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Back to the Office...
What Will Bring the Tenants Back?
The world has changed forever due to the pandemic and companies’ priorities have shifted in regards to what is important to their employees when deciding on their workplace strategy. There is no playbook or historical event that mirrors the effects on the workplace like this global pandemic. There have been some truly horrific events in history, but most have centered around a specific geography or community. This pandemic is different in that it shut down almost every office on the planet for 12 months. What also makes this time so different from a workplace standpoint is that technology like video conferencing, shared document solutions, and cloud based applications exist. These solutions provided companies with options and breathing room to make the best decisions for their employees. Had these solutions not existed, I believe that everyone would have been back in the office almost immediately and the end of the pandemic would be nowhere in site. People will return to the office, at least in a hybrid form, but their requirements will be very different from what they were pre-pandemic.
I have written at length about the technology that property owners have adopted to attract and retain tenants during the pandemic. But it was clear to me that many of these owners were making decisions based on assumptions. Property owners/managers have been surveying their tenant base, but most of the companies being surveyed were still trying to figure out what was important to their employees. What was important last summer most likely changed as time went by. Now that there is an end in sight thanks to multiple vaccines, I felt that the timing was right to dive deeper into this topic. We are nowhere near the pre-pandemic demand for office space, but deals are starting to get done and I am optimistic that the pace will continue to grow each month.
Sensei Labs is a Toronto based tech company which offers solutions to enable project management, collaboration, data tracking & reporting, and knowledge management solutions that organizations need to be successful. Unlike many companies, they were in an ideal situation from an office standpoint when COVID hit because they hadn’t yet committed to a space. They were in a transition as they spun off of their parent company and the pandemic-related shutdown happened to hit at the time when they had made the decision to move out of their offices but had not yet secured new facilities. According to Jay Goldman, Sensei Labs’ CoFounder and CEO “That left us able to save on costs during the lockdown period here in Toronto where almost our full team is based, and to plan for a very different physical office when it’s safe to return. That safety is the single most important factor in our plans — keeping our team healthy trumps any advantages we might get from sharing physical space”.
When it’s safe for his team to be in the same room and to take transit to work, which Jay is anticipating will be in September (based on the current Canadian vaccine schedule), they will be returning to a very different office environment.
“We’ve virtually engaged our team of about 65 people during this planning phase to better understand their needs and desires. We’ve overwhelmingly heard that they would like 1-2 days per week in person and that it should be heavily optimized for team collaboration activities. That has influenced our office space planning, which will focus entirely on collaboration spaces with no individual offices. We’ll welcome about three teams per day into the space, with designated collaboration rooms assigned to each team complete with furniture and finishes optimized for teamwork and pre-configured, dedicated Microsoft Teams video conferencing hardware. Their day per week will be assigned a few months in advance and will change week-to-week so that we can mix the set of teams in the office on any given day and encourage cross-team pollination of ideas, spontaneous chats, and shared lunches and coffees. Everyone will have a second, optional drop-in day with hoteling space available if they’d like to have another day out of their WFH environment. We’re making sure to have a large, flexible café space for big team lunches when people are in but also the ability to host full team events in our own space for monthly All Hands and annual Town Halls.
Sensei Labs has also drawn inspiration from their team about office features that will keep everyone feeling connected. These include a corkboard wall and instant camera setup to capture and share spontaneous memories, to a coffee printer that can customize lattes with art shared between teams, to a scheduled end-of-day experience that brings everyone physically in the office together for a shared, enjoyable experience before heading back home.
The Brokerage World
TenantBase is a Tenant-Rep Platform designed to improve the experience of finding a new office. Their team provides online tools and personal support to guide clients through touring and lease negotiations. They have started to see leasing activity pick up over the past month and they anticipate that trend continuing. I spoke with David O’Rell, TenantBase’s Chief Strategy Officer, and he shared with me what their clients are looking for in their next office.
Here is the list:
Direct access to their suite from outside
First floor space or stairs to avoid elevators
Windows that can open to provide fresh air
Buildings that have everything touch free; doors, bathroom water, soap, towels
Better understanding of what the building janitorial entails and how building management deals with replacing air filters and cleaning the ducts
Outdoor collaboration space
Shorter term leases, as tenants are not sure about what the future holds - applies to both real estate and furniture
Furniture they can easily reconfigure into different layouts
Walkable to area amenities
Learn more about TenantBase’s partner program here.
