This op-ed piece comes from Convene CEO Ryan Simonetti and was originally published on his LinkedIn. Click here to see more of Ryan’s writing, and click “Follow” to be the first to see them!
While 2017 was a transformational year for the flexible workspace industry, 2018 is set to be even more disruptive as economic uncertainties grow, new players emerge, building owners become increasingly proactive, and institutional capital continues to flow into the sector. I recently spoke with the team at Essensys to discuss these trends and share my predictions for their 2018 Flexible Workspace Market Forecast. It’s a testament to the disruption underway in the workplace sphere that a comprehensive forecast such as this would be done. Below are a few ways we believe the industry will evolve in the new year.
The way companies utilize real estate has changed forever. Over the last seven years, the square footage of flexible office space has grown at a rate of 22%, compared to the 1% growth rate of traditional office space over the same period. According to JLL, by 2030, 30% of all commercial office real estate will be defined as ‘flexible.’ Things that don’t make sense get disrupted, and it’s clear that signing long-term leases is bad business. Combined with the benefits of creating a better workplace experience for employees, this is driving an increasing demand for shorter and more flexible-term lease options. In 2018, we expect this trend to accelerate as larger global enterprises commit to flexibility as part of their long-term real estate strategy. This will put additional pressure on traditional landlords, and in response building owners will need to evolve as they look for creative ways to meet the changing needs of today’s companies and their most coveted asset – their people.
The motivations of today’s talent has changed from previous generations. Choice, flexibility, and experiences at work are vital factors in job satisfaction for millennial workers–outweighing salary for many. With millennials making up over 50% of the workforce today, flexibility and tenant experience will shift from being part of the landlord conversation to the only conversation. Landlords, who have historically stood on the sidelines while the serviced office sector catered to the flexible requirements of companies, will have no choice but to take a more active role or fear being disrupted. Every major landlord in the world will be running their buy, build, partner analysis in 2018, which should prove fruitful for industry operators as landlords evolve from “space-sellers” to true “place-makers.” With an increasing focus from asset owners on the sector, more shared workspace players will start to emerge, and the flexible workspace industry will solidify its position as a viable, sustainable segment of the future office market.
As competitive pressures within the industry rise and coworking operators and serviced space providers look to differentiate their offerings, the amenity “arms race” will continue to accelerate. This will be the catalyst to a next-generation platform that seamlessly integrates meeting and collaboration spaces, flexible work spaces, coworking desks, a social club, curated retail spaces, and in-building community programing under the same roof. This integrated solution will become the new norm as current providers look to create best-in-class experiences for their customers. The platform race has already begun and several companies will fight to become the dominant, global “workplace-as-a-service” provider. As that race intensifies, we will see niche providers, with a more focused offering, emerge to cater to specific gaps in the marketplace, as evident by WeWork’s recent investment in the women’s-only coworking space The Wing.
The office of the future will look and feel more like a full-service, lifestyle hotel, with a mobile application that brings the experience of the workplace to the fingertips of its occupiers. Just as phones in hotel rooms can be used to order room service, future workplaces will need to leverage technology to reduce––and even remove––the friction in areas like security, meeting room booking, food ordering, and concierge services. The engineering team at Convene is developing a mobile software platform that will seamlessly connect building tenants to the spaces and services that Convene already provides in office buildings. Technology will continue to play a huge role in shaping the future of the industry as new technologies continue to disrupt the way space is designed, built, sold, and operated.
With co-working reaching the “bubble” phase, it’s only a matter of time before the consolidation wave sets in. Almost every major coworking company and serviced space provider raised capital in 2017, with many more planning large financings in 2018. Growing industry fragmentation driven by the emergence of new players, the potential supply and demand imbalances caused by the massive growth of WeWork and others, combined with the increased attention from institutional private equity investors and global landlords signals that the industry is on the verge of a massive consolidation. I expect to see some big partnerships and M&A deals announced in 2018 as the larger players look to broaden their networks, get benefits from economies of scale, and seek to reduce their cost of capital. The race to unseat major players is on, and the recent announcement of Brookfield looking to take Regus private should spark additional buy-out opportunities. For smaller quality operators looking to exit, 2018 could be a great year to transact (and Convene is actively looking to buy or partner!). 😊
There is no doubt 2018 is going to be an exciting year for the flexible workspace industry. With the economy expected to stay solid through the end of the year, it will be another strong year for the “space-as-a-service” sector.
Despite all the change, one thing is for certain: as the lines between work and life continue to blur, our future workspaces won’t just be desks and chairs that we go to, but places that truly inspire us. For more thoughts on the Future of Work, check out my ebook or view the video below.
An earlier version of this article misidentified the source of data regarding millennial workplace motivators. The source of this information comes from PwC’s NextGen survey 2013, Fidelity Investment’s Evaluate a Job Offer Study, and internal company research.