Imagine if office leasing operated like an airline frequent flyer program where member tenants would pay monthly fees depending on the level of workplace experience they want for their employees, or indeed the experience their employees want for themselves.
It’s a pretty different proposition to the current model of committing to a lease on a fixed space for five to 10-years, and paying monthly rent based on how many square metres you take up.
But it’s not as far-fetched as you might think. In fact, JLL reckons that with the multiple pressures on that traditional leasing model, including increasing demand for flexible space, the desirability of multi-use spaces that enhance employees’ lifestyles, distancing and remote working requirements, and pressure from office shareholders for more financial efficiency, a membership model might come pretty soon.
Competition between landlords will be a major driver of this trend. And given that there are so many new offices cropping up across China office markets, it is there that we are likely to see the membership model first.
But that’s not to say we won’t see membership-based office leasing crop up anywhere else.
I’m Rebecca Kent, presenter of JLL’s Perspectives podcast.
In this punchy little episode, we’ve reproduced an interview with Gavin Morgan, JLL’s chief operating officer for Greater China and managing director for Hong Kong. He talks to CNBC’s Christine Tan how the membership office model will work in practice.
Christine Tan
What does membership-based model mean? Are we talking about Co-working spaces?
Gavin Morgan
We think there is an opportunity – when we look at how the boosted provision and use of office space has evolved over past five years. Particularly now with technology being embraced the way it is in real estate evolving. We can see in the future tiered memberships as a means to present office space into the market - and for occupiers to lease it – as opposed to the traditional lease model of the past.
So those membership models would look like groups of people and organisations tiered in different ways in different services and types where different types, and quantities of services and amenities are provided per membership tier.
Christine Tan
COVID has made people think about where and how they work. With news of a vaccine, will people return to the office?
Gavin Morgan
There are a lot of contrasting opinions in this space. But at JLL, we firmly believe people will come back to the office. We think it will happen faster in built up cities. Particularly in locations where people tend to have smaller living spaces at home such as Hong Kong, Tokyo and Singapore.
It will take longer in places where people find it more comfortable to work from home: Sydney, London and parts of New York.
We believe the office is here to stay, but we do think that we’ll see a much faster evolution in how offices spaces are used in the future.
Christine Tan
Should landlords be worried (about the prospect of a shift to a membership-based office model)?
Gavin Morgan
Absolutely not. It’s an opportunity that, tackled the right way for landlords and tenants, is a mutually beneficial proposition. We think it has potential to improve the relationship between landlords and tenants in moving it more towards a partnership. We also think it will present cost-saving opportunities for tenants, while also showing owners/landlords ways to make more cash flow from assets. There is potentially a positive impact on capital values too.
Christine Tan
Will there be pressure on rental prices?
Gavin Morgan
If there was less demand for office space, then this would naturally have a downward impact on rents. But this type of trend, rather than put downward pressure on rents, will have the opposite effect.
Older real estate tends to be considered obsolete or past its useful life after a certain time in the age cycle of real estate. We think the membership trend will not only have a positive impact on demand, but we do think there are significant sustainability and productivity implications too. Mainly because older real estate presents better in the future than it has done in the past used in a manner that we’re talking about.
Christine Tan
Co-working spaces are on the rise at a time like this. Operators are rejigging their portfolios and expanding in some areas. Does this give us an indication of the future of real estate?
Gavin Morgan
We see real estate assets operating more holistically in future. The co-working trend has shown the industry the way in that respect. So yes, we’ll see more co-working, and more owner-operated co-working. We’ll see buildings in their entirety operated by co-working operators – organisations like IWG and WeWork. But we also see a future where more assets are operated in their entirety in a holistic manner by owners. This will be rather than buildings segmented into office, co-working, retail, car parking and gyms, as they are today.
Christine Tan
Will we see more operators enter the co-working sector as this trend takes off?
Gavin Morgan
With owners coming much more aggressively into this sector, it is going to become more crowded. But we do think the shift will happen in a way that will significantly improve the real estate experience to the end user. It will also present opportunities around profitability, cost savings and improved partnerships between landlords and tenants.
Rebecca Kent
That was JLL’s Gavin Morgan talking to CNBC there about the future of office leasing. The research Gavin mentions there is the report ‘Tenancy Reimagined – could memberships be the future of office leasing?’ and you can download that report from jll.com.au.
Flexible offices is such a pertinent topic right now, particularly because of how it is and will continue to accommodating our fast-changing workplace preferences. We’re currently brewing a juicy little podcast episode about this, which is due to land in just a couple of weeks, so keep your eyes peeled. Even better, subscribe to Perspectives podcast via your go-to listening app if you haven’t already and we’ll let you know when it has landed.
I’m Rebecca Kent. Thanks for listening to JLL’s Perspectives Podcast
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