The flexible office space

By Uwe Hörmann

Previously considered only as a solution for small startups and temporary offices, the co-working space has quickly caught on with many firms as an option that brings flexibility into their real estate portfolio. With teams being restructured and the "new normal" having to be implemented in organizations, the desire to develop new spaces and team rooms has become more prevalent. In light of Covid-19, firms have accelerated their office redesigns to accommodate physical distancing requirements and health procedures for essential business functions. As workers return to the office, these actions have proven beneficial to companies by creating office spaces that are more conducive to teamwork and actual needs. The current surplus of commercial real estate supply requires real estate providers to reconsider their business models and enhance their physical spaces in order to stay as agile as the clients they hope to attract.

Recent events have proven to many businesses that company-wide remote working is feasible. Employees demand seamless integration of remote and office work, and companies have reacted accordingly. Firms like Facebook, Allianz, Twitter, and Siemens have pushed ahead with bold policies to allow employees to work from home as much as they want moving forward. As a result, office spaces will face underutilization of between 50% and 60% globally, assuming employees work remotely at least one or two days a week.

With the onset of these changing capacity needs and office user demands, classic long-term lease contracts for fully furnished offices are becoming an outdated business model. This calls for new types of office infrastructure that go beyond simple desk-to-space ratios and place a strong focus on user productivity and experience. Office real estate business models that rely on the old ways of density ratios will find themselves struggling to fill space dynamically in the near future.

Co-working spaces have piloted this business model successfully, and it is expected by JLL among others that by 2030, 30% of global office space will be consumed in ready-to-use fashion. With the market shrinking and the competitive landscape consolidating, office providers will face fierce competition to provide high-quality and cost-efficient workplace offerings for their clients.

Flexible office spaces as a solution

Powered by an office infrastructure that can adjust to the needs of its users, real estate players and facility managers can quickly adapt to the expectations of office users while also implementing operational efficiencies that drive down costs.

Key factors of the flexible office model:

1. Use-based pricing: Contracts need to include what elements tenants actually use, rather than the space itself. By flipping rental contracts on their head, rent is determined by measuring user behavior such as frequency of energy use, room and desk bookings, or elevator rides. These data quantify how intensively the office is being used, measurable through the deployment of IoT sensors and a central data platform. This approach lays out clear incentives, both for office users to efficiently use space and for real estate players to provide high-quality work environments that encourage active usage. Tenants pay only for what they use, and operators focus their attention on what is actually being consumed.
2. Office-as-a-service: The office-as-a-service (OaaS) concept allows for additional revenue streams if tenants wish to customize their office package to their own needs. Office users can choose between service packages to get what they want, ranging from furniture or serviced food and beverage offerings to digital packages like keyless access management, guest management, on-demand mobility, and EV charging options. With the office-as-a-service concept, users (tenants) are able to purchase exactly what they need, typically at even higher rates and greater tenant satisfaction. Crucially, the office user can decide which services they truly need before booking. Moreover, they can bring their own office user devices to be integrated into the smart office platform.
3. Quick reactions to changing needs: Digitalized office planning allows for continuously optimized usage layouts and scenario analyses to simulate both minor layout changes and major design overhauls. Desires in the future to reconfigure office layouts may not stem from events like Covid-19, but from gradual changes that evolve over time. Modular utility and technology components as well as infrastructure design are prerequisites for rearranging an office's seating, spaces, and purposes, but these can also be retrofitted. With the help of a digital building twin, data gathered about a building and its surroundings is turned into insight and action to monitor such needs and also to model anticipated redesigns.

Increasing attractiveness through space efficiency and futureproofing

Rethinking the main purpose of the office space means that real estate providers and holders must put efficiency and future-thinking business models at the forefront as they market their real estate to clients.

To increase space efficiency, the smart office relies on the insights generated from the digital building twin. This rendered version of the smart office constantly monitors and analyzes sensor-generated data pertaining to room occupancy, movement patterns, desk bookings, etc. and displays this data in accordance with the physical layout of the office and its installed IT, OT, and IoT infrastructures. This centralized, common platform brings together data streams from sensors, existing legacy building information systems, and third-party data streams, cementing the building twin as the technological foundation for realizing a truly smart and flexible office.

