Let’s Get Real Episode 24: Space-As-A-Service and The New Era of CRE
Discussions on the Workplace and Corporate Real Estate Podcast
Some of the highlights of the show include:
- What does trust and empowerment have to do with the employee experience, and how is it lacking in today’s world of work?
- How can companies with excess space take advantage of Space-as-a-Service models to repurpose parts of their portfolio?
- What can we learn from watching high-growth tech companies experiment with the employee experience and hybrid workplaces?
- Decision-makers, in this era of uncertainty and obsolete data, desperately need new data signals to start to learn about the new rituals and rhythms of work.
- Organizations like Relogix and LiquidSpace have a responsibility to help companies re-build their vision of work and place, to ultimately enrich the employee experience.
- To what extent should workplace professionals and leaders turn towards more experimental methods and decisions in this new era of corporate real estate?
- The genie isn’t going to go back in the bottle—employees expect a certain level of flexibility and agency at work now.
- How do organizations need to switch up their management of workplace when there’s no longer a traditional lease, and instead countless workplaces and workplace partners?
- How is the hybrid workplace movement, in a way, like Jurassic Park?
- Sandra Panara on LinkedIn – Director of Workplace Insights at Relogix
- Mark Gilbreath on LinkedIn – CEO and Founder of LiquidSpace
- Liquidspace – Global marketplace of on-demand office space and workplace management platform
- Kastle’s workplace occupancy data
If you liked today’s show, check out more episodes of the Let’s Get Real Podcast! This podcast is available on iTunes, Spotify and Google Podcasts.
Hey everyone, welcome to Let’s Get Real with Sandra and Friends, a workplace consortium podcast brought to you by Relogix. I’m excited to be sharing conversational musings about current events and how we envision the ever-changing world of work. I’m Sandra Panara, Director of Workplace Insights at Relogix. With 25 years of hands-on experience, I help value engineer global workplace portfolios and employee experiences by aligning workplace analytics with corporate real estate needs.
Have any questions, comments, or suggestions for future podcasts? Please drop me a line at [email protected].
This week, I’m super excited to have Mark Gilbreath join me as my special guest. Mark is the founder and CEO of LiquidSpace, the hybrid workplace management Software-as-a-Service platform and on-demand office marketplace for enterprise. The LiquidSpace marketplace is the only platform today that is providing dynamic companies with the superpowers to provide a global workforce with workplace flexibility and provide their workplace leaders with the tools to control and to learn from the new rituals of work and workplace. LiquidSpace is serving the growing community of companies on the right side of history who have chosen a hybrid workplace future, including companies like the GSA, VMware, ATT, Spotify, Shopify, Etsy, and many more. A Silicon Valley veteran, Mark began his career in the semiconductor industry in the late 1980s before founding and operating a series of software and real estate ventures culminating with LiquidSpace. When not at work, you are likely to find Mark on a bike.
Welcome, Mark! Really excited to have you as a guest on our podcast this week. Why don’t you tell us a little bit about yourself?
Thank you, Sandra. As a long-time follower of the podcast, it’s great to be on it as well as to get to listen to it. So, thanks so much. About myself—30 years in technology. Wow, it’s crazy to think it’s been that long. Electrical engineer out of the University of Virginia, goes to Silicon Valley. Spent the better part of a decade in the semiconductor industry, which is what gave Silicon Valley its name, before I got lured by the appeal of the Internet and software. I took a shift career-wise from a technology standpoint toward building software-based solutions for companies, and had my first dabbling with a marketplace-type company in the late 90s.
In the early 2000s, I somewhat unexpectedly had an opportunity to make a life-work balance move and move to the mountains of Idaho. I didn’t think it was going to be an 18-year jaunt, but it has been. And it was from my perch in Idaho that I started to get involved in the commercial real estate industry, as a developer on a very small scale. That was a relatively short-lived period, but that actually ended up inspiring the last 14 years of my career, which had been in and around the flexible office itself.
I opened a coworking space in the Boise, Idaho area in 2008 and for the last 11 years I’ve been deeply and fully involved in and committed to technology serving the flexible office industry, or as it’s perhaps more recently referred to, coworking and hybrid workplace. The term of the hour, so to speak. So, long ramble there, Sandra, but: technology and real estate.
Interesting. I remember hearing about LiquidSpace back in the mid 2000s and I thought back then, what a really cool concept. So, I’m just curious, what was the inspiration behind LiquidSpace? What was the problem that you were trying to solve for companies back then?
In 1999, I was a first-time CEO of a start-up company and venture based in Milpitas, California, Silicon Valley, and we had just raised a healthy Series B capital raise and we were poised for a lot of headcount growth. That thrust upon us the decision to go seek an office that we could grow in. We had been in a small sublet office in Santa Clara prior to that. We found a broker, which is what you do, and we ended up signing a five-year lease for an office space in Milpitas, which is what you did.