I also spoke with Savills’s Executive Managing Director Kirill Azovtsev. He referenced a workspace strategy analysis that Savills had just completed which found that ventilation, air purification, LEED certifications, cleanings/maintenance and touchless access to the offices are the highest priorities from most tenants that are in the market for new office space now. He feels strongly that these factors will stimulate the return to office. You can read Savills analysis here.
Another company that is in tune with what tenants are looking for in their next office is Cohesion. Cohesion’s IoT-enabled platform integrates building systems, streamlines operations, and connects tenants and operators to deliver actionable insights. Cohesion allows for real estate operators to make their properties “smart” to enhance the tenant experience, while also creating cost efficiencies. Founded in August 2018 and headquartered in Chicago, Cohesion is a spin-off venture of ESD, a leading Chicago-based global engineering design firm at the forefront of next generation building design. Cohesion just completed a large-scale survey to find out what customers are looking for in their next office.
Here are some of the key findings:
When employees do return to office buildings, they will have new priorities from what they viewed as most important prior to the pandemic. Now, employees are prioritizing health, wellness, and security far above physical amenities such as on-site gyms, restaurants, and bars. Technology is no longer a nice-to-have; it is now a must-have amenity. Office buildings can provide a safe work environment by becoming “healthy buildings” and a productive place by enabling a frictionless building experience. Ultimately, the future of work relies on technology, which allows buildings to adapt and be flexible for changing demands.
To address the concerns that tenants have about working in a healthy environment, Cohesion has rolled out what they are calling “The World’s First Indoor Air Quality Program”. This program was designed to ensure building occupants that they are in a healthy work environment by giving them access to information on the health of their building without having to scavenge for the information. More information on that is here.
What was really interesting is that when they compared the results of this survey to a similar one that they had run pre-COVID, the top ranking priorities (access to gyms, restaurants, bars...) had gone from the most important to the least important. You can read their full report: here.
We continue to see announcements of massive companies that are transitioning to a remote first strategy, but a recurring theme that I continue to hear about is culture. If everyone is working from home, it becomes very difficult to build a consistent culture. Rick Abbott, President of TENFOLD, had my favorite line of the week. “Your workplace should be your home field advantage!” TENFOLD is a creative firm that focuses on brand and strategy. They strongly believe that culture matters and it is the differentiator between connecting both your clients and employees back to your workplace. I tend to agree with this point of view. As someone who has just gone through the interview and onboarding process for a new position, I have seen how difficult it is to acclimate to a company's culture when everyone is remote. The importance of company culture will be the savior of the office, but it will be safety, security, and health related amenities that give people the comfort that they need to return. I’m interested to see if these health related amenities are still at the top of the list a year from now, or if tenants revert back to their pre-pandemic wish list.
The Case For 100% Remote
To counterbalance the point above, we are starting to see remote first companies raise huge sums of money at really attractive multiples. Take for example Hopin. Earlier this month Hopin announced a raise of $400M at a staggering valuation of $5.65B (81X is annual recurring revenue). To be clear, amount raised does not in anyway guarantee the future success of a company (Knotel raised a reported $400M in August 2019 at a $1.6B valuation, and then declared bankruptcy 18 months later), but it does prove investor confidence in a business model. Hopin is a remote first company offering full-time jobs with optional, partial, or 100% remote availability. If you look at the real estate costs for a traditional company (SF Per Employee X Price Per SF + Overhead), it is reasonable to assume costs of $10,000 per employee. For a company that has 1,000 employees, the savings for 100% remote is $10M per year. One can argue that savings of this level can be invested back into the company to overcome concerns around culture, or at least a meaningful change to the bottom line.
I remain convinced that a cohesive culture still involves a physical office, but in these unprecedented times I think that it is prudent to explore the different viewpoints on this important topic.
Each week I plan to showcase a featured product or service. My criteria for selecting each week’s featured product is that I will only include solutions which meet one of the following criteria:
increase my own productivity
truly unique and innovative
This week’s solution is from The Guarantors.
One of the largest costs associated with signing a lease for a commercial tenant is the security deposit/letter of credit. Many companies don't realize the burden of SD/LoC until they're already into the leasing process. The Guarantors aim to fix this burden. Their solution replaces security deposits and letters of credit with a surety bond. They claim that their solution generally costs 5-9% of the SD amount. This savings can free up capital to put back into the business. Since the cost of a security deposit may be a surprise to new companies that are signing their first lease, the Guarantors are working with brokers to pre-approve tenants for landlords that they work with. According to the Guarantors, their partner landlords include Silverstein, SL Green, and others. The Guarantors operate nationally with clients in NYC, SF, Chicago, LA, and more.