Bridging the Gap: Where Traditional Real Estate and Flexible Workspace Meet
Tim Venable, SVP of Research and Knowledge at CoreNet Global sits down with Michele Penaranda, VP at Preferred Office Network, and discusses trends in how companies are using traditional real estate and flexible workspace.
Michele Penaranda has been in co-working, the flex-based industry for the past 12 years. Penaranda was on the co-working operator side with Preferred Office Network's sister company Car Workplaces for most of that time before jumping over to head up the strategic growth and management of Preferred Office Network for the last 4 years. Penaranda also currently sits on the board of the Global Workspace Association.
Tell us more about Preferred Office Network and where your company fits into the overall commercial real estate industry, that overall ecosystem.
Preferred Office Network was founded in 2010. It was started by three co-working operators who all shared a vision to provide a national network of flexible workspaces for enterprise clients with multiple market needs.
When you're thinking about commercial real estate, the flexible side of it, and solving that need for enterprise clients - It was important to provide not only flexibility to enterprise companies, but the overall goal was simplicity. By creating this network of operators, Preferred Office Network can offer clients one master service agreement and a level of account management that delivers an efficient approach and handling their space requirements from the search phase down to the invoicing.
The reality was - and I'd say arguably still is - unless one operator can solve for all your locations, and even then, it may not be centralized; you have to work with many different operators to fulfill your flex real estate portfolio. That means it's going to require many different agreements, the legal review that goes along with that, and then many different points of contact as well as invoices. By stripping all that away companies are now able to add or drop offices globally in a pretty fluid and streamlined fashion through us.
How are your clients currently utilizing real estate for their businesses? And how has this changed over the last 2 or 3 years? Surely, COVID-19 and the impact on office strategy have had some impact but tell us about that.
We saw a little change with some companies in 2018 and 2019 that are probably on the progressive side, thinking about this and their real estate footprint. But COVID-19 impacted companies and maybe even just sped it up to what companies eventually we're going to land on. It's become a mixed bag as some of our clients have changed or currently are changing their entire real estate footprint into something flexible. We're seeing larger space needs because of this change.
For example, they want to add 15,000 square feet of office space in a given market and then no longer need that as they shift to a different approach in how their employees utilize the space. Of course, many are still figuring that out. Either way, chances are you aren't dropping 15,000 square feet and only going into three offices. You're typically reducing that space but looking more at a larger suite or multiple suites. Ideally, our clients want to have these larger requirements supported by a flex space provider the way that their smaller requirements have been handled over the years. We essentially had a handful of clients come to us saying “Okay, you handle our one-off needs or smaller team requirements, but how do we get that exact same treatment just on a larger scale.”
We also see the request of the employees wanting to work closer to home. Companies are asking themselves, what does the main hub of the future look like? Perhaps it's smaller and then within that a handful of single offices sprinkled throughout, providing those other options, while still providing a central spot for team members to gather just not every day. We're getting a single office requirement, not only because it's a new market they're expanding in, but because they want to offer that space for their employees to be closer to home.
Prior, I would say, it was more about a one-office need because they're expanding into a new market, or it was a satellite center for a team of 15 where it was more about the ease of placing them in a co-working center than all the logistics of going into more traditional space for smaller teams – and although we do still see these requirements today, it has been a notable shift.
What are the primary differences, advantages, and disadvantages between traditional real estate and flexible workspace?
The differences come down to the term lengths and the contracts. Utilization, I think, is a big key player now, more than ever, and the element of how space is delivered in a full-service kind of thought process, and I don't mean just furnished with Wi-fi.
Traditionally speaking, commercial real estate offered private standalone space, longer terms, more complex lease agreements, and private amenities. For example, the boardroom and kitchen were yours versus shared. There’s also not one designated person outside of your company to support your space like restocking a kitchen, for example. Flexible space, on the other hand, offers short terms, usually with a 30–60-day notice period, and provides a more community-like environment with shared amenities. It also usually has that additional element of support.
Personally, I hear all the advantages flexible workspaces bring to the table, but it doesn't mean someone could hear this and think about the disadvantages of co-working space if they needed something extremely private and amenities that aren't shared. It comes down to the company's needs.
