The changing office landscape – AI and co-working

Posted on: July 11th, 2017

The way we work is changing.  More of us work from home, work flexible hours, and across different locations.  Businesses, particularly young start-ups, are no longer prepared to agree to the traditional 25-year office lease. So where does that leave landlords and investors holding office assets? Nick Leavey shares his thoughts.

Twenty and even 10 years ago the world of office leasing was, relatively speaking, quite straightforward. A business looking for space would sign a 25-year lease with a break clause, typically after 10 years. The landlord, often an investor or financial institution such as a pension or insurance fund, was happy with a stable income over a set period of time. But the way we work and the demands of businesses have changed.

Today, a business is unlikely to want to commit to anything over five years, with a break halfway through.  Young start-ups often do not know where they will be in 24-months’ time, let alone in five years. They often grow rapidly as their fortunes change and hold the bargaining chips demanding flexibility from their landlords.

Technology is, perhaps not surprisingly, driving this change, and will continue to shape the office space market at an ever more rapid pace.  The rise of artificial intelligence, or AI, and machine learning is predicted to have a massive impact on the way we work and who works. The Economist in June last year reported a study across 702 different jobs which suggested that 47% of roles in those occupations might easily be replaced by ‘machine capital’.  Many office-based roles – including accounts and finance, sales, reception, security, and telemarketing – are named as being at risk from computerisation.

McKinsey echoes the same, with a study this year reported in Property Week in February stating that technology could automate 45% of all paid employment and that 60% of all occupations could see a third of their workforce replaced by technology that already exists. The need for large office footprints for all but the largest of businesses is no longer needed. So where does that leave the investor landlord that might be holding a portfolio of office space? 

Landlords want that steady and predictable income, whereas businesses want flexibility. I believe that we remain at heart sociable beings – we want and need human interaction. Face-to-face contact will still be at the heart of doing good business. It is the softer, and very human skills that often get the deals done.

Commercial property investors are a clever lot and are already responding to changing demand. Perhaps taking inspiration from the entrepreneur armed with nothing more than a laptop and mobile phone perched in a coffee shop, we have seen a huge rise in ‘easy-in, easy-out’ space and, more recently, co-working and office space by the hour. Easy-in, easy-out space has been around for some while, perfected  by the likes of Regus and others. 

Co-working and desk space by the hour or day is somewhat of a more recent development and gathering pace. Often, these co-working spaces will employ a lifestyle or community manager, who will help businesses change by arranging networking and social events. These spaces can accommodate the sole trader needing a smart address, through to businesses employing many hundreds of people. 

These campus-styled communities are particularly popular with younger entrepreneurs and smaller businesses. The fate of the office has been discussed many times over the past 20 to 30 years – the advent of the office PC in the 70s and 80s predicted the demise of the office, but it remains. Traditional office space is changing, and may well change again, but the office is far from redundant. Long live the office (real, virtual or otherwise)!