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Justin Raymond, Flexday CEO & Founder, writes about the impact of the office real estate market on the environment, and how sustainability and emissions can be reduced through the application of novel models espoused by sharing economies, championed by Flexday in its markets.
Introduction by Tod Hynes
Tod Hynes is a Senior Lecturer at MIT for Climate & Energy Ventures (Angel Investor & Advisor)
“Most climate solutions require materials, manufacturing, construction, and actions in the physical world that can take a long time to scale. Flexday is able to scale rapidly without potential supply chain and construction delays. Improved operational efficiency is something that benefits everyone in the commercial real estate space while also benefiting the climate. We need both types of solutions, and Flexday’s software platform and demand marketplace can benefit existing buildings as well as future development.”
Quick Overview
The building sector is a massive player in global emissions, with buildings contributing up to 60% of carbon emissions in cities and even higher in business hubs like London, Tokyo, and New York (JLL Investor Relations). Despite this, traditional office spaces remain inefficient—empty desks, half-lit floors, HVAC systems running for barely occupied spaces. But the sharing economy is poised to shake up how we use office space, helping to slash energy usage and reduce the need for new buildings, making a real dent in emissions.
Let’s dive into how the fractional office model, championed by companies like Flexday, is transforming the game for landlords by boosting occupancy and cutting emissions, while aligning with aggressive decarbonization goals set by cities and institutions.
The Problem with Traditional Office Space
Here’s the deal: most traditional offices are underutilized and inefficient. The average office has 40-60% occupancy rates on any given day, meaning a lot of energy is wasted on empty spaces (JLL). And let’s not forget embodied carbon—the emissions from building materials like steel, concrete, and glass. Decarbonization of buildings, particularly in older cities, is a huge challenge because 80% of the buildings that will be standing in 2050 have already been built, making retrofitting and reusing current spaces essential to cutting down on new construction (JLL Investor Relations).
How the Sharing Economy Fits In
So, how does the sharing economy help? It’s all about optimization. By making better use of the space we already have, we can avoid building new offices, cut down on energy use, and reduce the emissions required for new construction.
Fractional Office Model: The Flexday Play
Here is an example of a Flexday Suite fractional office using 2nd generation furniture:
Fractional offices are private, fully furnished spaces that businesses can rent by the day. They’re designed for flexibility and short-term use, which means companies only use energy when they actually need the space. These aren’t just shared desks or a single room like you find in coworking spaces; these are private, HQ-style offices with meeting rooms, private offices, lounge areas and full kitchens that you can book on -demand. It’s the best of both worlds—flexibility without sacrificing privacy.
This model also keeps landlords happy because they’re filling up their underutilized spaces without hurting their long-term leasing strategies. Companies like Flexday are leading the charge here, working with office landlords to turn those empty spaces into profit, all while maximizing energy efficiency by reducing wasted space. (JLL Investor Relations)(CGEP).
Coworking Spaces: Not a Fit for Enterprise Teams
Coworking spaces, on the other hand, offer a more communal setup—shared desks, open spaces, lots of hustle and bustle. It’s great for freelancers or small teams, but when it comes to larger enterprises, they often need more privacy and consistency. Plus, the energy savings aren’t as clear-cut since the shared space might not always operate at peak efficiency like fractional offices do (Science Based Targets Initiative)(McKinsey & Company).
How This Slashes Emissions:
Sharing economy practices, if adopted at scale across the entire Total Addressable Market (TAM), could reduce on the order of 2,600,000,000 tonnes of CO2e annually across 83,000 office buildings globally. That is a huge task. The first step to accomplish something of this magnitude is to focus on major cities in North America, Europe and Asia, where we can make immediate progress using best practices, urban policies and market incentives.
Flexday, if successful at capturing our target penetration rate of 20% of the Serviceable Obtainable Market (SOM), could reduce on the order of 2 to 3M tCO2e of lifecycle emissions every year through improved utilization of existing office space.
The largest areas of opportunity:
- Cutting Operational Emissions: Traditional offices running at low occupancy are energy hogs. By sharing office spaces and increasing utilization rates, fractional offices can cut energy consumption by up to 30%. (JLL)(CGEP).
- Reducing Embodied Carbon: Embodied carbon is the emissions from all the materials and processes that go into building a new office. By optimizing existing spaces and avoiding unnecessary construction, fractional offices could reduce construction-related emissions by 20-30% (CGEP).
- Retrofit Optimization: On average, office workstations turn over every 11 years, and each time a tenant renovates, it adds to the embodied carbon footprint. Using flexible, pre-furnished fractional offices eliminates the need for frequent renovations, leading to an additional 10-20% savings in embodied carbon from retrofits alone (Boston University).
The sharing economy, through fractional office models like Flexday, presents an innovative solution that can help optimize these resources, ultimately transforming the game for landlords and city planners focused on aggressive decarbonization goals.
