Say Adios to the Office: Are Office Assets Going the Way of Retail?

Why Shifting Workforce Needs Demand New Investment Strategies

The term Retail Apocalypse would have seemed like hype just a few years ago, but a mere 5% shift in consumer buying behavior to online purchases since 2013 has taken revered retailers to their knees or worse, including 9 prominent bankruptcies, all during a period of economic expansion. This spring, Credit Suisse Research predicted that 25% of existing US Malls will close within the next 5 years. US Consumers have turned conventional retail asset investment and management strategies to dust as they decided to change where and when and how to shop.

Office Apocalypse?
Feeling safe as a commercial office investor? Not so fast. First, consider that companies are reinventing their workplace to support a more mobile and digitally connected workforce. These newly empowered workplace consumers are demanding ‘workplace experiences,’ not just space. To compete for top talent, tenants are seeking more amenity-rich buildings that include shared work lounges, coworking, event space and high walkability scores. At the same time, companies are seeking more lease flexibility and shorter terms to match their shorter product cycles. To many, signing 10 year leases is a costly and unnatural mismatch during most of the term of the lease providing little or no business resilience.

A January 2017 Morning Star Research report on underwriting office assets, “Sharing the Experience-As Co-working Grows, the Office Isn’t Necessarily the Office Anymore” predicts that a shift in worker demand for flexibility will leave traditional workspaces in the minority by 2030. The report goes on to say that coworking will present new underwriting and valuation standards as the coworking business evolves. With coworking taking just under 1% of all office space today, it may seem too early to adjust office asset investment strategies. However, coworking is projected to double to 2% of all office space in two years according to Emergent Research, and at the current 41% annual growth rate, coworking market share could reach 5% of all office space within the next 5 years. That’s equivalent to 600 million square feet of coworking leases. This 4% change in workplace consumer demand for office space approaches the same magnitude as the change in consumer behavior that has redefined retail investment.

Satisfying Tenant Demand and Investor Returns
Asset managers, developers and operators of commercial office buildings are taking steps to serve the changing nature of office demand while improving investment returns. Offering coworking and shared tenant amenities in collaboration with a leading shared workspace company can allow owners to participate in additional rent streams, while maintaining competitiveness of the asset. This can take several forms, including entering into a management contract, a joint venture or a participating lease with an established coworking company. An established provider can operate the shared workplace and offer access to all building tenants as an amenity and make the building a more vibrant destination, adding to financial performance of the entire building. In the management scenario, the landlord designs and delivers the facility and hires an operator to activate and run the location for a fee or a share of the revenue from the operation. A joint venture approach involves setting up a partnership with a coworking company. The partnership entity serves as tenant and signs a lease, with both parties investing capital for the opening and operation of the location. Profits are then distributed according to ownership interest. Another approach is to sign a lease with the coworking operator that includes a profit participation for the landlord or a revenue share as additional rent. This is similar to the approach commonly used when attracting restaurants and other retail tenants to office projects.

The ongoing shift in office demand from tenants, and newly empowered consumers of workplace call for new office investment strategies. Delivering competitive office product will require more than it used to. Collaborating on new strategies with the coworking industry can be an important part of ensuring office asset investment returns.

What Uber Can Tell Us About the Future Workplace

It was only a few years ago that people had to call a cab in advance — sometimes an hour in anticipation of when they would want to be picked up to ensure they’d get a ride.

Then Uber came along and changed things for good. By offering cab service whenever and wherever customers needed, they created a new standard: businesses would have to cater to the schedules of consumers, rather than the other way around.

This is the defining characteristic of the new economy. We’ve seen it with Netflix and movies, with Hulu and TV. And the next major industry to follow this trend in the coming years, we think, is the workplace — with coworking spaces at the center of the shift.

The demand is already there: Freelancers comprised 34% of the workforce in 2014 and are expected to rise to 50% by 2020, and more companies experimenting with alternative workplace arrangements. And the expectations of employers and workers have changed: In 2014, a four-hour response time to emails was deemed good (the point at which about 80% of people were happy). By 2015, this had moved up to about one hour. In 2014, only 4% of people said they expected a response within 15 minutes; by 2015, 14.5% expected that.

