The Disconnect Between the Traditional Office and Tenant Needs
With a career spanning over 20 years in the real estate industry my experience has continued to underline that the traditional office offerings often fall short of meeting tenant needs. My first role in real estate was with a Tenant Representation Team at Colliers International. While the team did an excellent job focusing on customer needs, a significant gap remained between what the real estate world offered and what tenants actually required. Some of the key disparities included:
- Landlords primarily focusing on net rental income and length of lease, while tenants were concerned with gross costs and flexibility.
- The provision of a standardised, bare shell by landlords, contrasting with tenants’ desire for a move-in-ready space.
- Making a lease commitment was dependent upon forecasting space requirements over a 9year period. The tenant was faced with the uncomfortable trade off of paying for space you donโt need or be faced with trying to finding new, appropriate options when the growth occurred. This model worked for stable companies but was an ill fit for dynamic ones who valued flexibility.
Hotels: A Model Worth Emulating
In the subsequent stage of my career, I invested in and managed operational real estate, with a specific focus on hotels and groups like Accor. Unlike offices, the hotel sector operates under the unique challenge of having 100% of its space vacated each night. This dynamic places a critical emphasis on customer focus. Such experiences have cemented my belief that the office sector is ready to transition towards a more customer-centric business model, akin to what we see in the hospitality industry.
In our investments, we partnered with hotel operators who had excelled in the art of brand positioning and customer alignment. These operators recognised that success hinges on a perfect match between guest needs and the space on offer. Whether catering to a business traveller prioritising utility, or a tourist seeking a unique creative experience, the hospitality industry understands that a “one-size-fits-all” approach is insufficient. This nuanced perception influences valuation metrics, financing strategies, operational management, and technological innovation within the industry. It’s increasingly apparent that the office sector is also evolving towards a more customer-centric model.
The technological revolution has had a significant impact on the hotel sector. In 2007, Airbnb launched amidst a global financial recession, providing travellers with access to previously unused beds in strangers’ homes. The rise of the shared economy was in full swing, and Airbnb quickly expanded to offer over 7 million listings in more than 220 countries and regions becoming larger than the decades old hotel brands. Contrary to diminishing the hotel market, Airbnb’s entrance expanded the overall hospitality sector. However, it also contributed to guests becoming more discerning, resulting in the proliferation of brands. For example, Accor now boasts over 53 brands, ranging from utilitarian to creative, and from business-focused to leisure-oriented, as we have delineated below. Just as the hotel industry has understood that there is no universal solution for every guest, the office sector should also recognise that a “one-size-fits-all” model is inadequate for their diverse clientele.
WeWork While Flawed Demonstrates the Need
WeWork emerged as an early pioneer in demonstrating the viability of a customer-centric model in the office space sector. Coworking was initially dismissed as space for freelancers and tech companies, the company’s success in securing corporate tenants was, for many of us, an unexpected but enlightening development. Today some 690,000 people are members of WeWork and it is evident that WeWork has successfully identified a genuine market need, although it’s business model was fundamentally flawed. The company relied heavily on inexpensive financing and aimed to capitalize on a narrow arbitrage between long-term leases and short-term licenses, often referred to as a “flexibility premium.” This precarious model was further undermined by suboptimal space planning. It’s worth acknowledging Precinct Properties for their foresight in acquiring Generator, signaling their recognition of the shifting landscape but saw coworking as an extension of their core offering and rather than rely on the flexibility premium.
However, even with these emerging models and the abundant capital market, a more fundamental change in the office sector remained elusive. The tech had been there for years to enable it but our cultural norms of the 9-5 and acceptance of crazy commute times had stopped us from fully leveraging the technology nor honestly assessing what the office was or should be.
Covid Was the Catalyst for Change & Weโre not Going Back
The catalyst for change came in the form of Covid, making working from home the norm for months. This shift has led to a reevaluation of what an office should and could offer and the advantages of hybrid working. People have discovered that they can maintain, if not enhance, their productivity levels without the daily grind of a time-consuming commute through hybrid working. Now weโve experienced the flexibility and benefits of hybrid working weโre not going back nor should we.
The Office Reimagined: A Versatile Asset, Not Just an Expense
The shift towards hybrid work has led to polarised views on the utility of the traditional office. On one end of the spectrum, work-from-home purists overlook the value of in-person collaboration, the mental well-being derived from a work-life boundary, and the benefit of a dedicated space for focused work. Conversely, the advocates for a full return to the office often fail to acknowledge the drawbacks, such as lost hours commuting and a lack of professional autonomy โ highly valued, particularly by the “A player”.