I do vividly recall, even to this day, the emotions and the uncertainty that came with signing that lease agreement. I was literally having to speculate what our head count and resource needs would be five years down the road. And I didn’t have a crystal ball on even two years down the road. But nonetheless, the form of real estate transaction that was available to me to satisfy the next tranche of my growth was a lease. And a five-year lease, as I’m sure all of your listeners will relate, was a relatively short-term lease.
Even that discomfort that came with that decision stayed with me. As it turns out, the space that we took was more than we ever ended up meeting. So, it ended up being a bad decision which probably many of our listeners can relate to. Sometimes you need more. Sometimes you need less. Rarely when you make a long-term commitment have you hit it on the nose. So that professional experience stayed with me.
I also got involved in commercial real estate development here in Idaho. It was down in the Boise, Idaho market where I ended up building a small portfolio of self-storage facilities. And if anybody’s ever used self-storage or mini storage, you know that the business model and the service offering tends to be flexible and scalable.
You can have any size locker that you want. It’s a month-to-month agreement. You don’t need an attorney to review the license agreement with you. You don’t negotiate on the terms. You move in when you want to, you move out when you want to. You upsize or downsize when you want to. And that type of service serves consumers as well as businesses. The efficiency of that business model, which I got to know deeply firsthand as an operator, inspired me. I routinely reflected on, oh my goodness, if only something of that flexibility and scalability had existed when I needed office space eight years ago, that would have been a better model.
That actually inspired me to stumble into the world of Space-as-a-Service. And I ended up building a coworking space on some retail frontage of one of the self-storage facilities that I had in Meridian, Idaho. I was inspired by the notion of taking that very same business model: any size you might want, by the month, or longer if you need it. Upsize, downsize, never waste space. Never have too much. Never have too little. That was the guiding notion. The name LiquidSpace was actually the name of the membership model at our coworking space in Meridian, Idaho, when we had a vision of building a physical network of locations.
This was in 2008, and the global financial crisis had other designs on that, but the principal idea lived on. So LiquidSpace was actually an Act Two of a concept that I’ve been experimenting on as early as 2008. LiquidSpace launched in 2011, carrying forward the same principles: provide people with the best space to do their best work, more happy people working in better spaces. “The planet smiles” was and is our mission statement. Never have more than you need.
And lastly, always empower the individual, whether it’s the sole proprietor of a one-person company or whether it’s the employee of a 200,000-person enterprise, always trust and empower the employee to have some measure of agency over how, where, and in what type of environment they work. They know better than you possibly can. So it was that arc that led me from something as random and adjacent as self-storage into what is going to be, for me, a career-defining focus on trying to make the workplace better, and make people happier by virtue of enabling them to tap the space that they need, when they need it, where they need it for their best work.
I always thought that the name LiquidSpace was brilliant because you totally know where you’re going, from a business model perspective. I did not know that how it came to be was because of the experience that you had in storage. And now that I think of it, it’s so true. I’ve actually experienced the whole storage thing and being in transition when I was moving between two places. I had five months where I had to figure out what to do with my stuff. You think you need a little bit of space and then you need a little bit more space, and then as you’re getting rid of stuff, you need less space. And that flexibility is exactly what’s needed. And taking that concept and bringing it into the workplace or into the leasing model, or non-leasing model, if you want to look at it that way, is absolutely brilliant.
A quick sidebar on that: I think it’s half of what’s needed in the office world. I think the self-storage notion, shorter-term agreements, flexible, scalable, upsize, downsize, that’s desperately needed on the business model and agility dimension of how office and workplace work.
The other thing that’s desperately needed, that isn’t personified in self-storage, is the human experience. There’s a criticality of trusting and empowering individuals to be able to choose how they work and to recognize that one employee to another, one team member to another, one individual to another, have wildly different preferences. They have needs based upon their temperaments, based upon the tasks at hand, based upon where they are physically, where they are life-wise, career-wise, their family situation.
And by the way, all those variables are themselves dynamic. If you accept even a little bit of that hypothesis, that the best space for Sandra is a highly unique thing to Sandra and highly dynamic for Sandra, then how can you possibly seek to come anywhere close to optimizing workplace for Sandra if you arrogantly presume that you’re going to design in an entire office, and dictate to Sandra that she’s Cube 34 Row H? And that’s going to be a place where she can thrive?
It’s so interesting, there’s a lot to unpack there. I’m just thinking about my own personal experience working in various coworking spaces, Space-as-a-Service, here in Toronto when I was doing my own HR tech start-up, kind of along the same lines of work and life coming together and having flexibility. And this is going back to maybe 2011, 2012. My experience was that the majority of the users of such space were more self-employed entrepreneurs that didn’t have a traditional office or the need for these large office spaces. Has that changed? Are you seeing more like a variation of user types in these types of spaces?
Absolutely, without question. When LiquidSpace launched in 2011, coworking wasn’t even a familiar term. There were maybe 20 coworking spaces across the US. “Serviced office” or “executive suites” was the more familiar name, owing to the early pioneering work of companies like HQ and Regis.