Especially as technology makes the brick-and-mortar office and the idea of office hours superfluous, people are adapting to the idea that they do not need to shape their lives around them.

And it continues to make more sense on the employer end, too. Leasing office space is a major risk for companies — especially new ones. Coworking offers a solution, through lower rent and short-term leasing. As more large corporations start to experiment with coworking, office location becomes less centralized overall.

A decentralized office space could allow small companies to grow, and for large companies to meet their need for on-demand service without going overseas. It also means people can benefit from office spaces, like ours, that operate on the outskirts of cities rather than strictly within them.

As the corporate climate continues to move in this direction, there are still a lot of question marks — likely to be filled in by the next generation of Ubers in the world. But one thing seems fairly certain: Employers will have to cater to the 24/7 demands of today’s consumers in order to stay competitive and relevant. And in an economy where everyone expects everything on demand, we can expect the strengthening and widespread use of coworking spaces to ultimately change how we work, and how we live.

Switching your Location Will Make You Better at Your Job

Humans are supremely adaptable, but there’s no escaping that we’re products of our environment. It’s why we put so much effort into finding and decorating the right home, push our kids to get into the right schools, or spend months picking a wedding venue.

The same is true of work. We work differently if we’re locked up in offices hidden behind cubicle walls or roaming around an open office; or if furniture is styled differently, different materials make up the walls, and so forth.

Indeed, some experts take this thinking a step further and believe that frequently switching to new surroundings — a practice facilitated by coworking spaces — can itself make you better (and more creative) at your job.

The intuition is easy to follow.

In a world where it’s already becoming commonplace for employees to work among multiple offices, having such choices allows workers to pick the environment that allows them to be most productive.

For some, it might be a bustling coworking space that keeps them motivated. For others, it could be a quiet place that allows them to stay fixed firmly on the work they’re trying to complete. It could mean sharing the same office as your coworkers to collaborate on projects, or it could mean sharing an office with mostly strangers, from whom you’re able to learn skills and techniques outside your industry.

Whatever the setting, the mere fact of being in new surroundings triggers creativity — no matter what form it may come in. Even simply explaining your work to a stranger is one of the best ways to remind yourself of your motivations for doing it.


Coworking Takes Hold with Corporate Occupiers: Disrupts Real Estate

The rise of the coworking movement is not just changing the way that startups work, it’s disrupting the entire commercial real estate industry as companies of all sizes are now demanding more flexibility-  instead of traditional long term lease commitments.  Office occupancy costs make up the second largest expense for most companies, so limiting long term commitments to office space provides companies with valuable agility and resilience.

As mobile technologies and the gig economy make the 9-to-5 workday and traditional office culture increasingly obsolete,  coworking enables a powerful new strategy for companies that want to attract and retain top talent by supporting worker mobility and workplace flexibility- while reducing real estate costs.

It’s not hard to see why.   In the same way that companies learned to shrink or grow their workforce on-demand with independent contractors and contingent workers, they are now applying the same approach to real estate, by opting for pay-as-you-go workplace models like coworking.  Workplace-as-a-Service offerings like coworking are causing a permanent disruption in the commercial real estate industry because companies are never going back to paying for staff or office space that they don’t need.

A white paper published last week by Jones Lang LaSalle’s workplace strategy group entitled “The New Coworking Era” puts it this way:  “Coworking is no longer perceived as a new age workplace practice, suitable only for start-ups. More and more companies of different sizes and from different industries are exploring the benefits”.

CBRE: 46% of corporate occupiers are using or looking to use coworking

According to a CBRE survey of 200 corporate real estate decision makers, 46% have now included coworking or are considering adding it to their workplace strategy.  The reports from JLL and CBRE indicate the potential for a massive shift in workspace demand away from traditional leases and toward coworking.

