HLB’s Global Real Estate Leader, Ralph Mitchison, speaks to Simon Skates, Consultant with Colliers SmartFlex, to explore the compelling reasons driving the adoption of flexible workspaces, from their financial benefits and cost predictability to the enhancement of employee experience and agility in times of uncertainty.
Ralph Mitchison (RM): Hi Simon, could you help explain further what 'flexible workspace' is, and what the key reasons are for companies choosing to use it?
Simon Skates (SS): Hi Ralph, a flexible workspace encompasses a range of outsourced office solutions, ranging from co-working, private office space and even dedicated floors or buildings. All these solutions are all inclusive, which means occupiers pay a single invoice, reducing internal administration time and delivering efficient and simplified procurement.
Of course, “flexible” is a subjective word but typically this type of office solution is more agile than traditional leases, meaning companies can take space for the term they require rather than multiple years. As companies expand or have uncertainty around their occupation requirements, flexible workspace can help de-risk taking too much or too little space.
There is usually a blend of reasons companies choose to take this type of office space and additional reasons include access into higher quality buildings, improved amenities and services, speed of access and reduced initial capital expenditure because fit out is included within the cost.
(RM): What do you think are the most compelling financial advantages of flexible workspaces for businesses?
(SS): One of the most compelling financial advantages of flexible workspaces is significantly lower upfront costs, which means businesses don't need to invest heavily in office furniture, renovations, or infrastructure. Instead, they can redirect those funds into growth opportunities, recruitment and core business activities.
Additionally, flexible workspaces eliminate the risk of long-term commitments, allowing companies to adjust their space requirements as their needs evolve. This flexibility can lead to substantial savings, especially for new market entry, early stage companies and small businesses that often face unpredictable growth trajectories.
While larger companies with more stable plans might find traditional leases more cost-effective in the long run, the conversion to an Opex model mitigates capital expenditure and reduces the financial risk of incorrect space requirements with the ability to scale up or down with flexible workspaces.
(RM): How do flexible workspaces contribute to cost certainty for companies?
(SS): Flexible workspaces provide a single, all-inclusive monthly fee that covers rent, service charges, taxes, utilities, maintenance, cleaning services, connectivity, refreshments and often amenities. This bundled pricing model helps businesses avoid the unexpected costs that can come with traditional leases, such as repairs, utility rate increases, rent review increases or unexpected service charges.
For many companies, this cost certainly allows for more accurate financial planning and reduced administrative burden. While traditional leases might offer lower monthly costs if negotiated well, the predictability and simplicity of flexible workspaces often outweigh those potential savings for many businesses, especially if a company’s plans change and they need to reduce or expand.
(RM): There seems to be increased choice for companies considering flexible workspace, what has changed?
(SS): There has been significant growth over the last decade, from existing operators, new entrants and landlords now offering flexible workspace products. This growth has resulted in much greater choice and diversity of supply. Businesses have far greater choice across locations, building quality, service levels, amenities, size and configurations, ensuring they find the perfect fit for their team and operations.
Companies can benefit from a wider range of amenities than is often possible to deliver in a conventional lease, this is because the space required for these additional spaces make it cost prohibitive. Flexible workspace solutions offer occupiers far greater diversity of additional spaces as part of their offering. Many occupiers are surprised at the facilities available within these solutions, and their employees benefit from a more productive working environment.
When companies are entering new markets, how do flexible workspaces play a role in their strategy?
(RM): They provide a low-risk, high-flexibility option for companies entering new markets. They offer short-term, scalable office solutions that allow businesses to establish a presence quickly without committing to long-term leases or significant capital expenditure.
This agility is crucial when testing new markets, as companies can adjust their space needs based on market response and growth. Additionally, flexible workspaces often come with networking opportunities and local market insights, which can be invaluable for a successful market entry.
Can you elaborate on how flexible workspaces enhance the overall workplace experience for employees?
(SS): Often these types of workspaces come with a range of amenities that significantly enhance the workplace experience for employees. These can include generous communal areas, break out spaces, phone booth, meeting rooms, snacks and refreshments and even gyms and wellness programs like yoga and fitness classes.
Such amenities not only boost employee satisfaction and productivity but also help create a vibrant and engaging work environment. Employees appreciate the flexibility to choose different work settings within the same space, such as private offices, open desks, and collaborative areas.
We are increasingly seeing occupiers wanting to be in the most energy efficient and sustainable buildings, however it’s often i impossible to occupy these buildings unless you take a long-term lease for a whole floor. Flexible workspace solutions within these types of assets are often the only way for smaller requirements (in size) to gain access to these types of buildings. As Net Zero commitments become increasingly important, we expect demand from occupiers taking flexible workspace in the most energy efficient buildings to grow.
While traditional leases might offer more customised office setups over time, the ready-made, dynamic environment of flexible workspaces can lead to immediate improvements in employee morale and efficiency.
Ralph, flexible workspaces provide an outsourced service where all utilities, facilities, business rates, heating, and other costs are included in one monthly fee. How could this simplicity and cost predictability be attractive to businesses used to traditional leasing?
(RM): Well, Simon, the all-inclusive monthly fee model of flexible workspace offers significant simplicity and predictability, which can be very attractive to businesses. By bundling rent, utilities, maintenance, and other services into a single payment, businesses can streamline their financial management and avoid the hassle of dealing with multiple vendors and fluctuating expenses.
This predictability makes it easier to forecast budgets and reduces the risk of unexpected costs, allowing companies to focus on their core operations. While traditional leases might provide cost savings over the long term, the convenience and reduced administrative burden of flexible workspaces often outweigh these potential benefits for many businesses.
With the uncertainty about whether employees will fully utilise the office , how do flexible workspaces provide agility to companies?
(SS): Flexible workspaces offer companies the agility to adjust their office space based on actual usage without being locked into long-term commitments. If a company finds that fewer employees are coming into the office, they can downsize to a smaller space or switch to a more hybrid model compared to a fixed long-term lease.
Conversely, if there's a sudden need to accommodate more staff, they can quickly scale up. This adaptability ensures that companies are only paying for the space they need at any given time, making it a cost-effective and responsive solution to fluctuating office space demands. Additionally, the shared spaces available within these facilities allow a buffer to accommodate those peaks in occupancy that can occur.
In your experience with commercial leases, what are some limitations or challenges that businesses might face which could be mitigated by opting for flexible workspaces?
(RM): Traditional leases typically involve long-term commitments, high upfront capital requirements, stamp duty cost, and responsibilities for maintenance and utilities, which can be challenging for businesses that need to adapt quickly to market changes or manage cash flow carefully.
Businesses may also struggle with the rigidity of traditional leases if they experience rapid growth or downsizing. There is also a longer lead time to occupy traditional lease spaces due to the procurement of fit out and the legal process, however, there are some examples of landlords offering a bridge solution of “fitted space”, which is a lease but is ready to occupy.
Flexible workspaces mitigate these issues by offering more flexible lease terms, lower initial costs, and all-inclusive pricing, providing a more adaptable and financially manageable solution.
