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Flex By JLL Shows that Occupiers Want Experience, Not Just Quality

To office or not to office? That has been the question since pandemic lockdowns pushed people into their homes and remote work went from fringe to mainstream. After the rise of hybrid work ushered in a new era, the question of how to entice workers back to the office has continued to boggle the minds of occupiers. Some businesses have chosen to reduce their office footprint while others dug in their heels and started buying property in lieu of leasing it. Meanwhile, shorter leases for offices have become typical as many occupiers are taking a cautionary wait-and-see approach to see how (and if) the market levels out. But even though pandemic restrictions have long eased, companies are still struggling to answer questions of how much space they need, and how to get employees to fill it. 

Return-to-office has usually been contextualized with the idea that eventually, we’d all return to the way we worked before we ever heard of COVID-19, but it’s clear that work attitudes have changed for good. Hybrid work is here to stay, and both occupiers and landlords have to shift their strategies to stay relevant in their respective marketplaces. Now that workforces have become more mobile, businesses have become more cautious and thoughtful when making capital investments, particularly when it comes to leasing space. Tenant preferences are shifting toward agile space alternatives, but that shift has left occupiers stymied. 

Jacob Bates, Head of Flex by JLL, the arm of the real estate services firm which provides both co-working suites and flexible private offices, told me that occupiers have largely moved away from trying to solve the return-to-office problem altogether. “Over the last year especially, we’ve seen occupiers decide not to solve the return to office strategy because they just can’t figure it out,” he said. “So what they’re beginning to do is what we call a core-plus flex strategy.”

Bates told me that occupiers aren’t using those exact words to describe their return-to-office plans, but “core-plus flex” seems to perfectly define the trend. “What’s happening is that occupiers are identifying locations that would make sense to lease or own long-term,” he explained. “Occupiers sign traditional leases in a place that has a significant employee population base. But if it’s a location that isn’t a significant employee population base, the strategy switches to pushing for flex suites or co-working.” 

While flight-to-quality remains strong when occupiers sign office leases, the core-plus strategy underscores another trend for occupiers: flight-to-experience. If the pandemic taught us anything, it’s that in order to entice workers to come back to the office, landlords must offer amenities, hospitality services, and sustainable space solutions all buttressed by seamless technology. 

Every commercial brokerage has their own method to the madness of understanding what’s affecting the return-to-office movement, but JLL has long had an emphasis on tenant experience within their property management arm. Basing their analysis on experience management has allowed JLL to see that flexible office assets that offer different amenity packages yield a higher daily occupancy rate than assets that don’t. For office landlords who want to attract tenants, JLL  has also seen that offering amenitized spaces yields higher rent rates. 

Flex space is not a new trend, but the pandemic has sped up its adoption since businesses had to react swiftly to pandemic-induced market circumstances. Additionally, the shift to remote work has changed the workplace environment and elevated hybrid work arrangements. Brokers are therefore well-positioned to ease the transition to a hybrid work environment for their clients, but flexible space solutions have not been a popular product for brokers for a number of reasons. One was because the traditional commission structure made traditional office spaces more favorable for brokers, but another reason was because “flexible space” tends to get conflated with plug-and-play co-working space. But in a post-pandemic world, these two products are not the same at all. 

“We’re moving into multiple different product types after COVID,” Bates explained. “And when you move from co-working into flex suites, the product becomes a fully amenitized full-service suite. Because you are talking in a different lexicon, you’ll encounter a more sophisticated occupier as opposed to occupiers who would rather gravitate towards a monolithic co-working experience. That’s why flexible space solutions are a more broker-centric product.”

Flex by JLL is one of those full-service flexible space solutions. The offering builds on JLL’s asset strategy and ability to design and manage specialized flexible space programs that are suited to an asset’s tenants as well as the changing landscape of the current office market. Flex by JLL allows investors to own and maintain control of the whole tenant experience within their building as well as the flex site’s revenue streams. 

Bates explained that these are full-service suites with some shared amenities that can create an energized work experience just like co-working, but it gives the occupier the addition of proprietary space (which is what they’ve been demanding for years anyway, according to Bates). But even these solutions are not one-size-fits-all. While JLL offers flex space on their own brand, they also offer white-label flexible services for their large-scale institutional clients who already have a big name for themselves. For those clients, JLL operates their flexible service models on their behalf. 

Bates told me that JLL currently has nine flex spaces open, both white-label and shelf brand, and one currently in development. Their first ground-up construction will open in Secaucus, New Jersey sometime in the second quarter of 2023. The firm entered into a management deal with Manulife US Real Estate Investment Trust (otherwise known as “MUST”) for an 11-story office building in Harmon Meadow. The space will provide private offices, co-working spaces, meeting rooms, team suites, and virtual offices. The work-play-stay complex has easy access to Route 3 and the New Jersey Turnpike and features more than 25 restaurants, nine hotels, a full-service fitness facility, and more.

As tech giant Meta (formerly Facebook) has a $3 billion contingency budget to break office leases, it’s becoming clear that the perfect return-to-work solution isn’t getting any clearer. But Flex by JLL has positioned itself as an expansion of property management rather than a third-party space operator. As Bates puts it, Flex by JLL is a more holistic solution that ties property and experience management together, both for the asset owner and, more importantly, for the end user who comes into that building every day. “When you can actually record an experience together, you have even more success. As we look at Flex and its growth, we expect the compounded annual growth rate to continue what it was doing between 2015 and 2020, if not potentially even better than that.” 

Commercial real estate firms have always factored in market conditions, banks, and brokers into the property management equation, but not so much the “feel” of a building for everyone that comes into it. However, the pandemic spurred the idea that a place’s experience will drive asset revenue just as much, if not more, than function. The needle for property management has been moved to include the end-user. What JLL has found is that the flight-to-quality may have been the pervasive leasing strategy over the past year, but the flight-to-experience is really where occupiers are headed.

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