It appears that the commercial real estate industry is listening to its tenants, and is reinventing itself to accommodate the need for flexibility. Commercial real estate owners and investors are including coworking, shared tenant worklounges, event space and pre-built suites to attract tenants with greater flexibility and vibrancy. The trend is not limited to office buildings, and includes even residential towers, and retail real estate. Witness even Staples serving the mobile workforce by including a coworking offering inside its stores.

Commercial real estate investors are also partnering with coworking providers in order to participate in the economics as well as to ensure that tenants benefit from an integrated workplace amenity offering.

The commercial real estate  model is changing rapidly to adjust to a new marketplace reality.  With almost 50% of corporate occupiers looking to shift some long term leases to coworking, it is fair to expect that flexible workplace-as-a-service offerings like coworking will exceed 10% of all office space within the next 5 years.  That would be 1.2 billion (yes billion) square feet in the US alone, or 50 times the current inventory of coworking.  Now that’s disruption.


Greater Happiness Leads to Greater Productivity, Study Finds

Modern attention toward a work environment that keeps employees happy is more than just feel-good fluff; a new study shows clearer links than ever before between worker happiness and productivity.


Researchers from the Social Market Foundation at the University of Warwick’s Centre for Competitive Advantage in the Global Economy showed that productivity increased by an average of 12 percent — and up to 20 percent — when test subjects were given what the researchers termed, “happiness shocks.” (For instance, they were shown a 10-minute comedy clip or were provided with snacks and drinks.)


In addition to the 700-person randomized controlled trial, they also looked at long-term worker productivity data and found that the effect was even more pronounced for unhappy employees, by showing that unplanned, unhappy events in workers’ lives led to decreased productivity for about two years.


The findings strengthen the case for employers who are shifting away from the traditional workplace — something that we’ve talked about and has been in the news for years in response to the out-of-the-box workplace practices at companies like Google.


Yet we can’t help but wonder: If the happy and unhappy events that affected productivity came from external factors, could there be even greater benefits if employers also sought to make people happier with the way work fits into their personal lives.


A shorter commute, for instance — no one starts the workday in a good mood after spending an hour in traffic (long shown to have deleterious effects on people). Perhaps providing a balance between structure and freedom in where and when employees are “at work” could reduce stress and improve overall happiness. The same goes with stifling workspaces. Providing opportunities for workers to learn, not just produce; and creating an environment that is stimulating but not draining, could also have a profound effect on employee happiness and, ultimately, productivity.


If people come into the office happier, lighter — feeling as if it was someplace they enjoy being rather than where they are obligated to be, think of how much more productive, more inspired the workplace could be.


Here’s What We’re Most Excited About in Coworking this Year

As coworking moves from startup trend to mainstream business model — with everyone from big corporations to freelancers jumping on board — here are three coworking trends that we think are setting a new office standard.

1. Bespoke coworking

With coworking spaces cropping up across major cities and suburbs, it’s no longer difficult to find a place to work. Clients just have to decide which workplace best suits their needs.

Knowing this, spaces are stepping up their game and showing off unique offerings to set themselves apart. For us, it’s letting our members test drive a new sportscar and hosting art exhibits; for others, it’s Thursday night kegs and hackathons. There are spaces with art studios; there are spaces you can ski to; one space even announced it plans to build an indoor lake.

Today, when you’re seeking the ideal workplace, the only limit is your imagination.

2. Coworking spaces become self-sustained networks

At Serendipity Labs, like many coworking spaces, we encourage members to expand their networks; we do this by hosting professional events and designing a workspace that promotes collaboration and communication. As a result, the coworking space has become a hub for learning and growth: large companies hire small startups and help them thrive; individuals attend workshops to advance their professional skills and networks.

The more that membership grows, the more diversity among members. Eventually, a successful, diversely populated coworking space could largely do business solely amongst those who belong there.

3. Sleeping where you work

Recently, there’s been a lot of buzz about co-living spaces, in which people are not only working but also living alongside each other. These spaces — which are taking off in San Francisco and coming soon to Los Angeles — might be an extreme version of the coworking movement.

But then again, maybe they’re not so extreme.  Our Miami location is nestled in two floors of a new high rise residential tower with a rooftop pool deck.

