The Landlord Paradox: How Less Space Drives More Value

The counterintuitive strategy to future-proof office assets

Running counter to the way that the commercial property industry operates, and the way that the behaviours of financiers, agents, developers, owners and managers are rewarded, landlords should be encouraging their tenants to take less space in order to create long term value in their assets.

The necessity for density

Density creates energy. Whether a busy bar or restaurant, a sold-out sports stadium or music festival, or the densely packed nucleus of an atom, density is a significant factor in the creation of energy.

The converse is also true. The best cocktail in the world or the perfect dinner dish won’t lead to an empty bar or restaurant feeling great, and a fantastic game played out in an empty stadium will still have no atmosphere.

When considering the workspace, this density takes on far greater significance. Instead of thinking of density as just bodies in a space, consider it like an orchestra. A single musician, no matter how skilled, creates only one melody. But when a full orchestra comes together, each instrument playing its part, interacting and harmonising, they produce a powerful, vibrant symphony. The energy isn't just in the individual notes, but in the collective resonance, the spontaneous interplay, and the shared purpose that fills the hall.

This wonderful quote resonates with this: “It took me more than a decade to learn that I am not an individual actor striving for personal success in a harsh world, but rather a node in a web of interdependence that defines the human experience” (Rosie Spinks, via The Substack Post)

High utilisation is a necessity to create the vibrancy and ‘feel’ in a workspace that encourages employees to invest in the commute and play an active part in the workspace community. It creates a fear of missing out that contributes to the flywheel, attracting more and more people and teams to the space.

Spatial right sizing with a focus on density is a critical factor here. We have all heard the tales of employees attending a workspace only to find that there are 40 or 45 people spread across a 2,000sqm floor, and what a soulless, energy sapping experience that is. Put those same 45 people into a 400sqm space and you already create the density that will contribute significantly to a better vibe.

There are a multitude of reasons that coworking spaces / flexible workspaces, with their design density of 5sqm to 6sqm per person, ‘feel good’. The focus on community, hospitality-led workspace services, a broad array of amenities and different work settings, are all crucially important. But one significant factor is sheer density. Even with a utilisation rate of 50% of capacity, the volume of people in a space designed for such density is significantly more than the typical corporate office designed at 10-15sqm per person. The latter will suffer from vacuum syndrome – vast empty spaces devoid of atmosphere.

Density is therefore a key factor in workspace experience. But the commercial property industry has other ideas.

The desire to inflate tenancy size

The commercial property industry, particularly office, operates within a deeply entrenched ecosystem designed to inflate tenancy sizes. Every player, from the financiers to the developers, owners, managers and leasing agents, are actively incentivised to push for the absolute maximum tenancy size, creating a self-perpetuating cycle of over-provisioning.

Financiers and landlords are locked into a model where their financial health and portfolio valuations are inextricably tied to occupancy rates and the sheer volume of leased space (note here: in this context occupancy typically does not equal utilisation). The spectre of empty floors, especially in a market grappling with elevated vacancy rates, drives a desperate need to fill space, often at any cost, including pushing for larger commitments. Their imperative is simple: full buildings, high rents, stable asset values. This often means resisting or ignoring the widespread adoption of hybrid work – implying less space per person – because it directly threatens their established revenue streams and the perceived value of their investments.

Beneath them, the leasing agents operate on a commission structure that is, by its very nature, volume driven. Larger transactions translate directly into bigger commissions. Their professional success is measured not by how efficiently a tenant uses their space, but by the gross square meters leased. This creates an undeniable pressure to upsell, to encourage a 'just in case' mentality that benefits their bottom line far more than the tenant's operational efficiency. The more space they move, the more they earn.

And then there are the occupiers themselves, the tenants caught in this web. For decades, the corporate mindset has been conditioned by a deep-seated fear of not having enough space. The need for 'flexibility' has often been misinterpreted as needing more space, not adaptable space, and the lingering ghost of pre-pandemic norms have led companies to consistently over-lease. This fear is willingly exploited by the industry.

Companies, particularly larger ones, have historically committed to long-term leases for vast footprints, a practice now being challenged by the demand for smaller, more flexible spaces and shorter lease terms in an increasingly distributed world.

This model, predicated on the assumption of consistent, full-time office attendance, made some sense in a pre-pandemic world where office work was synonymous with physical presence within a designated workspace. However, the widespread adoption of hybrid work models has fundamentally altered this landscape. Research indicates that a significant majority of organisations have embraced hybrid arrangements, for example a CBRE report reveals that 80% of office occupiers have now integrated hybrid work policies into their operational frameworks.

