Why work space should embrace a new value-based pricing model

A new formula is needed to capture the true value of office space, say our Co-CEOs, Olly Olsen and Charlie Green

It is widely accepted that the pandemic will change forever the way we think about work and what people expect of their employer.

Much is made of hybrid working but there are already signs that the future will be more than a binary choice between two desks. We believe that businesses will increasingly need to adopt a dynamic model – one that rewards people with the freedom and choice to operate at their best and be at their happiest.

Team meetings, creative problem solving, client presentations, one-to-ones, quality thinking time, content generation, relaxing and unwinding – each of these tasks may be best performed in a different setting and in a different location depending on the personal and professional needs of the employee, the client or the team.

Traditionally, the cost of office space has been more or less calculated on the basis of price per square foot for conventional space, or a rate per person per desk in the world of flexible offices.

In this evolving world of work, putting a price tag on physical office space will become more complex than just dividing ‘x’ by ‘y’. While this conventional pricing model has served the real estate industry well, the pandemic has accelerated a shift in power – with the needs of employees becoming the primary focus. We believe this demands a new value-based pricing model that incorporates a multitude of previously hard to measure factors.

The increasing popularity of flexible office space has caused many to question the status quo because the cost-per-square-foot model that has underpinned conventional leases for decades does not translate well to the flexible office space market.

An occupier transitioning from a conventional lease to flex will typically see what appears to be a higher price for the same space, but this doesn’t capture the benefits of what the flex sector has to offer. It’s only when they factor in access to shared space, amenities and the costs associated with service charges and legal fees that the real value becomes apparent. And, of course, given the rapid changes in market conditions we’ve seen recently, not being locked into a five or 10 year lease has a value in itself.

It could be said that buying space by the square foot or by the desk is like buying art by the yard – you know how much you’re getting but not a lot about the value. So the question is, what would a new value-based pricing model look like; what factors should be considered and how should they be weighted? Is there a new formula that captures the true value of office space?

There needs to be a more enlightened way of assessing the value of working space – one that is tenant-centric and fit for purpose in the fast-emerging world of dynamic working. Being able to determine the importance of ‘hard to measure’ factors is at the heart of a new value-based pricing model.

The pandemic has elevated the duty of care that employers have towards their people. Almost every chief executive says that, alongside the battle for talent, the mental wellbeing of their people has become a top priority.

As the world of work continues to evolve, we believe employers will increasingly have to offer a choice of locations and amenities in order to attract and retain the best people and ensure they are happy, healthy and productive.

How do we go about assigning value to these ‘experience metrics’?   

Companies such as Ocado, GSK and a slew of high-profile tech firms are already embracing the value of these seemingly intangible benefits. Even before the pandemic struck these businesses were looking to a future that offers much more than a binary choice between home and office. They have been working in partnerships with TOG to adapt their employer proposition, knowing only too well, that when their people thrive, their business thrives too.

Energy giant BP, recognising these benefits has leased Douglas House, a 50,000 sq ft property in Fitzrovia that will provide a new hub for the company’s digital and mobility futures teams. The building is unbranded, allowing the client to incorporate its own identity into the work space.

The hub will provide adaptable and digitally enabled spaces that allow teams to work flexibly or collaborate on site. As part of their membership, BP staff will also have access to the entire TOG platform including coworking spaces, sound proofed focus and video conferencing booths, tech-enabled meeting rooms, collaboration, and event spaces at locations across London and Germany.

The conversation about occupancy costs has already moved beyond the basics like rent, fitout, service charges, insurance and maintenance. It now includes sick days and travel time for example. The opportunity now is to consider factors such as natural light, air quality, outside space, meditation and wellness facilities, location and aesthetics. All of these have an impact on employee happiness, productivity and loyalty and so should become part of the value equation.  

Employers already measure engagement and satisfaction of course, but the idea of incorporating these and related metrics into the way office space is valued is long overdue.

Building such a model may not be as hard as it seems. In an increasingly data rich world it may be possible to calculate with considerable accuracy the impact of employment practices and working environment on staff turnover, productivity and even creativity.

At TOG we are investing in research to help provide some of the solutions to a new office valuation model, but the picture is evolving constantly, and we will need input from a wide range of stakeholders. We look forward to continuing the discussion in the coming months at industry events and forums.

As seen in Business Reporter