Hanging out at the water cooler beer tap!

The concept of “serviced offices” has taken considerable steps forward with the development of collaborative workspaces. These are high-quality, centrally located offices that offer flexible space (on a monthly contract) and other services that are designed for maximum flexibility, creativity and collaboration. The BCO (British Council of Offices, July 2016) estimates that around one million people globally are expected to work in this kind of environment by 2018. Over the long term, this new way of working will have a much wider impact than on just the office property market.

The pre-eminent brand in this regard is WeWork, which describes itself as a “physical social network.” Its business model is based on a blend of social networking with a highly designed office environment located in many leading cities of the world. WeWork's growth has been phenomenal, and its rise has been the catalyst for many similar companies. Collaborative workspaces appeal to new businesses and new working practices for both emerging and established companies. This means businesses can be extremely “asset light” as they are able to share resources.

A WeWork member, for example, is a member of a community, which provides more resources than just physical office space for business. Membership enables a business to establish leads and contacts, while having flexible use of back-office functions, such as human resources, accountancy, pensions and healthcare. Members of WeWork can rent fixed and private office space, an open workspace or, indeed, no workspace at all. Some members may just use the community resources and bulletin board services.

In comparison to the typical office of the 1980s and 1990s, collaborative workspaces look like they are from a different age. The level of design and the focus on encouraging social interaction across companies is quite distinct from a historic business model. Indeed, the provision of free beer taps in communal areas could hardly look more alien to a 1980s office worker.

While this sort of changing office environment is creating some turbulence within the sector, there are still many positive takeaways for property investors. Securing the best talent requires the best working conditions, and the arrival of new working practices should be more efficient for the tenant and more appealing to the staff. At the same time, rapidly changing working practices will force investors to realize that the changes could be to their advantage. After all, companies and staff are demanding offices with a strong brand identity and high-quality work environment.

Commuting… to the den

Because the office sector is undergoing such significant change, there exists an opportunity for private equity real estate fund managers and institutional investors in the sector to recycle their old office properties by converting excess space to other uses. In contrast to commercial space, there is a growing, rather than declining, space requirement per person in the residential sector. The ability and desire by some employees to work from home has forced staff to make room for an appropriate work station or desk at home. By implication, this creates more demand for residential space and housing. But the lack of residential supply in global cities is well-documented and currently seems like a rather insurmountable challenge. It is clear, then, that there are real opportunities for much-unloved historic offices to find a new lease on life in residential form—a trend that is already established in leading European cities.

Andrew Allen is head of global property research and strategy at Aberdeen Asset Management. The views expressed here are the author's own.

WATFORD, UNITED KINGDOM—How we use offices these days is changing rapidly. Gone are the days when a company leased an office for 20 years and employees had their own room with a door to close. Long-term structural changes in commercial architecture are having a disruptive effect on the way companies use office space for two key reasons:

• Companies need much less space. Modern offices can accommodate more occupants in smaller workspaces; and
• Occupiers are looking for more flexibility. Due to rapidly changing business structures and working practices, tenancy arrangements and leases are becoming shorter and, in some ways, are approaching obsolescence.

Analysts who assume that the physical calculation of square metres is an appropriate measure of available space are potentially underestimating the true picture of supply and demand balances. As a result, there is a risk that some analysts are consequently over-optimistic about the performance of office rents and the sector as a whole.

Is it me, or are cubicles getting smaller?

Anyone working in a typical office in the 1980s will remember bulky computers and endless filing cabinets housing vast paper records. Today, technological advances are driving office trends in ways inconceivable as much as 15 years ago. Mobile phones, tablets, laptops, flat-screen monitors and digital archiving of records all considerably reduce space requirements and, in some cases, eliminate the need for a central office entirely. Also, major advances in heating, ventilation and air-conditioning systems allow higher-density occupation in offices. Buildings are now designed with eight, sometimes even six, square metres per workspace, which is in stark contrast to the 20 square metres allocated 30 years ago.

But, technological advances are also changing the way that businesses function. The preference for new working practices, such as hot-desking and working from home, have had a considerable impact on office demand, both in terms of volume and the nature of the working environment.

Hanging out at the water cooler beer tap!

The concept of “serviced offices” has taken considerable steps forward with the development of collaborative workspaces. These are high-quality, centrally located offices that offer flexible space (on a monthly contract) and other services that are designed for maximum flexibility, creativity and collaboration. The BCO (British Council of Offices, July 2016) estimates that around one million people globally are expected to work in this kind of environment by 2018. Over the long term, this new way of working will have a much wider impact than on just the office property market.

The pre-eminent brand in this regard is WeWork, which describes itself as a “physical social network.” Its business model is based on a blend of social networking with a highly designed office environment located in many leading cities of the world. WeWork's growth has been phenomenal, and its rise has been the catalyst for many similar companies. Collaborative workspaces appeal to new businesses and new working practices for both emerging and established companies. This means businesses can be extremely “asset light” as they are able to share resources.

A WeWork member, for example, is a member of a community, which provides more resources than just physical office space for business. Membership enables a business to establish leads and contacts, while having flexible use of back-office functions, such as human resources, accountancy, pensions and healthcare. Members of WeWork can rent fixed and private office space, an open workspace or, indeed, no workspace at all. Some members may just use the community resources and bulletin board services.

In comparison to the typical office of the 1980s and 1990s, collaborative workspaces look like they are from a different age. The level of design and the focus on encouraging social interaction across companies is quite distinct from a historic business model. Indeed, the provision of free beer taps in communal areas could hardly look more alien to a 1980s office worker.

While this sort of changing office environment is creating some turbulence within the sector, there are still many positive takeaways for property investors. Securing the best talent requires the best working conditions, and the arrival of new working practices should be more efficient for the tenant and more appealing to the staff. At the same time, rapidly changing working practices will force investors to realize that the changes could be to their advantage. After all, companies and staff are demanding offices with a strong brand identity and high-quality work environment.

Commuting… to the den

Because the office sector is undergoing such significant change, there exists an opportunity for private equity real estate fund managers and institutional investors in the sector to recycle their old office properties by converting excess space to other uses. In contrast to commercial space, there is a growing, rather than declining, space requirement per person in the residential sector. The ability and desire by some employees to work from home has forced staff to make room for an appropriate work station or desk at home. By implication, this creates more demand for residential space and housing. But the lack of residential supply in global cities is well-documented and currently seems like a rather insurmountable challenge. It is clear, then, that there are real opportunities for much-unloved historic offices to find a new lease on life in residential form—a trend that is already established in leading European cities.

Andrew Allen is head of global property research and strategy at Aberdeen Asset Management. The views expressed here are the author's own.