A building twin can answer the following questions:

• Are there spaces workers rarely use?
• Are more quiet working spaces needed because existing ones are always full?
• Which routes to the kitchen are the most trafficked?
• Where do people interact with one another the most?

Valuable insights about one's tenants or teams can be derived and acted upon as the amount of gathered data grows. Whether these adjustments are taken in the form of quick fixes, such as adding power connections to desks, or more lasting changes, such as converting unused meeting rooms into much-needed collaboration spaces or rearranging desk layouts, office users and real estate operators can discuss and anticipate these changes in team structures or work modes in digital office models before implementing them in the real world. Combined with modular design elements such as movable walls and reconfigurable design, the continual adaptation of the physical office space becomes the backbone of an agile and adaptive business concept for the real estate asset owner and users.

The flexible office in action: Minimizing costs through asset and energy efficiency

With high cost efficiency, real estate players maximize the availability of their office building by minimizing maintenance disruptions and consuming the optimized amount of energy through intelligent controls. The potentials of smart building technology and controls have in Singapore yielded savings of up to 60% in cooling energy, which quickly pays off. This showcases the fact that unnecessary costs and emissions are avoided, keeping operating costs low and rentals attractive.

While incidents that cause prolonged office downtime are rare, office unavailability and maintenance operations generate both costs and unease for employees. Distracting maintenance activities hinder employees' productivity and require them to waste valuable time rearranging work modes and appointments. The flexible smart office assuages these issues by notifying facility management to immediately begin repairs in real time whenrooms are neither occupied nor reserved, rather than resorting to a fixed maintenance schedule. Additionally, predictive maintenance allows facility management to prolong assets' lifetimes with strategically timed repairs that prevent critical failures.

Using sensor data gained from building occupancy and typical usage patterns, the flexible smart office intelligently adjusts lighting, heating, and ventilation in unused spaces to reduce energy consumption by up to 30% compared to a traditional office, according to expert interviews. With high asset efficiency and high energy efficiency, the flexible smart office ushers in a highly cost-efficient business model for real estate providers. This means that real estate players can focus their investments on their service offering and office users can spend less on fixed rent and more on the flexibility options they desire in their office space.

Taking steps towards embracing flexibility

With considerable office underutilization widespread in the times of remote working arrangements, a shrinking office market endangers the revenue streams of commercial real estate players and property managers. For corporate real estate players, the challenge lies in maintaining the relevance of their offices as locations for people to commute to work in on a regular or semi-regular basis.

To reverse the trends of underutilization and to protect valuable assets, real estate players must act proactively and embrace flexibility. Use-based pricing models, office-as-a-service, and quick reaction times to clients' changing needs are all necessary to provide an attractive and cost-efficient offering to office users who have suddenly gained a much stronger negotiating position. This agility is enabled by data-driven building models, which collect data and generate insights in real time. Using these insights, decision makers must review their current office real estate portfolio and reconfigure their venues into smart offices. A strong partner with the capabilities to help holistically analyze the existing office portfolio and to provide expertise in sustainable technologies can help ensure a resilient and effective plan for the future.

Credits

We would like to thank our co-author Siemens Smart Infrastructure for their contributions and valuable insights in helping to compile and draft this study. In particular, we would like to extend our thanks to the many industry experts for their constructive input and subject matter expertise: Benjamin Anthony, Omar Baghdadi, Ralph Büchele, Gabriella de la Torre, Franz Dolak, Dr. Daniel Forsmann, Martin Goll, Daniel Kottman, Hanna Krause, Anina Loretan, Henrik Lüngen, Isabella Mackensen, Ranjani Madhavan, Markus Munk, Tarit Nimmanwudipong, Richard Nowak, Marjut Rautavaara, Elisa Rönkä, Kai Schober, Ralph Struck, Andreas Thamm, Dominique Vanhoutte, and others.