Now coworking has rocketed into general awareness to a large degree, fueled by over $10 billion of soft bank capital that was injected into WeWork’s wild ride. But the awareness, the persisting, the remaining, the ongoing awareness and proliferation of coworking is well deserved. In 2008, when I launched my coworking space in Boise, the typical user for us then actually was a blend. About 15% of our customers in 2008 were large enterprises. We had Motorola as a client, we had Minolta, we had Cisco.
And then yes, to your comment and perception, Sandra, a lot of small businesses, individual proprietors, freelancers. But through this most recent decade, as coworking found its legs and scaled, it became increasingly a choice for dynamic organizations. In 2019, the last full year before the pandemic put its stamp on history and on the future, enterprise or mid-size and larger organizations was the fastest growing sector from a revenue standpoint for our business and the industry as a whole.
It was fully 30% of the general consensus of what the coworking and serviced office industry consumption was. For LiquidSpace, it was well over 50% of the activity we’re seeing pre-pandemic. And in 2019, flexible office as a category of asset management for large occupiers was still well less than 2% of their total workplace. So, it’s such a vast category. Mid-size and large organizations are such a large piece of the office pie, it didn’t take much shift in behavior on their part in the late 2010s for it to become a really important growth area. Then the pandemic hit, and we can talk about what the implications were there because it’s only been an accelerant.
So going back to when you first started with LiquidSpace, back in 2010, 2011, that was around the time that we had the stock market crash. I was at CBRE at the time, and I remember there were a lot of corporate headquarters in the US that were looking to get out of excess space. It was very similar to what’s happening now, although driven by the pandemic. Was there a difference between what companies were trying to do then versus what companies are trying to do now?
From my vantage point, I’ve had the privilege of getting to engage with a great many firms. I think absolutely, both the global financial crisis in 2008 and the COVID pandemic were massive macroeconomic shocks on the economy, but also on companies. I’ll run through a couple of quick observations on what’s the same, but then also what I think is absolutely different now.
Both of those things were black swan events. They were large, they were unpredictable, they had a huge impact. They both created economic strain on organizations, in particular with regards to the commercial real estate industry. I think both of those events created an urgency, or at least a period of time where CEOs, CFOs and heads of Corporate Real Estate at mid-size and larger companies were told to take a look at the problem. In 2009, 2010, 2011, revenues are down. The top line performance is down, and what can we do to bolster our financials. What can we do? If revenues are down, we can’t control that. What can we do to trim costs? Human capital is a variable cost. You see things like layoffs that certainly happened in the wake of the global financial crisis.
But I still recall 2009 to 2012 as a meaningful period of time when companies were looking a bit more earnestly at the question of utilization of workplace. And of course, this goes right to the “why” of Relogix as a company, which I’m a huge admirer of. But it was well understood for a decade prior to that that most large offices were highly underutilized in any given working day. Countless studies from various companies, whether done digitally with technology such as yours, or done manually, walking around and counting butts in seats, the general consensus in 2011, 2012 was: 30% to 40% of the office is sitting empty. So that same reflection and inspection took place here in the wake of COVID starting. In fact, it was one of the things that we predicted within weeks would be a shockwave of this work-from-home experiment when it kicked off in March, April of 2020. We reasoned, okay, past is present. Enterprises are going to be looking at cost savings again. And for the better. It’s not secret, we knew that workplace was underutilized. So, that’ll be a healthy thing.
But something else is different. We benefited from a second prediction also coming true. We also expected, even if the pandemic lasts for just three months, that will be enough time for managers and employees alike to come to grips with the fact that the shit didn’t hit the fan when I had to work at home. Productivity didn’t collapse when I was given the ability to choose wherever else I might work. Whether it was my home, whether it was the coffee shop down the street from my house during the pandemic, whether it was my vacation rental, or a coworking space. And so that’s the piece that’s different this time. I think enterprises are even more aligned today than they were in 2008 around the cost savings opportunity, which is why we’re now seeing the growing clarity on what’s happening in the traditional leasing world.
And companies of all sizes are increasingly embracing an entirely different perspective about employee experience, about workplace experience, about agency, about enablement of flexibility and choice for employees, entirely different than what was even contemplated in 2009, 2010, 2011, post GFC. Simply put, companies are letting employees choose where they’re going to work, all while looking to reduce, transform, rationalize their pre-existing, and for most companies, bloated footprint.
Interesting. We’re seeing the same thing. I think the other part that’s interesting about this shift is that you don’t know how big of a shift it’s going to be. As people that have been in the industry for a long time, as you and I have been, you see the writing on the wall, and it doesn’t take a rocket scientist to figure it out. But you have to let business do their thing, and eventually they’ll come around.
One of the questions that we get quite often is about existing leases. Some companies still have a couple of years on their existing leases, and they automatically look at that and say, well, we’re committed for the next couple of years, and there’s nothing we can do about it. Well, there is. There’s a penalty, obviously, associated with doing that. But does looking to Space-as-a-Service provide an opportunity for companies like this? I’m thinking about past experiences when I worked at other companies that were looking at their excess space and actually implemented something like Space-as-a-Service within their own portfolio. Maybe it didn’t generate revenue, but it was kind of like having a sub-lease. Or at least you were recovering costs. Or better yet, you were using that space as an event space or making it available to other people within the community. Are you seeing anything like that in your world?