And from our experience, companies need employees to travel for business, but the quality of a person’s work decreases when they work from a hotel room. Most business travelers could benefit from having access to coworking spaces while on the road.

We plan to extend the hotel business center or lobby to an adjacent coworking space. Give business travelers a workplace they can rely on — one with ergonomic workstations, natural light, a secure network connection, and those same opportunities for professional development, while still being a few steps away from where they sleep.

Excited? So are we.

Lease Disclosures to Usher in Flexible Office Era

New FASB Accounting Rule adds $2 trillion of Debt to Corporate Balance Sheets Impacting Real Estate Investments and Workplace Strategy.

The Ruling opens the door for flexible coworking facilities to become a new corporate workplace choice, while addressing corporate imperatives to reduce costs and retain top talent.

Last month, the Financial Accounting Standards Board (FASB) issued a seemingly arcane ruling requiring U.S. businesses to disclose lease obligations for real estate and other major assets directly onto balance sheets by 2019. The new rule, instated after 10 years of review, was designed to ensure transparency and to end off-balance sheet accounting for major liabilities. According to FASB, the rule will add an astonishing $2 trillion of debt to company balance sheets.

Although few could have predicted it, the huge cultural shift to worker mobility will drive the impact of this rule beyond accounting departments and onto investor calls. With an increasingly untethered U.S. workforce that expects to work where and when they choose, companies simply need less traditional office space, even with greater employment. Disclosure of real estate lease obligations will be a catalyst for companies to offer employees flexible workplace options as companies become accountable for a higher performing real estate strategy.

CFOs and CEOs will soon face investor questions about the steps they are taking to ensure that outsized office lease obligations don’t increase borrowing costs or lower enterprise value, especially compared with industry peers. The newly available leasing data will also serve as a proxy for how efficiently a company is managing workplace costs – the second highest corporate cost next to staffing. U.S. workspace expenses represent obligations on over 12 billion square feet of office space. Revisiting these lease commitments is a particularly ripe opportunity for savings when considering a 2014 benchmarking study by HOK Architects that indicates traditional workplaces are utilized only about 48 percent throughout the day due to increasing worker mobility. And according to University of San Diego and Costar, the average office space per worker has fallen by 40 percent from 250 square feet per worker to less than 180 square feet per worker – a number expected to fall below 100 square feet per worker.

The options for responding to worker demands for workplace flexibility and investor demands for more capital-efficient real estate include reinvention of the corporate workplace, contracting with a burgeoning array of on-demand workplace providers that offer workplace-as-a-service, and leasing space in office buildings that offer shared workplace amenities that can extend the capacity of tenant’s leased space.

To that end, companies have already begun recalibrating their workplaces with experiments in unassigned seating and offering new kinds of spaces designed to increase the number of serendipitous employee interactions – all with the hope of reducing costs and spurring innovation.

Yes, reducing long term lease obligations at the corporate workplace is part of the answer. But there is a huge opportunity for immediate and permanent savings by making use of the growing number of third party workplace providers. According to the Global Workspace Association, U.S. companies already spend an estimated $4 billion per year with coworking and serviced office providers, but this represents a mere 2.5 percent of today’s $160 billion annual workplace spend. Month to month service agreements also keep the workplace commitments light, flexible and off the corporate balance sheet.  The most sophisticated coworking brands can even meet corporate workplace standards, including the strict technology security standards required of financial services, many government agencies and health care companies. Coworking spaces also improve the quality of life for the workforce, allowing employees to work in inspiring, productive environments, while cutting down on commutes or occasionally working close to home.

Commercial real estate investment is also being affected by increased scrutiny of traditional leases and the need to serve tenants’ mobile workforce requirements. To compete effectively with new inventory, office-building owners are responding by investing in expansive shared tenant workplace amenities in their existing buildings. These facilities often include work lounges, meeting rooms and collaboration spaces for use by tenants and their guests. Tenants that occupy such buildings can reduce the amount space they lease for their own dedicated conference rooms, and drop-in spaces that support their mobile workers.

