Reinventing Workplace: The Hospitality-Driven Office
Exploring the merger of hospitality and office real estate to redefine workspace value.
Dear Readers,
A huge thanks to all of you that provided some valuable feedback last week and welcome to new subscribers!
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Enjoy this week’s issue.
Best,
Carlo
Office buildings are well-known to be undergoing significant transformations. This trend began before the COVID pandemic and has gained considerable media attention.
This week we will focus on how the hospitality sector is shaping the future of office buildings.
Below are key hospitality features influencing office spaces today:
Focus on Customer Experience.
Enhanced Lobby Design.
Increased space occupied by Flexible Office Operators.
New leasing models are transforming valuation methods..
Integrating PropCo & OpCo or not.
Now, let’s dive in.
1. From Customer Service to Customer Experience: Redefining Real Estate’s End-User.
The definition of a customer in commercial real estate is evolving.
In the past viewed as the tenant (corporate organisations or businesses leasing space). Today, the focus has shifted to recognising individual people as the real customers.
Great customer service means increased Customer Retention Value. This is important in today’s competition to keep Top Talent.
“We approach our office like we do our hotels—with a keen focus on the public space. We have a simple guidepost—to create space where people want to be,”
Jim Merkel, CEO and co-founder of Rockbridge.
Here are a few trends that have been growing in recent years:
Enhanced welcoming experience = > Smiling faces in the building lobby
Concierge / Host = > To offer a more personalised experience
Services at your fingertips = > Well-designed Apps offering on-demand services 24/7
2. Lobby Design: The First Impression That Lasts in Modern Office Buildings.
In my pre-COVID career, the goal was to keep lobbies uncluttered. Today, they are evolving into welcoming, active areas conducive to impromptu meetings.
A welcoming and active lobby has the ability to help build a sense of community that people want to belong to.
The lobby is the first space that we see when entering a building. It's a great opportunity to leave a positive lasting impression in customers.
CitizeM is a provides a great example of how the hospitality industry sees lobbies.
The lobbies in their hotels are the heart of their community. It's where the restaurant and cafè are. A buzzing space where people dwell, meet and work from.
This is the primary space you experience when you arrive and leave the hotel. It’s a positive and uplifting experience. You feel happy to be there.
3. The Rise of Flexible Office Operators: Adapting Space as a Service.
The % of office space operated by Flexible Office brands will increase to c.30% of occupied space by 2030. It will reach a market size of c.24B$ by the same date in the US.
The primary focus of a Flexible Office Operator is to please its customers:
with a wide range of workplace solutions = > from shared-desks to private office suites.
offering flexible lease terms.
selling space on-demand.
4. Evolving Leasing Models: Implications for Office Valuation
The rise of flexible office brands has introduced new leasing models. Management agreements like those in the hotel industry, are being introduced to Offices.
Funders and REITS investing in Commercial Office Real Estate keep favouring traditional leasing. To pay shareholders they favour positive income streams backed by long-term leasing contracts.
As the Flex Office sector grows, so will non-traditional lease terms.
New leasing models will in turn determine different ways to value Office Buildings.
5. PropCo vs. OpCo: Mastering Operations in Hospitality-Infused Spaces
Landlords will need to become better Operators to run successful hospitality-infused offices.
In the past it was enough to deal with tenant’s complaints and making sure the building was running well.
Today this is no longer the case.
Landlords are running a community.
This means they now need to decide whether:
They should run their Operators in-house = > setting up a new Operating Brand.
Partnering with Third Parties = > leveraging the experts existing in the field.
A few UK landlords have decided to run the show themselves:
British Land = > Storey
Landsec = > Myo
Real Estate Investor Hines announced in 2019 a partnership with Industrious. Together they will create a new workplace platform called Hines Squared.
“The Square is a direct response to the changing needs of our current and future building tenants, our core customers. Hines has a 60+ year track record of providing superior space and service, and flexible workspace and office hospitality are a logical progression for us. Partnering with Industrious will accelerate that progression while maintaining our high level of service.”
Charlie Kuntz, Hines
In Summary
Adding Hotel style services and operational models to offices will help increase valuations.
More office assets will adopt the strategies outlined above. This will add market comparables that will help determine their true financial value.
One thing is for sure: Offices today are in dire need of positive transformation.
That’s all for today.
See you next week.
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