Oh, absolutely. Let’s take the simple kernel of idea that was LiquidSpace in 2011, when we launched at the South by Southwest Conference in Austin, Texas. We had three coworking locations in our marketplace and serviced offices in the Bay Area. The basic kernel of the idea there was, we’re going to give Sandra the ability to open up an app and search, find, and book a space on demand. We’re going to empower the individual with choice. And that choice implicitly gives her flexibility around where she’s going to work.
What we sort of invented in our industry seems commonplace now, but what we invented then was the ability to book space for the duration of the task. That might be an entire day of work, or it might be an hour for a meeting. So that was the core notion: enable every employee to be able to procure space that meets their needs, for their perspective, for the duration of the task. Now let’s apply that to what we see happening right now as companies are, in a grinding way, trying to adapt themselves to the new normal or to the realities that we’re now facing.
And that notion of the individual having the ability to take space on their terms when they need it, where they need it, is manifesting in multiple ways. Many companies are looking at their existing portfolio and they’re doing hybrid transformations of their existing office. And there’s a fair bit of practice work that big service providers and architecture firms are rallying around to help companies who in 2019, may have had an office that was assigned work points, lots of benching, dedicated desks and offices. They’re looking at, how do I take that existing portfolio which Sandra, as you touched on, may have 3, 5, 10 years of lease term left, and make it more relevant for the now?
And more relevant for the now means it needs to operate with an “as-a-Service”-like dynamic to it. How do I turn my own offices into a portfolio of choices for my employees? Furthermore, what sort of adaptive redesign of my internal environment might I undertake to make it more relevant for the type of work that employees are coming back to the office to do? Maybe I need more spaces for collaborative work, or convening and gathering, whether it is informal and relationship building in nature, or whether it is intensive and concentration-oriented scrums and collaboration suites.
There’s lots of activity underway right now with companies thinking about their own portfolio, that they’re chained to, “as-a-Service”. Most are doing that for their own employees as the customers. So, I’m a 10,000 person company. I’ve got 300 employees. I’m going to look at my existing portfolio of 20 offices, and I’m going to turn it into an environment that my employees can come into when they want to and we’ll give them some technology so they can see what’s available and book a seat.
In addition, some companies are revisiting a concept that we’ve been a champion of for all of the history of LiquidSpace. Say we’ve got more space in our portfolio than we need. We talked to our broker partner and the sublet market is soft, so we’ll share some of that excess space with other entities.
So, you’ve got a reconsideration happening now, of companies looking at platforms such as LiquidSpace marketplaces that can enable people with excess space to be able to monetize it.
Thirdly, many employers over the course of the pandemic were hiring and growing their organizations in new ways. They were hiring people beyond the geographies of where they had previously had real estate. That’s an enormous aspect of what’s been happening over the last two years for many companies. They’ve been hiring anywhere and now they’re finding the need to provide workplace where their people are. That’s forcing them to contemplate hybrid workplace, flexible offices, coworking space, because it’s, practically speaking, the only viable way to solve for tens, hundreds, thousands of employees who may be a diaspora of your employee base. How do I reasonably solve for hundreds or thousands of locations for hundreds of thousands of employees in a dynamic, flexible way? You’re not going to do that with 1000 more long-term leases. So coworking and the flexible office industry is really coming into its own now as more and more companies have embraced distributed workforces, hiring in more in more diverse places, including secondary markets, tertiary markets, mountain towns, international locales.
So, the concepts of coworking and flexible shared space, they’re permeating the corporate campus and they’re permeating the diaspora of locations where employees have chosen to put themselves and still remain members of companies.
That leads nicely into the next question. I’ve recently had a conversation with someone about bringing coworking into neighborhoods. If you think about the traditional offices, you’ve got urban city centers where all the corporate offices are located, for the most part. Coworking spaces are kind of along the same lines, although you do get a little bit more distribution in some of the suburb areas. You’ve got a concentration in the city, and then you’ve got the coworking spaces that are picking up on these other areas to take advantage of the fact that people have left the urban city centers, but they might still have a requirement for offices.
But even Airbnb is jumping onto the Space-as-a-Service bandwagon, and going after that office market. And it’s interesting how, like you said, it’s about the experience. We heard at the beginning about how offices now are competing with the cafes and the hotels and all the other sort of typical spaces.
But now we’re seeing it actually coming into people’s homes, which when you think about it, opens up a whole new market. Now you’re in neighborhoods. You’re down the street, potentially, from where people live.
How do you see that whole model of “as-a-Service” playing out? Do you think that’s something that’s going to be more common, in the sense that people can basically make decisions to work wherever they want? And then that obviously is going to create challenges for companies from a management perspective. How do you see that playing itself out?
