking: A Corporate Real Estate Perspective which examines the drivers of coworking, including a drive for greater corporate and personal agility, as well as the wider influence of the phenomenon on the mainstream workplace and property sectors.

Meanwhile the BCO is also addressing the issue head on. It has launched a new report in partnership with coworking giant WeWork called Space on Demand, which explores the reasons behind the growth of coworking and on demand space and looks at the implications for the commercial property market and occupiers. Next week, the BCO is staging an event called Beyond the New Normal and publishing a book, both of which will explore the implications of the new era.

Coworking weworkOne of the key characteristics of this new way of consuming office space rather than owning it, will be its transition from a model for startups and freelancers to more mainstream occupiers and large corporates. While there’s no question that the movement has its roots in the gig economy and start up scene in tech hubs, allowing smaller firms and the self-employed to operate at the heart of some of the world’s most expensive cities and the enclaves of tech, creative and service firms they host.

A September 2016 report from Knight Franks makes this link crystal clear. The firm’s Global Cities Report for 2017 claims that start-ups in London face the world’s highest property costs and have drive demand for the growing number of coworking spaces in the city, and especially in London’s tech hothouses. Intense demand for space in Shoreditch, for example, has seen office costs soar to £54,000 per year for a model 600 sq. ft. office, the highest of any comparable district in the world. The report estimates that a small firm in the market for this modest space could cut its costs by more than half to around £23,000. The pattern is repeated around the world.

This may highlight why small businesses have driven the uptake of coworking spaces in global cities, in addition to the other benefits of agility and the chance to mingle with like-minded others. But many of these drivers are also relevant for larger corporates and so it shouldn’t be surprising to find that larger corporations are acting to take advantage of the new opportunity. A large number of firms are already using coworking space alongside their core office to increase their agility and open themselves up to the networking and creative potential of on demand space. Now the first signs are emerging that larger businesses are starting to see the large scale use of coworking space as a viable alternative to permanent, long term office space.

Perhaps the most high profile example of this came with the news in September that HSBC had moved 300 staff into a coworking space in Hong Kong. The bank took out membership of WeWork’s space in Causeway Bay, one of the world’s most expensive districts for offices and shops, for the 300 members of its digital and transformation team. According to the local office of CBRE, the move is about saving money and providing the bank with a greater degree of agility at a time of economic uncertainty. CBRE claims that the bank is saving as much as HK$2.45 million a month with the move (£240,000).

There is a clear business case for such spaces that firms of all sizes are increasingly taking advantage of. But there is another characteristic of on-demand space that will prove to be equally attractive and that will feed back into the design of offices that are leased or owned on a more traditional basis. It is the experience that the office provides and this is intimately bound-up with design and culture. The offices of the new era will not only serve the hard nosed commercial needs for lower costs and increased agility, but softer issues such as how to create a great experience for the individuals who use them.

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Gary-Chandler-253x300Gary Chandler is the Managing Director of office design and fit-out firm Area Sq.

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