Tenant Demand for Flexibility Creates Explosive Growth in the Executive Suite Industry
By Jason Coles, Director of Sales and Marketing for EBC Office Centers
These days, tenants demand more service and greater flexibility and they've found it in the executive suite industry. Executive suites aren't just booming, they're destined to change the way tenants view commercial real estate.
For decades, building owners offered office space in exchange for long-term leases and long-term commitment. Leases that offer tenants flexibility were unheard of, and building owners that provided additional services were non-existent.
But short-term leases, quick delivery of offices and minimal up-front office equipment costs are the hallmark of executive suites. Companies can now move into a new market with minimal commitment and with speed analogous to booking a hotel room. Now executive suites not only offer space but also all the business services needed to run an office. Complete telecommunications packages, high tech office equipment (such as copiers and fax machines), and a highly trained secretarial staff are all available with a suite. Clients can enjoy flexibility and convenient business services.
Amazingly, two industries with the same product, office space solutions, can be at opposite ends of the spectrum in terms of service. At one end, the landlord offers only space with long-term commitment. At the other end, executive suites offer full service and flexibility. Compounding this difference is the attention to customer service. Once companies sign a conventional 5 to 10-year lease, there is little tenant contact beyond building maintenance. In contrast, the longest lease executive suites offer is one year, which translates into an intense customer service focus in order to renew the client each year. With the executive suites deeply involved in their client's business, from answering telephones to creating presentation materials for executives, exceptional customer service is critical to its success. It's no surprise to hear that companies suffer from executive suite withdrawal when they move to conventional space.
New levels of value-added service mean that the executive suite market is flourishing. The entrance of several REITS or real estate investment trusts, into the executive suite market is evidence that the conventional real estate community has noticed the market demand for flexibility and value-added services. As progressive landlords begin embracing the migration to flexible and service-oriented leases, they'll begin reaping the benefits as tenants flock to take advantage of the change. Meanwhile, executive suites will continue to consolidate into several large operators and differentiate themselves through new levels of service.
Executive suites currently offer services to conventional clients in the building and office parks where they're located, filling the vacuum left by "traditional landlords". Companies outsource everything from telecommunications to receptionists to executive suite firms located within the building. Some industry experts predict that executive suites will offer flexible space options beyond the conventional executive suite concept. The new "hybrid" concept will combine high-level service and flexibility with the large spaces available from conventional landlords. This concept will change the way companies view real estate. Companies will have the option to lease conventional space with a much shorter lease, with the tenant paying a premium for the flexibility.
Some executive suite firms have already begun assuming larger space commitments and are subleasing large blocks of space to tenants who would traditionally be considered too big for an executive suite. Other firms have actually been pricing space on a per-head basis, quite a contrast from the traditional cost-per-square-foot basis. It's obvious to most industry observers that executive suite firms are actually competing with conventional space landlords to win tenants.
The most significant move for executive suites has been the complete outsourcing of facilities. One of the Big Six accounting firms has actually sold their building and turned over all facilities management of the building to an executive suite firm. In return, the suite provider charges the accounting firm for space on a per-workstation basis. Even more radical is that the executive suite firm is free to lease the excess space to other tenants. Under this new concept, the accounting firm has complete flexibility and pays only for the space it needs. The firm saves money each month, and has more time and resources to focus on its core business.
Another fascinating development within the executive suite industry is the maturity of the "day office" product. This service allows traveling executives to use temporary offices in executive suites around the world. It's now becoming possible to call your travel agent, book a flight to Europe, book a hotel room, rent a car, and reserve a day office, all in the same phone call. You can now find office space listed with the main travel agent computer networks, making it easier to conduct business on the road. This product brings new meaning to the "virtual office" concept.
Explosive growth, operator consolidation, and the emergence of new real estate solutions are making the executive suite industry exciting and dynamic. These changes are forcing the real estate establishment to re-examine their traditional paradigms. In the end, companies will benefit as they migrate to more flexible and service-oriented solutions.