Jurassic Park comes to mind. And notwithstanding the most recent installment of that franchise of films, which I didn’t care for as much, nonetheless, I’m a big fan of the storyline. I think it was the very first movie where Jeff Goldblum, as this quirky philosophical individual, says, “life finds a way”. He was talking about sort of the pervasive nature of life, finding a foothold, and he was referencing how dinosaurs were reincarnated and let out in the wild. They’d find a way. They would cling to life.
Well, I think the concept of flexibility and choice and this enablement that employees have now been given over the last two years, this grand and far longer than expected experiment, will find a way. Life finds a way. It’s clinging to every surface that it can. People are working effectively in an infinite number of locales beyond what they had previously. They’re relocating, they’re recalibrating their lives, they’re rethinking their priorities. They’re doing great work. They’re finding a way to redevelop the rituals of work and workplace connection with colleagues. And we shouldn’t underestimate the amount of good work to be done to help rebalance and foster culture and team against the backdrop of a distributed workplace.
But life finds a way, right? Team effectiveness is finding its way. But we’re rebuilding a new forest, a new ecology is being rebuilt. We’re not going to put that genie back in the bottle. I firmly believe there are some in our industry who are championing quite the opposite of that. But I think that genie never goes back in the bottle. Life finds a way. Happy people, inspired, productive, enthralled employees are finding their way. And likewise, the means by which to have great, high productive, high performance, high velocity, engaged and supported teams is also finding its way. Now across a tapestry or an ecosystem of places.
Back to your original point, which includes the smallest of towns, includes Space-as-a-Service options that are yards or meters from the front door of where someone might be living, if not in their own house. I think Airbnb has always been a Space-as-a-Service company from day one. It’s obvious to me that they’re going to be a natural and important participant now as work and life blend. It’s just so obvious that their pre-existing ecosystem of great places to go and belong that are largely residential in nature are running headlong into the great places to work and thrive that are largely commercial spaces.
It’s blending! I like the comment of the genie and the bottles being let out and pulling the genie back in. We’re hearing a lot in the news these days about tech companies that are taking on more space. And we think about how tech has always been ahead of the curve when it comes to workplace employee experiences. I was reading an article last week about how tech is about 20 years ahead of everybody else. So do you think we’re taking cues or we will be taking cues from what tech is doing and that eventually we will be going back? There seems to be this underlying belief that this is all going to blow over in a year or two and everybody will just go back to how it was.
Well, I partly agree and I partly disagree. I think tech companies will continue to be massive influencers of the broader business ecosystem and frankly, few companies today are not tech companies themselves. But the classic software, high tech, high-growth company, I think will continue to be a massive influencer on the broader business community by virtue of the fact that they do blitz scale, they hyper scale, and they’re oriented around building scale rapidly. But I disagree, I suppose, that we’re seeing lots of headlines around tech companies taking lots of space. I actually don’t think we’re seeing much evidence of that. I think granted, we could talk about perhaps some of the high profile and much broadcasted large leases that have been done by a very few large, conspicuous tech companies. But broadly speaking, the rank and file of other tech organizations: I don’t see it.
They’re not going down that path.
Well, we are nowhere close to the 2019 occupancy levels of existing offices. We are nowhere close to the leasing velocities of 2019 for companies large or small. In fact, we’re seeing the opposite. We’re seeing anemic return to office—there are various firms that are thankfully sharing data—we’re seeing anemic recovery on that. We’re seeing anemic leasing activity. The one place we’re seeing strengthening is in perhaps the last place you want to see it if you’re an office investor, which is sublet inventory.
No, I don’t see a database argument that says that tech companies are going back to the office wholesale. I do believe that they will continue to be the influencers of the broader ecosystem of companies because they learn fast, they make mistakes, they fail fast forward. And tech companies are, as a category, experimenting right now at high velocity, high pace around hybrid workplace. They are experimenting with giving their employees choice. They’re learning the first compelling lessons. Data driven conclusions around how to create a profitable and engaged organization are going to come from tech companies that have been the early adopters of hybrid.
Now that I think of it, I think it’s true. There’s only maybe two or three of the FAANG companies that have had stuff out in the news around taking on space in New York City, taking on space in Silicon Valley. You look at that and you think, okay, is it because real estate is seriously discounted? You go in and you take the space just in case, and then you think, well, what happens if people don’t want to come back? Like we’re seeing with companies like Apple, where they tried to push the return to office and the employees are saying, no, it’s not happening. So, you’re heavily invested in real estate, but your employee base is saying, we want to maintain the ability to be flexible. How do you balance that?
I am enormously empathetic to the workplace and CRE leaders and the C-suites that are faced every week, every month now, with agonizing decisions. Day by day, week by week, lease renewals are coming up. We’re two and a half years into this black swan event of COVID, so we’re a quarter of the way through a leasing cycle. So, we’ve got a long way to go still. But day by day, week by week, companies are encountering this decision. Do I renew? Do I terminate? Do I downscale?