The move toward supporting workers with flexible corporate workplace choices is completely aligned with the corporate imperatives to reduce costs and retain top talent. Workers who are given the opportunity to use local coworking facilities to separate worklife from home-life and to make rational choices to avoid hours of unnecessary and unproductive commuting can now add to their quality of life.

The new FASB reporting standard will affect how CFOs report debt and much more. It’s also going to usher in new ways of working for the 21st century, with an unexpected dividend: workers will be empowered with better choices to work where and when they want, unlocking their full human potential. Such a symbiosis among accounting rules, real estate and worker happiness may have been unexpected, but it is now in plain view.


John Arenas is Chief Executive Officer of Serendipity Labs, a growing national coworking network. He previously served as CEO of Worktopia, online reservation system for sourcing office and meeting space, and President and GM of the Americas for Regus. In 2009, John was named one of the 25 Most Influential Executives in Business Travel by Business Travel News for his work in developing technology that connects the hospitality industry and workplace services.

The Cost of Working Overtime

A successful business depends on its ability to be efficient. While maximum results in a short time might be the goal of most companies, many are doing the opposite with their overtime culture.

“You are paying extra for the time when people tend to make more mistakes and have fewer good ideas,” says Yoshie Komuro, CEO of the Tokyo consulting firm Work Life Balance Co. Ltd., who recently spoke on the subject a TED conference. “The more time they spend at work, the worse their results become.”

Komuro’s native country, Japan, has the second-largest ratio (in the world!) of people working more than 49 hours a week, according to the International Labor Organization. Komuro suggests this could be a factor in Japan’s years-long lagging productivity.

Whether or not these are actually correlated, Komuro is right about one thing: poor results, over time, can cost you your business.

How it happens

We’ve known for years that our minds need downtime in between focused work. But add the 24/7 stimulation of smartphone technology and, psychiatrist and author Edward M. Hallowell says, we overload the brain’s circuits, which causes smart people to under-perform at work.

This frequently happens within the standard eight-hour workday. Take that information overload and stretch it out over 10 or 15 hours of overtime at the office, and you lose productivity quickly.

Serendipity Labs

We built our business on the understanding that modern workers need a modern workplace — an environment that promotes efficiency.

To us, that’s an ergonomic workstation, lots of sunlight, and common areas where workers can unplug with or without laptops. There are events for networking and socializing, and there are workshops for learning new skills, as we understand that working well isn’t all about output; inspired work also requires input.

We understand that extra hours don’t equate to better work, so we conceived a coworking space where people want to work, where they feel creative and productive when they walk in the door, and where they maximize the time they have in the office.

Your Commute is Killing the Environment

If you’ve ever felt like commuting takes over your life, you aren’t alone. According to a report in TIME, the average American’s commute to work is nearly an hour per day.

Whether you sit in your car for hours or stand wedged between strangers on the subway, the time spent getting to and from work is stressful, often uncomfortable, and wastes hours our lives. But the effects on the environment are even worse.

Transportation accounts for approximately one-third of all the greenhouse gasses produced in the United States. Motor vehicles emit 20 pounds of carbon dioxide (CO2) per gallon of gas burned, for a national average of 5.5 tons per year, per motorist.

It’s no surprise that the transportation sector — and therefore your commute — is becoming increasingly linked to environmental problems. Those include:

1. Ozone depletion
The activities of the transport industry release several million tons of nitrous oxide per year. This is slowly depleting the stratospheric ozone layer, which screens the earth’s surface from ultraviolet radiation.

2. Poor air quality
Carbon monoxide and Nitrogen dioxide emissions from highway vehicles, ships, trains, and aircraft pollute the air we breathe, causing cancer and other cardiovascular, respiratory, and neurological diseases.

3. Poor water quality
Waste generated by the operations of vessels at sea or at ports contain bacteria that can be hazardous for public health as well as marine ecosystems when discharged in waters.

4. Damaged soil
Fuel and oil spills from motor vehicles are washed onto the roadside and enter the soil. Hazardous materials and heavy metals have been found in areas contiguous to railroads, ports and airports.