But, in today's shifting work model on where the employees work, there's a big element to how they work. Meaning, how is the space servicing them and how is it utilized? It’s not just about whether are they in the office or not, but when they are in the office - is the space built out to allow for more collaboration, or whatever way suits the company and their employee’s needs. Perhaps, some employees need private spaces on certain days, and others need larger open spaces; or perhaps it's different even among the different departments. How do you solve all needs - I believe flexible workspaces can play an important role in that. That's not to say you can't build out a traditional space to solve this as well, but chances are again you're going back and being locked into whatever that looks like for at least a few years.
In terms of attracting those big culprits, what can landlords do? What can operators and other space providers do to better attract those enterprise companies?
Partner together - I think both have a lot to bring to the table, but together it's such a dynamic duo. Recently, I said that I feel the operator has always been the tenant of the building, but if we move away from the shift that they're no longer a tenant of the building, and they're the heart of the building - having that kind of mindset moving forward can create a relationship between the two that'll be very attractive to enterprise companies.
What I mean by all this is, that landlords have the space, and the operators know how to service it and provide a model that allows for more flexibility – and that’s the name of the game. In addition, operators help with utilization rates. Enterprise companies don't need to pay for a 20-person boardroom to be in their designated space when they use it 10 times a year. They also don't need to pay for space for 40 employees when the average number coming in on a given day is half that, and they're not going to change that structure.
Depending on the space requirement companies may be limited with options if they look directly at what's available with an operator. It's hard to tell operators, to build out your space on the assumption larger enterprise companies will move in, because you may be holding vacant space for a while. This is why I feel like the more we can bridge that gap between these two worlds, there can be a win-win for all parties - the landlord, the operator, and the enterprise client.
What would you recommend for an enterprise client who is uncertain about which model would work best for them?
Education is important. In my experience, not many enterprise companies know the possibilities. Learning what's out there is the start. Perhaps their culture, even the work style, may not have been open to it in the past; it's not about awareness, it's what have they been open to.
One of the things we always try to figure out with our clients as they have internal discussions as well is, do they want either a hospitality-driven workspace that's fully supported by a company where that is their focus; or do they want/maybe even need an element of flexibility. I think it's important to highlight the co-working flex-based model and the word that we keep saying over and over again. The key term in it is, it's flexible - you aren't locked in. It doesn't mean that it's right, but it does mean as a company, you have more flexibility, as you're trying to navigate this shift and how and where your team members are working.
Return to office has been a huge topic in corporate real estate and commercial real estate over the last couple of years or even longer now. What are your thoughts since you're in the middle of all this? What would you say are some of the primary drivers that will be effective? What will have an impact as companies look to encourage more employees to come back to the office?
Surprise. Surprise. My number one word would be flexibility. Do you know how many times have I found that word around? But it's just as important for companies to have flexibility with their needs and to offer flexibility to their employees. Not one size fits all. What works for one company certainly may not work for the next and even within a company - understanding the company culture and breaking it down to the department level on preference. The effectiveness of collaboration can play a part and be more effective overall.
For example, if you ask my coworker, she would say, free lunch, but she worked from home. The idea of coming in for a free meal now and then is enticing - sure. However, I bet if she was being asked to come in way more, I'm not sure how appealing that free lunch would be over that commute. It's truly the flexibility that she has today regarding where and how she works that then allows her to think of the fun, added bonuses, if you will. They're just not the drivers.
Preferred Office Network recently announced a new offering. It's called preferred suites. Would you tell us more about this, and how it solves some of the challenges present in today's market that you've described already?
It goes back to the question of what landlords and flex-based providers can do to attract more enterprise businesses that led us here. We created this new offering to help bring the two parties together and solve more enterprise requirements, at least the ones on a larger scale. While offering up all the amenities that exist in a co-working center in shorter terms.
We wanted to go back to our clients that were asking us that question. How do I get the exact same thing that the co-working locations are providing us today with our smaller teams, but for these larger requirements? Time and time again, we were limited to what was available. Sure, some co-working companies are built out to take on these larger teams and we've been happy to be able to fulfill those needs. But we wanted to remove the if as much as possible - if our partners offer larger suites and if it would be available.