The reality is that the people that own those decisions, the traditional CRE leaders, the CFOs, the CEOs, the planning models, the assumptions, the data insights that gave them confidence in 2019 or 2015 or 2010 to initiate those leases, all that data is no longer relevant. And our industry, the work and workplace industry, is wracked by uncertainty right now. So, what’s needed desperately is new data signals that can start to bring confidence to these business leaders around what the new rituals and patterns and rhythms of work are going to be. Because right now these are major economic decisions to make. And good companies at least don’t like to make decisions blindly, and the data is not there for them.
It’s tough, and no one wants to be wrong. I mean this comment with empathy, but the CRE world, pre-pandemic, was not one that was expected to or asked to be experimental or to be hyper creative. Yes, we brought creativity of thought into workplace design, but the fundamental notion of site selection and scaling and long-term asset management, dollars per foot, it’s looking at spreadsheets. It’s not experimental.
So, it’s a perfect storm of heartburn for that community. Now you’re being asked to make very large economic decisions with little to no data. And the alternative for you is something that is, yes, experimental and new. It’s embracing something like hybrid, where the opportunity is to run thousands of little experiments and learn what your new workplace pattern needs to be. That takes a different kind of thinking and a different kind of execution and for some firms, probably a different kind of workplace person, or at least in addition to the team, because it’s a different rhythm. Today workplace is much more like software. You can ship new code every week and within hours or days you can learn whether it’s working or not. Workplace is going to learn its new footing on a similar velocity.
I totally agree. I think the way that you described it as not being as experimental pre-pandemic is absolutely true. I was lucky because I had an opportunity, I worked at a company where they were experimental. And that’s really when I learned a lot about what else can you do when it comes to thinking about not just workplace, but also workforce. Again, if you’re thinking pre-pandemic times and you’re trying to understand where is the demand for talent? You’re opening up the market to say, well, we’re not just hiring here, we’re going to hire where the market is for the talent that suits our needs, which might not necessarily be in the city where we have an office. There’s a whole shift in how you think about people first and then whether or not space needs to follow, they’re all interrelated. You need to understand all of that. And obviously data certainly is going to play into that.
What’s interesting though about the data is obviously in our world we see it every day because it’s what we do. Office occupancy certainly remained low. Another company, Kastle, puts out a weekly barometer, and last week that they indicated that office occupancy was hovering around 43%. That seems to be, plus or minus 1%, the trend week after week. They only isolate the top ten cities, so that 43% is across the top ten US cities. And as I said, our data is showing a similar average from a desk occupancy perspective of about 30, 35% with a range obviously being as low as 5% and then in some instances being as high as 60%. So when someone thinks about Space-as-a-Service, when you think about occupancy being so low, where’s the demand coming from?
Against all of this optimism and ebullience about the flexible office industry, a couple of observations about the flexible office supply base. First, much of the inventory from the conspicuous names. Like if I said coworking, what name comes to mind for you?
Right, if I say serviced office, you say Regis, if I say coworking, you say WeWork. Those are the two largest names. Regis is far and away the largest on a global basis, WeWork number two at about a third or a quarter of their size. But for both those firms, much of their inventory, their locations are concentrated in the CBDs. Especially so for WeWork, in the football cities of North America and the gateway cities around the world. And what happened on Week 1 of the pandemic was people went home and people tend to live—yes, people in New York live in Manhattan—but in many markets they live in suburbia and they commute, or they moved there over the course of the pandemic.
But unbeknownst to a lot of casual observers, the flexible office market is massively fragmented. There is a vast ecology of space providers, over 5000 brands of coworking around the world, 50,000 locations. And day by day, week by week, more and more new space options are emerging. Whether it’s Airbnb locations that are being used for work, or whether it’s new coworking spaces that are launching, as we scan our ecosystem of partners, tens of thousands of locations around the world, it’s not at all unusual for us to encounter in a small secondary market, whether it’s a Boise, Idaho or a Bend, Oregon or Kalispell, Montana or Lisbon, Portugal, operators that are running full right now.
So, I think if you looked at the occupancy of coworking spaces in downtown Manhattan, you’d probably see a healthier picture than traditional real estate, but not the level of intensity that you’re seeing in some secondary and tertiary markets. So where is the demand coming from in terms of segments of demand? It’s coming from the freelancers and start-up companies that had been using it and reliant upon it pre-pandemic. That didn’t change.
It’s also newly coming from a wave of large enterprises—and we’ve got a front row seat to this—that have declared hybrid workplace culture and policies as their go-forward strategy, and who are putting platforms in place such as ours and giving their employees wholesale access and privilege to go out and tap into all of the possibilities of that ecosystem, wherever they might choose.
I touched on earlier, pre-pandemic flexible office was well under 2% of the collective footprint for corporations or enterprises as a class. There are abundant predictions out now that that percentage of enterprise or corporate footprint is going to rocket. JLL has long declared as much as 30%, I think. Even if it only surges to 10% in the next several years, which we think is a slam dunk, you’re talking about a 4x increase in the industry.