The A players and teams now see the office as a multi-functional tool that can enhance team building, education, networking, creativity, and productivity. But also recognise that there is no one-size-fits-all office solution; sometimes a team needs a collaborative environment with whiteboards for brainstorming, while at other times, a quiet space for focused work is essential.
Steve Jobs once said “โTechnology is nothing. What’s important is that you have a faith in people, that they’re basically good and smart, and if you give them tools, they’ll do wonderful things with them.โ so why is the workplace not treated as one of these tools?
The New Landscape: Pain & Opportunity Ahead
This has led to a transformative period for the office market, comparable to the disruption the hotel industry faced during the Global Financial Crisis, which eventually gave rise to platforms like Airbnb. The ramifications of this transformation are most acute in areas characterised by lengthy commutes and a strong culture of individualism. When compounded by other market dynamics, such as technology sector downturns and the increasing prevalence of home office setups, the U.S. office markets find themselves at the epicenter of this change. In contrast, Asian markets have shown relative resilience, maintaining a degree of stability amid the global shifts.
The Rise of Hybrid Office Providers: Aligning with the Needs of the Hybrid Workforce
We envision that future landlords will transition to a client-centric model, drawing insights from the hospitality industry. Far from signaling the end of the traditional head office, we anticipate the rise of hybrid office providers tailored to meet the needs of the modern, hybrid workforce. This new tenancy model will allow employers to offer their teams the best of both worlds: days in a central office as well as access to dedicated workspaces closer to home, each designed to facilitate collaboration, focus, networking, and creativity as needed. The implications for tenants are manifold: reduced lease obligations, enhanced team satisfaction, increased productivity, valuable employee perks, ESG advantages, and, most importantly, unparalleled flexibility.
Coloโs Role: A Catalyst for Transformation, Bridging Underutilised Spaces with Hybrid Workforce Needs
With this expertise in hand, we decided to launch Colo. So, what precisely is Colo? Fundamentally, Colo aims to optimise revenue for any party with under-utilised real estate assets, be it coworking space operators, landlords, or tenants with extra leased space. Serving as a dynamic marketplace, Colo links these available spaces to the burgeoning demand from a flexible, hybrid workforce. Our overarching goal is to expand the total number of people utilising hybrid workspaces.
In addition to facilitating this shift, Colo is committed to reducing the overheads and costs associated with operating a hybrid workspace. Traditional hybrid workspace aggregator models often adopt a transactional approach, charging a fee to the host for listing their space and primarily focused on freelance workers. Colo takes a different tack: as noted above, our ambition is to grow the overall pie and we only get paid when our hosts do. We are actively aligned with our clients’ interests.
Colo's Journey Begins: Initial Success and Future Aspirations
With DSS as our partner we’ve quietly already launched in Auckland, bringing our first clientsโprimarily coworking spacesโinto the fold. These early adopters have helped us establish a comprehensive platform that serves the Auckland area. As we solidify our presence in Auckland, we have plans for future expansion.
Our early partners recognise the value Colo brings to the table: increased occupancy through a broader guest base, a specialised sales and marketing team proficient in both digital and direct sales strategies, streamlined payment processing, and coming soon free space management tools all while the host retains full control over their spaces.
More Than Just a Cubicle: Colo's Commitment to the Perfect Fit
If we are to grow the overall hybrid working market, we must go beyond the basics to ensure that each guest finds a workspace that truly meets their needs. While essentials like location and secure Wi-Fi are a given, we understand that the ideal workspace involves more nuanced factors. To address this, we’ve developed our Culture Engineโa proprietary platform designed to measure the compatibility between a guest’s requirements and the available space. Whether a guest is seeking a productivity-focused environment or a space that fuels inspiration, our tool captures these preferences. We then utilise guest feedback to provide hosts with valuable insights, enabling them to fine-tune their offerings. Achieving the perfect match between guests and hosts is our ultimate goal and customer obsession.
Alignment with Our Clients: A Business Model Built on Mutual Success
With years of investing into companies has taught us, that water finds itโs easiest course and with this in mind the cornerstone of our business model is a commitment to complete alignment with our hosts. Our approach is straightforward: we profit only when you do. There are no upfront fees, hidden charges, or overhead costs. Additionally, there are no binding commitments, and the tools are in your hands ensuring that as a host, you retain full control over your space.
So How Can Colo help?
Our team at Colo is incredibly excited by the opportunity we have and how we can shape the office market. We are looking forward to engaging with all in the office space market. If you have under-utilised office space as a landlord, property manager or a tenant? Colo will transform it from a cost, to profit centre. We have referral schemes and structures to work with real estate agents. Struggling employee retention issues, Colo can help you offer another employee benefit to empower your team. Facing a challenge with your tenancy strategy Colo can help you create a occupancy strategy which optimises your flexibility.
