In this segment of “Office Optional with Larry English,” Larry discusses how the hospitality industry is paving the way to encouraging in-office work.
When you walk into the 30,000-square-foot space that constitutes Rockbridge’s new headquarters in Columbus, Ohio, there’s a good chance you won’t realize you’re in a private hospitality investment firm.
The entrance resembles a high-end restaurant or hotel, designed to be a beacon of the company’s culture. High ceilings, dim lighting, potted botanicals lining the entrance and a neon “Welcome to Rockbridge” sign set the tone for the rest of the space. Other areas, including one with a brick fireplace donning inserts for freshly cut wood, bookcases and barrel chairs arranged in a circle perfect for spurring conversation all seem to say, “This is your space.” It’s built for collaboration.
“We approach our office like we do our hotels – with a keen focus on the public space. We have a simple guidepost – to create space where people want to be,” says Jim Merkel, CEO and co-founder of Rockbridge. “A full third of our space is public and collaboration focused, and I was nervous about that. It felt a little bit risky.”
But the risk has paid off, he says. “Our team feels at home and brings their families here to see our office, and the next generation of team members want to be here.”
Merkel’s thriving in-office culture is a stark contrast to what many other entrepreneurs are experiencing. Headlines in top business magazines, newspapers and online articles highlight the struggling commercial office sector, pointing the blame at employee desires to remain working remotely.
That’s putting it lightly.
“Property investment has plummeted. Leasing activity has dropped. Delinquencies have surged, and maturing mortgage loans face starkly higher refinancing rates. Large global firms plan to reduce office space as the trend toward remote work that accelerated during the pandemic persists,” Investopedia said, noting in the article’s headline that “Warning signals in U.S. commercial office markets haven’t stopped flashing.”
Hospitality and the Future of Office Work
While there may not be a single “answer” to turn the commercial office industry around, Merkel said one potential solution could be companies and office investors looking to the hospitality industry.
“One of the great things about hospitality is it has always had to be consumer focused. You’re serving needs, but it’s also a consumer product that people get to choose daily,” Merkel says. “As a result, hospitality is a business model that has stayed on the cutting edge and has continued to evolve and stay relevant.”
Adapting to meet consumer needs has not been a part of the commercial office model. While the business world has changed, the office model hasn’t yet needed to evolve to keep up. Those days are over, as the ways in which business was conducted 20 years ago are no longer relevant today. Generational changes from Boomers to Gen X, Millennials, and Gen Z means each think and behave differently, and this is true of the commercial office model. The needs and desires of companies and team members have changed.
“It is important to evolve and invest in all real estate types to continue to be relevant with what the consumer is looking for today, which is difficult, capital intensive, and takes time,” Merkel says. “You can’t just wave your hand and have a relevant physical product. As a result of a lack of investment and obsolescence of commercial office space, it is facing some meaningful challenges.”
Mixed Use Building Demand Has Increased
The evolution of real estate in retail, office and housing has shown an enhanced interest in hospitality and in building a brand around a physical space. One example of other real estate looking to hospitality, Merkel says, is apartment and hotel projects that are becoming mixed use with retail, restaurants and a bustling local economy beyond a person’s living space, creating a sense of place.
Building owners should take note.
Apartment buildings and hotels that are “destinations” are piquing the interest of younger generations, who say they want to be there because it offers them more than just a place to live. It offers community. The same could be true for commercial office buildings.
“People like to think in absolutes, and the fact is commercial office buildings are under-evolved. They’re not obsolete,” Merkel says. “There’s been a massive transformation in how people work and in how they view offices, and the office market has not evolved or transformed fast enough to deliver what people want.”
Hospitality Continually Reinvents Itself
Hospitality has been through transformations. If you think back to the late ’80s and early ’90s, it was a period of “boom and bust,” there were a lot of obsolete properties as consumer demand decreased. There was an excess of under positioned and oversupplied properties at times of slower demand growth.
Over the last two decades, traditional hotels have given way to boutique, designer and lifestyle hotels. Millennials turn work trips into mini vacations. Social media, new ways to book rooms, technology, peer reviews and new players in the market have continued to evolve our industry and create positive disruption.
Today, company leaders are seeing shadow spaces in their own real estate portfolios that they’re forced to deal with because of the transformation in remote work. Some companies have millions of square feet of space that aren’t being used.
“COVID didn’t create these trends, but it accelerated them toward team member needs and the ability to work more flexibly,” Merkel says. “Team members want ways to manage their work and personal lives better, and a lot of companies have struggled to evolve.”
People Desire Community
People like to live, work and play as part of a community, and now, they can “literally curate just about anything in the world in the palm of their hand, and this is what newer generations are accustomed to,” Merkel says.
Even with their work, people desire belonging to a community. That’s part of why Airbnb’s “Live like a local” campaign – with guidebooks that highlight local neighborhoods – was so successful, Merkel said. It efficiently connected people to a destination where they could explore somewhere new, but more like a local than a tourist. It made people feel like they were part of a community.
The campaign also validated that people want to have something unique and special, and they want to share it with friends. These trends are making their way to the commercial office market, Merkel says.
“If you look at what we did with our office, we’re enhancing our team’s experience by leveraging a hospitality approach — focusing on a hotel experience — providing communal spaces, collaboration, learning, cultural events, on-site fitness, and more,” he says. “You can no longer hire thousands of people and throw them into a cube farm and expect that to satisfy your workforce. The experience matters.”
Even those who like to work independently want to be proud of the company they work for, so companies are going to have to focus on the experience to get more sophisticated and savvier in how they create those places, and the physical environment will be a big part of that, Merkel says.
Company Leaders Must Invest in Relationships
Merkel says his office space and in-office culture is thriving because it creates a concentration of people and brand while investing in relationships and regular gathering.
Moving forward, company leaders and those who want to attract the best talent must think about the office as a place to bring people together, even if they’re working flexibly. If a building is empty, it probably means the office space isn’t aligned with what companies and team members need. It doesn’t mean it can’t be aligned, Merkel says.
“The human condition and what makes us happy is feeling connected with other people, and you can never replace that.”
Perhaps a hospitality mindset is exactly what the reinvention of offices today need.