So, the demand is coming from the long-established base, and it’s coming from a whole new cohort of liberated enterprise employees. And that’s the genie that’s just not going to go back in the bottle. That’s the expectation that any knowledge worker is going to bring to any hiring possibility or decision with any company. Not every company will do it, but I think the general expectation is going to be that, hey, there ought to be some level of workplace choice that comes with this role you want to hire me for, Sandra. Otherwise I might say no, I’ll take the other offer.
Yeah, I agree with that. I think it’s similar to what we’ve seen with workplace flexibility. Thinking back in the early 2000s where 15%, 20% had flexibility, some people were actually working remote, and now seeing it swing way over to the other side where it’s almost flipped. So now you’ve got 20% that want dedicated space and 80% that are looking for some level of flexibility and being able to provide those options is definitely the way to win.
Just a quick data story Sandra, if you don’t mind. I can’t divulge the company name, but one of our larger enterprise clients, about a 40,000-person employer, from the CEO level down, they had declared a hybrid workplace path forward. They were going to rationalize their fixed portfolio and provide employees with choice. A year ago, their plan of record was, we think 15,000 of our roughly 40,000 employees will be eligible. They had done a thoughtful inspection of who’s going to be home based, who’s going to be office based, who’s going to be flex and need something else. They came up with 15,000.
Nine months later, post launch, with the success that they were seeing from the initial cohort of test users and the deepened convictions that they had about their long term future, they ripped up their plan and rewrote it. 100% of their employees were to be given access to their hybrid workplace program, which we have the privilege of being the back end for. 100% are given access to it. No spending constraints, no red tape, no bells, no constrictions, go forth and work productively. And so not only are we seeing an order of magnitude of enablement by enterprises, we’re also seeing a number of companies lean even more deeply into the scale of that.
There are more and more conversations about how important it is for the hybrid offer to be equitable. In our social existence, on this planet where individual rights are so much in the news and on some fronts retreating, I think a lot of companies are reasonably hypersensitive to this sort of inalienable right of employees to have some level of agency over how and where they work. That doesn’t mean they never have to come to the office. It certainly doesn’t mean that there isn’t great value in coming together and bonding. But it does mean that there’s a recognition that mandating where you work and enforcing that as a default always requirement, I think, is going to be a thing of the past for most organizations.
Yes, I would agree with that. From my perspective, again, I started doing workplace strategy consulting back in the early 2000s, really full-on, going in deep with the data. I remember companies starting out with allowing 20% 30% of our population to enroll, or we expect 20% to 30% of our population to enroll in some level of flexibility. And then six months, nine months, a year later, it was at 40% or 60%. It’s continuously maturing. And if you went back a year or two later, 75% to 80% were in some mobile capacity, and that 15% to 20% was more referring to people in the office day to day.
What’s interesting about right now is we kind of skipped over that maturity model. We went from being in the office to be working from home. Going back to the office three days a week, that would be in the old way. The path that would get you to remote working is that you start with three, four days a week in the office. Then it’s two days, then it’s one day, then it’s one day every two weeks. And just over time, it matures. And so it’s interesting to see how the business is thinking about the purpose of place and the needs that people have or may have, and then watching how the employees are actually responding to it because they’ve had the experience of working this way.
Yeah. I think your comments, which I totally agree with, also opened the door to another dimension that we, the collective we, people like Relogix and LiquidSpace and all of the great workplace leaders and HR leaders that are thinking about that, we all need to recognize a responsibility for us now. We have to help our organizations rebuild the rituals and the rhythms of work and place, the rituals of why and where we gather. The answer to the future, or the optimized outcome for an organization, is not going to be just as simple as giving every employee a tool like LiquidSpace and saying, okay, you’ve got flexibility and choice and expecting that they’re going to optimize their use of it. We should not underestimate how deeply set these new patterns are of us all, as we’ve been forced to be working away from one another for over two years.
So, we as practitioners, LiquidSpace as a company with a solution that is a lever on this, we have to be thinking about how do we nudge? How do we provide our constituents the cues and the visibility and the nudges to come together when it’s appropriate, when it might enrich an experience, when it might yield more productivity for a task, when it might create an experiential or a culture outcome that will be relished?
Nothing can replace the power and the energy you get and the strong bonds that get forged when you come together. Absolutely nothing will warrant saying you have to hop in the car and commute every day to the office again. So, what’s the right titration of those two extremes? Life will find a way.
But if we want to get to the better solution sooner, we need to be empathetic and supportive, but active in that we the practitioners, we have to help nudge and rebuild those rituals, guide people to the right balance and experiment test our way forward.
You talked about HR and CRE and the need for those two teams to work together. Let’s talk a little bit about the CFO. You spoke earlier about setting up partnerships with “as-a-Service” companies—how does cost get handled? In a traditional lease model, you had your rent, your OpEx, all that stuff that hit a certain line. How is that different in a Space-as-a-Service model?
