WANY Virtual Conference Keynote Address:
Is Optimism The Friend Or Foe Of Serviced Workspace Operators During The Current COVID Recession?
By Ray Lindenberg
President of WANY, and of Winning Workspaces Hospitality Group
Our industry has been here before ... especially in the Tri-State New York area in the past 20 years. The dot.com bubble burst ... 911 ... The Great Recession of 2007-2009 ... Hurricane Sandy. And in each instance, our industry picked itself up off the canvass, dusted itself off, and not only did we withstand the challenges and recover, but in some instances we prospered thanks to being the plucky group of survivors and innovators that is required in order to be a successful servant in the Serviced Workspace industry.
Now, a pretty good wallop has come our way in the form of the CoVid Crisis, and we'll once again reboot and stand tall, but this one looks like it could take a while. The running narrative is that we've always been a recession-proof industry -- that as more and more companies analyze and strategize, the more they'll come to the conclusion that having people work from a 3rd place workspace such as a Touchdown Space or a smaller satellite office at a Business Center ain't such a bad idea, produces enough deliverables and productivity to be justifiable and, as an added bonus, it can save a company a pretty penny on overhead and other fixed costs.
The reason why Workspace Operators tend to come out on top after economy setbacks, besides the entrepreneurial spirit and perseverance that's thick in their DNA, is that they also bring a healthy dose of pragmatics and optimism to the table when the going gets tough. But is being positive and gung-ho about the recovery, like many industry forecasters and pundits have proposed in recent months during web presentations, going to help get us get back on track quicker ... or does optimism need to take more of a backseat to pragmatism, and should more emphasis be given to a reality checking? I suspect the latter to be the case. And furthermore can it be that overdoing it on the optimistic front can actually interfere with the task at hand of being in action with a realistic, clear-headed plan to get to the other side of this economic crisis?
Many of us will get to the Winners Circle -- and at the end of this article you'll find what the winning formula will require ... but realistically, just as every other industry is facing these days, there are a formidable bundle of obstacles to contend with, each element of which, in and of itself, has the potential to be a knockout issue. So let's go about our typical Operator-centric paces and apply that healthy dose of pragmatics -- and see how many of following hurdles are significant and worthy of keeping a close eye on. But don't let this list throw you for a loop or get you depressed. Remember that the secret to survival and success will appear as the last words of this essay.
To survive, we need to have our eyes wide open, anticipate, be practical, and plan for all possibilities. How many in this sobering Top Ten List do you think are valid, legitimate obstacles to be wary of that could topple otherwise buoyant businesses or an industry like ours?
- There will be a severe office glut and a vacancy pandemic that will drive market prices down both at traditional and serviced office spaces.
- Many, if not most companies will suffer ongoing income and revenue deficits thus will have to be very prudent with their budgeting causing them to reevaluate their officing needs.
- Coincidentally, individuals will struggle financially and be very protective of their personal expenses, pointing to less risk and expenditures that will support solopreneurs and limitedly staffed businesses that are our bread and better, having an office.
- Businesses will also see their emergency cash reserves they saved dry up thus forcing them to adopt even more stringent, austerity measures.
- Many businesses may close (consensus estimates show in the 25-33% range?), and very few new ones needing offices may open, hence the office rental market will lose a substantial chunk of prospects.
- The evolving Recession and could approach Depression-length levels exceeding 20% unemployment for an extended period of time (Goldman Sachs projected 25% unemployment for the 2Q of 2020), thus further eroding the workspace search market if people start sharply budgeting their dwindling resources.
- The Work-At-Home experience during the pandemic will make many people realize that they can work relatively effectively from home in many (not all) instances, thus softening the workspace market demand even further.
- Health and repeat pandemia fears will produce a wait-and-see approach by many, thus slowing up and reducing office market demand even further.
- Skittishness to return to the regular workplace norms, and to commute and use mass transit, will fuel a reluctance to rent space until the advent of an approved vaccine (could be 12-24 months, or longer).
- The market will experience a downward price death spiral with desperate and panicking Operators and inexperienced business owners running to lower prices to get in any income they can thus fueling a collapse of pricing that will create greater sustainability risks.
And here’s a bonus #11 consideration that some need to ponder: will the recent trend to design and partially or fully convert to and offer open plan workspaces and larger, creative common areas, coupled with the pressure to socially distance and reduce interior occupancy density at workplaces prove to be a bridge too far for those Centers that in recent years dove into, and rely heavily on Open Plan Coworking as a central brand offering, and in some instances being their exclusive income generator? What is the current and future fate of Open Plan Coworking – and how will it affect those Operators that heavily committed to it -- and can they redesign themselves fast enough to satisfy the need for enclosed office workspacing that will become the greater demand?
Each of these taken individually is a pretty heavy load. We have a tall order to contend with, but not insurmountable. It’s a race to see if market demand can improve quick enough so as to outpace the squeeze on income -- and that’s presuming that companies have enough of a cash reserve and haven’t been imperiled, skidding and barely getting by as it was in recent quarters prior to the COVID crises – which unfortunately may be the case with some Operators.
In economic terms, a recession is sometimes regarded and referred to as a ‘correction’ … the free market’s natural way to thin out the herd and apply the stress that clears out the weaker players while rewarding the ones that operated better and/or were fortunate enough to have been financed to withstand financial hardship. In that regard, make no mistake that this CoVid Crisis will deliver a Helluva ‘correction’ wallop. So what’s an Operator to do? How can they come out on top and avoid the trappings of the impending, elongated mega-Recession?
The answer is: just like a Recession ‘taketh’ away, it also yields clues on the ‘giveth’ side of the bargain and will reward those that focus on delivering the right stuff. To survive, and even prosper, an Operator has to be pragmatic, innovative, make great decisions and be excellent in every facet of the business (and having a little extra cushion of dough stowed away somewhere, plus some luck doesn’t hurt). I know it sounds too obvious and simple – but it’s essentially the only answer this side of a robust injection of funding – be excellent in every phase or be run over. Up until now, many Operators have gotten by because they were smart and fortunate enough to ride the wave and enjoy the timing of a burgeoning industry – and copied and implemented enough winning designs, layouts, policies and practices that kept them on a steady path to success. That’s just not enough to succeed anymore.
The new world of work, especially in our industry will not support Operators who, as in the past, did things well enough and relied on the wave of the economy and industry boon to lead them to prosperity. Every single move: operational, employment, sales, marketing, IT and expensing decision … everything … will need to be thought through with precision, wisdom and pragmatism in mind. That’s entrepreneurialism and innovation at its purest form, which will leap-frog optimism as the driving force that will get you back quicker to being a Winning Workspace!