How are Enterprise Level Companies Decentralizing Office Space? Hub & Spoke Model Explained

Brandon Clarke and Sanford Criner explain this new trend with some of America’s largest companies. The Hub and Spoke model is a natural adaptation to reducing your office footprint, decentralizing the office space necessary, as well as lowering your overall exposure to fixed rent cost.

Brandon Clarke: We’ve got to get out of this mindset of traditional office leases, sign a five-year, a seven year, a 10 year lease. You’ve got to start to think about your portfolio is a flexible living organism that it needs to move because let’s face it your business changes. It changes daily, it changes yearly, and with the advent of technology it’s only going to change more.

So the question is how do you create a portfolio that flexes and contracts the way that your business does? So the hub and spoke model pretty simply put means that you’re going to have one hub office but you’re going to have these spokes in different suburbs, maybe different areas of the city, where you have other offices that people can touch down in. And so one way to think about it is this, is you may have a bulk of your office space in a central location with mass transit. For Houston, let’s say the central business district which is a great place to have a hub. However, you have many people, great, talented people that live in suburban markets that are having long commutes to come into the hub every single day. So if you open up spokes in some of these suburb cities then you have a smaller office space that your people can touch down in and do the things that they need to do in order to be productive in the office.

And so, that’s generally what a hub and spoke model is and it creates a little more flexibility within your portfolio because you don’t have to have all of your office space into one long designated term. You can have rolling expiration dates. So if you do have an unpredictable moment or a downturn in the future you could easily let that lease lapse if it’s close to an expiration or you can sublease that space as opposed to having one bulk hub that you have to get rid of at that time.
Sanford Criner: It’s going to depend on the company generally but there’s no question that you will see more of the hub and spoke model. It simply makes sense and it makes sense for a lot of reasons. And this is I think gets to the heart of what’s really important about what’s happening today in the world of corporate real estate and that is it’s coming back to the employee.

Brandon Clarke: Companies want to get the best talent. In order to attract the best talent I think you really need the best space. That means the best building in the best market and that means the best actual physical design of your space that makes your people more productive.

Sanford Criner: So, if I like to work from the office and as I said a minute ago we’ve discovered that many people have determined that they really want to get back in the office and stay there full-time. If you can give them a place closer to their home and they can cut out a half an hour, 45 minutes, an hour of a daily commute, think what you’ve done to them in terms of giving them much greater efficiency of their use of the day but also in creating more opportunities for them to be successful within your business.

Brandon Clarke: Tenants are looking for higher quality buildings and better space in this market right now. I think that trend will continue into the future and I think this pandemic will only accelerate the need for higher quality office buildings. If you take the example of navigating in the pandemic right now we know that high rise office buildings are harder to get up to because you can only have four people in an elevator at a time. And so, does that start to condition and change people that are in high rise buildings to start thinking about low rise or mid rise office buildings that are more in a suburban context? I think that that question still needs to be answered right now but I think it’s something that’s naturally being asked of every major tenant in this market.

Millennials who are really if you think about it natives to technology where the older generations are immigrants to technology. These natives to technology have grown up around it and what they have decided is that they want to be back together with people. And so, I think all that to be said the future generations are going to desire to be in high quality, high amenitized, mixed use, newer buildings. And I think you’re going to see a separation from those newer buildings who are going to have much more positive absorption than the older functionally obsolete buildings that need a lot of capital and need a lot of improvement.

Sanford Criner: For years the only question was, “How cheap can I be? How much can I cut my expenses?” Now, the first question is, “How can I make my employees be more connected to my brand and the company, be more effective, and just be happier?” Attract and retain talent is what we hear from everybody. So, one of the ways you might do that and it’ll work for a lot of people is give your people more options than just one as a place to work.

Brandon Clarke: So, one of the first things that we would do is take all of your people and plot them into our commute optimizer technology and this technology is literally telling you where do your people live and how far are they from certain locations and offices. Secondly, we want to understand what are the labor dynamics in those individual markets. Are those the types of people that you want to recruit from in the future and would having an office in those markets mean something to you?

In terms of executing it’s a pretty simple execution process. Rather than executing on one individual lease you would have multiple leases executed across a portfolio. It could be that you have an individual owner that owns multiple assets in multiple cities or multiple market areas and you could do a master services agreement with them.

I think taking a meeting with our team because of the exposure that we have to the greater market and to so many other tenants that are in your same shoes is only going to help you learn more. At the end of the day what we are here to do is help you. We want to advise you. And we know that we’re not the right fit for everybody but we really feel strongly that with our team, with the makeup and the nature of our team, who we are and what we care about and that’s doing excellent work for clients and prospects. We think that that’s going to be something that you may not hire us but at the end of that meeting you’re going to say, “You know what? I really enjoyed my time with that team.” So, do I want you to hire us absolutely but I do think that you’ll learn a lot if you’ll take some time to get to know us.