5. Eliminating biodiversity
The emissions of sulphur dioxide and nitrogen oxides create acid rain, which reduces agricultural crop yields and causes forest decline.

Working closer to home can reduce your carbon footprint by more than 50 percent

For decades, our work life has been at the mercy of extremes: making a long commute to work (each person loses an average of 38 hours of time idling in traffic each year, costing $710 per person in lost productivity and out-of-pocket gas expense); living near work and having to opt for less space and greater living expenses, sometimes poor school systems for children; or working from home, which makes you subject to isolation and the negative emotional effects that come along with it.

We believe in the happy median. More often than not a long commute is not necessary. Employees often find themselves traveling to work, only to get there and rely on technology to facilitate meetings or to turn to for IT support.

By working near or at home and only working three days a week, you can reduce your CO2 footprint by more than 2.2 tons annually. Coworking spaces serve a nice balance — they give you a separate workspace while cutting down the environment-killing commute.

Our big push to open coworking spaces in suburban locations is for this reason. We want to give people the benefit of having a place to go to work — an office where they feel stimulated, creative, and connected — with neither the long commute nor the distractions from home.

Calculate how much your commute costs you and the environment and see how you can cut down.

The Upside of Work-Life Integration

It’s harder than ever before to separate work and personal life. By having 24/7 access to client emails on your smartphone and G-chatting with friends while at the office, today’s hyper-connected culture inevitably muddles the line between “on” and “off.”

An article on Forbes recently sited a study that found 70% of employees work from alternative locations — coworking spaces, cafes, or their homes — on a regular basis. That means millions of people are working in a personal setting, making the line between personal and professional nearly nonexistent. 

But it’s the direction we’re headed. According to a study by the Telework Research Network, about 3 million Americans never go to an office and 54% are happier working from home than in an office. Many workers — millennials in particular — are prioritizing the ability to work remotely over a higher salary so they can draw those lines for themselves.

However, with the absence of clearly defined “working hours” (e.g. 9 to 5), the rules of “on” versus “off” time can get a little bit muddy. If you respond to an email at 9 pm from your kitchen table and your boss happens to be online, he might take that to mean you are available to handle requests. It’s for these reasons that many modern workers struggle to ever “turn off.” A study by Gyro and Forbes Insights found that 61% of employees are willing to work during vacation, and that number jumps to 98% among executives.

So how — in a world where we can access everyone around the clock and we share files live across continents — do we make sure we don’t work around the clock? How do we set boundaries in a corporate climate that is virtually boundary-less?

1. Make technology work for you, not the other way around.

Drop the image of obsessively checking emails on vacation. Work-life integration can also look like this: get your writing or spreadsheets done at 7 a.m. while you are most focused; take a mid-afternoon break to throw in a load of laundry, meditate, or go for a run; swing by your coworking desk to make a few conference calls and prep presentations before the end of the day; send email requests from the parking lot while waiting to pick your child up from school.

Being able to access your email and files anywhere gives you freedom to tailor your schedule according to when you work best, and tackle items on your personal To-Do list — whether it’s running errands or staying in shape — when you need a break. That way, when you are working, you’re working efficiently. No more wasting hours in a post-lunch slump, zoning out in front of your monitor, and then having to work late to make up for lost time. You have the freedom to make your  tasks work with your time, energy, and focus.

2. Create a schedule that works for you and your team.

If you’re self-employed, schedule your work tasks *and* your free time. Establish rules for yourself to minimize the temptation to do work all the time or to do household work when you should be working, or schedule several hours at a local coworking space to give yourself a more clear divide between work and home life.

If you are not self-employed, talk with your boss and come up with a mutual agreement on when you should be accountable and when you are free to be out of contact. If there are changes to that schedule, notify one another, and make sure your team or others that work with you are on the same page.

Now, don’t get me wrong — this all takes practice. But there are great tools like Asana and Insightly to help with project management, and Google calendar alerts can be a great way to set deadlines. When you’re working with with your body and your brain’s best interest in mind, you don’t have to struggle to wrap up a day’s work and leave the office wondering what you did all day.