This shift in work patterns has had a profound impact on office occupancy rates, with average attendance in the US flattening out at around 40% of capacity. The traditional landlord strategy, crafted for a decades old world of full office occupancy, now stands in direct opposition to the prevailing hybrid work reality, creating a fundamental mismatch between the supply of expansive office spaces and the diminishing demand to use them.

Less is, most definitely, more

The irony is that this over-provisioning, fuelled by a desire for security, ultimately leads to under-utilised, demotivating workspaces that drive employees away, creating a vicious cycle that eventually forces tenants to downsize or even abandon their leases entirely, thus undermining the very business model that pushed them into too much space in the first place.

This may not play out in weeks or months, but over several years the damage to workspace experience is inexorable.

Human centric lobbies and amenities

This density perspective is equally important in the common, shared, areas of commercial office buildings, because these spaces are all too often vast, sterile, and impersonal spaces devoid of energy. Marble and granite clad voids, intended to impress, instead feel cold and unwelcoming, failing to foster any sense of human connection and acting as little more than an impressive thoroughfare reminiscent of a high-end dental surgery.

However, we are starting to see hospitality focussed design themes emerging, recognising that office lobbies must serve multiple purposes, evolving into dynamic, multifunctional spaces that not only welcome, but actively engage and encourage dwell time. Human-centric design places the well-being, needs, and experiences of individuals at the forefront of space planning. Applying these principles to office lobbies involves incorporating elements that create warm, inviting, and functional spaces, including a range of comfortable seating arrangements, ample natural light, the integration of biophilia, thoughtfully curated art installations, practical and beautiful work zones, meeting and events spaces, F&B, and the seamless integration of technology such as digital signage and wayfinding systems. Even the simplest of amenities like coffee bars and informal meeting areas can transform a lobby from a mere thoroughfare into a hub for interaction.

Encourage, and actively facilitate density

Forward thinking landlords are heavily involved in the curation of great workspace experiences, from the moment that an occupier or guest steps foot over the threshold of their building.

A range of shared amenities including EOTF, F&B, meeting and event spaces are a basic foundational offering today, meaning that tenants don’t have to provide these facilities within their own tenancy, already reducing the sqm required.

Flexibility in the form of expansion and contraction rights take years for tenants to implement, thereby suffering the very same lack of flexibility as the long term base lease itself. However, the provision of flexible workspaces with take up and hand back rights for key anchor tenants deal very effectively with the lingering fear of ‘not having enough space’ in real time, with flexibility to accommodate employees available within hours, not years. This again allows the tenant the confidence to reduce their footprint to the minimum required, with the comfort that breathing space is built into the amenity suite provided.

It is the landlord’s role not only to encourage the right sizing of tenancies, but also to actively facilitate it through the provision of shared spaces that enable tenants to shrink their footprint with confidence.

Service standards go hand in hand

Of course, amazing physical space and amenity is just the starting point. The standard of property & facilities management needs to be great, but it also needs to be invisible – it just must work well. But workspace hospitality services are the layer that will make a difference to occupiers and their guests, and this must straddle the building holistically as well as the tenant’s own space.

Demand has changed - the property business model must evolve

The commercial real estate landscape is undergoing a fundamental transformation, driven by the widespread adoption of hybrid work models. In this evolving environment, the traditional landlord strategy of relentlessly pursuing maximum tenancy sizes is increasingly counterproductive. Instead, landlords should not only encourage, but actively facilitate and enable tenants to condense their workspaces and lease appropriately sized, denser spaces. This approach offers a multitude of benefits for both tenants and landlords.

For tenants, it fosters a more vibrant and engaging work environment, and aligns with the flexibility inherent in hybrid work models, allowing companies to optimise their real estate footprint based on actual utilisation needs.

For landlords, this strategy will promote higher overall building utilisation rates (which in turn leads to occupancy), a more diverse tenant base, the potential for increased rent per square foot for well-designed spaces with a broad range of amenities and hospitality-led workspace services, operational cost efficiencies, and a more future-proofed asset. To navigate this new era successfully, landlords must proactively engage with their tenants to understand their evolving needs and consider strategies that prioritise densification and human-centric design. This includes reimagining not only individual workspaces but all of the communal areas and building amenities, transforming them into welcoming and functional hubs that foster connection and enhance the overall customer experience.

The future of commercial real estate and workspace lies not in sheer size but in quality, experience, and the ability to facilitate meaningful human connection in an increasingly hybrid and AI powered world.