Dan Zakai is the Co-Founder and CEO of Mindspace, a global provider of boutique flexible spaces in 16 cities across Europe and the U.S.
After a year like no other, what does 2021 hold, both for the future of flex workspaces and for the office in general? After an unprecedented 12 months of ups, downs and incredible, history-making shifts, there’s no question that 2021 will have changes in store as well. Let’s take a look at what we can expect in the new year.
1. The vaccine will offer some stability, but not everyone will be in a hurry to get back in the office.
The light at the end of the long pandemic tunnel has arrived, and that light, of course, is the Covid-19 vaccine. Although the exact timeline regarding public access to widespread inoculation remains unknown due to a variety of factors, employees will eventually be able to return to the office after many months of working from home. Companies will be keen to see their teams in the workplace, and for the most part, employees will likely be keen to return after such a long time away.
But it’s not going to be a matter of flipping a switch and returning to our pre-pandemic work lives. A proportion of workers will want to maintain the flexibility in their working lives that they have enjoyed over this period, be it via working from home one or two days a week or perhaps working from a coworking space closer to where they live. Flex operators, who are particularly well suited to accommodate hybrid strategies and uncertainty, will respond to this demand by increasing their offerings and their locations beyond city centers.
2. Amenities — not cash — will be king.
After the great real estate disruption of 2020, headlines declared the worst: the death of the office, the end of the skyscraper, even the full-on abandonment of cities as we know it. Those doomsday scenarios never played out, and for the most part, life in bustling city hubs will return to a semblance of normalcy in 2021. But for landlords, the office will no longer be a “bond” type of business. The days of predicting long-term cash flow from 10-year leases will be phased out, and tenants, who now crave a contented workforce, inspiration, collaboration and wellness as part of their occupancy cost, want more from their rentals. In 2021, landlords will need to shift their mindsets in order to thrive, adding amenities and services to their buildings and responding to the demand for incentives with the types of perks that tenants don’t just want but require.
3. Office real estate will follow hospitality’s lead.
In hospitality, valuation methodologies have had to evolve as there was no other choice. Lenders and capital markets must accept that office real estate must follow suit. Especially in Europe, where asset financing is more traditional, lenders must allow more dynamic operation in their buildings. Meanwhile, appraisers need to learn these new models and the new valuation methodologies based on them. In 2021, we can expect this long-anticipated trend to finally take off.
4. Farewell, leases. Hello, management agreements.
An investment paradigm shift is afoot, and 2021 will see it take hold for good: More landlords will accept that management agreements — not leases — are the way of the future.
Since Covid-19 hit, landlords have become much more receptive to management agreements (MAs), which are agreements in which landlords hand over space in their properties for operators to manage while reserving a cut of the profits. Landlords traditionally did not see the long-term benefits of MAs, but Covid-19 has changed that. Many landlords now understand that what serves the tenant’s best interest also serves them, and not maximizing net operating income per square foot at the outset doesn’t serve anyone.
The pandemic is a key example of the survival of the fittest, and in this atmosphere, it makes sense to suggest that a tenant initially occupies less space in a building and then slowly occupies more as their company grows. By doing so, as well as providing dedicated spaces for collaboration and events, the landlord is providing strong foundations for a long-term relationship with their tenant, one which creates a premium offering and the best possible service.
Flex space is the optimal utilization of these agreements and proves they can be beneficial to both tenants and landlords. An MA is like a marriage — trust and respect are required on both ends — and with flex spaces providing landlords the opportunity to offer their tenants high-end spaces and top service levels, with the return of increased retention rate and an expanded customer base.
5. Flash will fizzle. Substance will rise to the top.
In a booming market, there’s a lot of room for mediocre service to hide. Before Covid-19, it may have been enough for a corporate operator to offer catered food and weekly massages or for a flex space to have beer on tap and ping-pong tables in the lobby. After the pandemic, only the strong and the most substantive will flourish. Landlords, members, operators and lenders have all weathered a storm together, and as we look together to 2021, the services that offer true value to users will be those that last through the year and on to the next.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?