A quick definition first: hybrid workplace, by our definition, is the totality of places that an organization works. It’s every employee’s homes. It’s the company’s offices, which are generally leased and capitalized on the balance sheet and thought about as dollars per foot. And then it’s the rich tapestry of flexible office locations in between, some of which may be transacted by the task. Think of this as the spoke, you and I coming together to do this interview in a professional recording studio or a meeting space for 2 hours. In other cases, they might be more persistent hubs that might be a flexible office or an institutional landlord flex space that’s been procured for months or a year or two, not a ten-year lease.
All of that, those hubs and spokes, the flexible office economy, is implicitly a flexible term, “as-a-Service” industry. Whether it’s a meeting room for an hour, an office for a day, a team suite, or a hub for six months, that revenue or that transaction spend is “as-a-Service”, it’s not a capitalized lease. So it’s a different type of procurement than the vast majority of real estate leaders are familiar with. And in a lot of companies, it’s going against altogether different budgets. At a lot of firms, it’s coming out of HR or out of administration rather than out of CRE, which has been the owner of assets.
So, one response to your question is yes, the budgets and the cost allocation of the flexible office aspects of hybrid is different than that of traditional real estate. And a lot of companies it’s going to different owners. In addition, I’d say broadly speaking, most companies are seeing that their total cost of hybrid workplace, fixed, traditional, plus hybrid, is going to be less than what they were spending as a total cost of workplace pre-hybrid. Companies are going to be more economically efficient coming out of this and arguably more productive as their employees find healthier and more personalized approaches to whatever the right mix of work and place is for them individually. It’s going to be an economic win across the board.
So that’s interesting. It makes me think of what you were talking about earlier, about just how vast the ecosystem is when it comes to these new and emerging workplaces. So how does the company even begin to think about managing costs? To me, that’s the part that they think is probably most overwhelming, having been the person on the other side of the table where you have a traditional lease, there’s a process, there’s a structure to how you manage costs. What happens now when you’ve got bills coming in from all these different companies? How do you see that playing out?
Well, in 2019, we were a thriving, profitable marketplace for workspace on demand. Individuals by the thousands, companies came to Liquidspace.com, they could search for a workspace, pay for it, boom, Bob’s your uncle. The market was accelerating, and everything was looking rosy, and then the pandemic hit. And I touched on the two hypotheses that we forged pretty quickly. We thought enterprises were going to become a lot more reflective and look to reduce their fixed real estate expense. We also thought that these old canards, these old tropes of, “you’ve got to work in the office for productivity”, were going to get broken, and that employees would want more. That led us to a fundamental new point of view about what the market was going to need from us, from LiquidSpace. It goes right to your question. How do large enterprises who see the opportunity of economic efficiency and workplace experience gains out of hybrid? How do they control this?
And what we surmised, literally ten weeks into COVID, was that yes, enterprises are going to buy a whole lot more of this stuff. We also predicted they’re not just going to tell their employees to go to Google and search for coworking and send us the bill. That’s not how it’s going to happen. Companies don’t work that way. Rather, they’re going to want to do this in thoughtful ways. They’re going to want to do it systematically. They’re going to want to make it easier for their employees, but they’re also going to want to stay in control, which means they’re going to want to have data insights, and they’re going to want to have the ability to put permissions and policies around that behavior.
That inspired us to create a wholly new product to complement our thriving marketplace. We built a SaaS application that we call Workplace Manager, which is a tool for organizations to be able to define the policies and permissions around a hybrid workplace program. How much can Sandra spend per day, per month? Where is she allowed to use space for what types of activities? From what vendors? So, all that permissioning now is a part of how our platform works for companies. In addition, we knew that companies leaning forward and looking to optimize this activity would want data. We believe in this. We’re now seeing it that companies would be starved for the new insights around what the rhythms and the rituals of work are.
So, the other critical thing is data. I want to give my employees agency. I want to give them flexibility and choice within the boundaries of permissions that we set up. But then I want to be able to observe. I want to learn what is working, what isn’t, how are they reviewing the spaces they’re using? Where are they spending? Who are my best providers? Where am I seeing employees return to? Where am I seeing employees not returned to? There’s so much to learn. And so the data insights flowing out of our platform to our enterprise clients are amongst the most powerful things at play in our business right now.
That’s great. I love it. I think that that’s probably the burning question or will be the emerging burning question for a lot of companies as they start to see the writing on the wall with respect this new way of working. It’s, how do I manage it? And you’ve already figured it out. So, kudos to you and your team.
Mark, this has been fun, and a great learning experience for me. I love your passion, I love what you’re doing. As I said, I was very impressed when I first heard about LiquidSpace back in the mid 2000s. And I think that you guys are on the right path.
Thank you again for your time, I really appreciate it.
Of course. You know I’m a huge fan of Relogix and your colleagues and team. For the companies that recognize that the world has changed, and most are coming to that recognition, they need data insight platforms. They need tools that can help them decipher all of the data and get the real signals out of it. So, you guys are certainly on the right side of history and in the right place at the right time to be a powerful part of that. I couldn’t be more excited about all of our opportunity ahead. It’s a great time to be in the business of work and place.
Totally agree. Thank you.
All the best.