Total Addressable Market (TAM)
The Total Addressable Market (TAM) represents the maximum market potential if Flexday could capture 100% of the global office space market. To estimate the TAM, we begin by establishing the current inventory:
- Canada has 600 million square feet of office space.
- The U.S. office space is 10 times that of Canada, totaling 6 billion square feet.
- The U.S. market represents 25% of the global office space inventory, making the total global office inventory approximately 24 billion square feet.
Serviceable Available Market (SAM)
The Serviceable Available Market (SAM) considers only the regions and markets that Flexday can realistically serve, accounting for 50% of the total global office inventory. This 50% figure includes established markets in developed economies such as North America, Europe, and parts of Asia.
Therefore, the SAM is approximately:
24 billion sq. ft.× 50% = 12 billion sq. ft.
Serviceable Obtainable Market (SOM)
The Serviceable Obtainable Market (SOM) is the portion of the SAM that Flexday can realistically achieve, taking into account competition and infrastructure. If Flexday could target 10% of the SAM, the SOM would be:
12 billion sq. ft.× 10% = 1.2 billion sq. ft.
Flexday’s Impact: The Decarbonization Potential
If Flexday were to achieve a 20% penetration of the SOM, it would cover:
240 million square feet of office space globally.
Given that the lifecycle emissions for typical office spaces are approximately 35 kg CO2e per square foot, this would result in a total lifecycle emission for this space of:
240 million sq. ft.×35 kg CO2e/sq. ft.=8,400,000 tonnes of CO2e
However, fractional office models like Flexday are proven to reduce emissions by up to 30% by improving space utilization and minimizing energy use for under-occupied spaces. Thus, the potential reduction in emissions through Flexday’s model would be:
8,400,000 tonnes of CO2e×30%=2,520,000 tonnes of CO2e annually
This 2.5 million tonnes of CO2e reduction is equivalent to removing over 540,000 cars off the road every year, showcasing a powerful impact on global decarbonization efforts.
The Flexday Factor
Here’s why Flexday is a leader in this space: we’ve developed an operational system and booking platform that not only makes fractional offices super easy to book but also works strategically with landlords. Flexday is not trying to replace long-term leases. Instead, we’re filling in the gaps, helping landlords generate revenue from underutilized spaces and driving down energy consumption in the process.
By doing this, Flexday is aligning office real estate with long-term decarbonization goals while keeping things profitable for landlords. It’s a win-win-win: landlords boost revenue, businesses get flexible office solutions, and we all get a cleaner planet (Kleinman Center for Energy Policy)(Boston University).
Flexday Growth Plans and Climate Impact Potential
Flexday’s model is not just about providing flexible office solutions but also about driving sustainable transformation in real estate. By tapping into the 20% penetration rate of the SOM, Flexday could help reshape the environmental footprint of the office space industry, making a significant contribution to meeting the long-term net-zero goals of cities and businesses worldwide.
In order to achieve the decarbonization potential, Flexday needs to reach 800 buildings. We are projecting to have over 60 by the end of 2025 and over 150 by the end of 2026.
As of October 7, 2024, Flexday has partnership deals with 10 landlords who’ve enlisted 18 buildings so far across Toronto, Vancouver and Montreal. With strategic partnerships, fresh investment and sustainability grants, Flexday will reach 800 buildings by 2028/2029. If strategic investors help accelerate uptake, this target could be reached much sooner.
Our go to market plan targets 5,000 buildings by 2034. When successful, we will have forever changed the industry…and made a significant, lasting contribution to the long-term, net-zero goals.
Final Thoughts
In addition to BOMA’s Circular Self-Assessment and Areas of Opportunity, one of the most important steps building owners can take is to offer products that match the desired utilization patterns of the tenants workspace policy and cadence. Solely offering long-term leases is not the answer and will only exacerbate the issue.
The sharing economy, especially through fractional office models, is one of the most exciting ways we can cut the emissions footprint of the office building sector. By making smarter use of the office space we’ve already built, we can reduce energy use, lower emissions, and reduce the need for more construction—all while keeping office landlords happy and profitable. As governments and businesses push toward net-zero, fractional offices will play a key role in meeting those goals.
So, if you’re an office landlord or a business looking for flexible space solutions, it’s time to get on board. The future of office space is flexible, sustainable, and a whole lot smarter.
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References
- JLL Investor Relations, 2022. “Decarbonizing Cities and Real Estate.” Available at: JLL Press Release.
- Columbia University, 2023. “Decarbonizing the Global Buildings Sector: Efficiency, Electrification, and Equity.” Available at: Energy Policy Article.
- Kleinman Center for Energy Policy, 2023. “Climate Tech for Real Estate: The Elephant in the Room.” Available at: Kleinman Center Publication.
- Boston University, 2021. “Decarbonization of Existing Commercial Buildings: Technical and Policy Issues.” Available at: Boston University Report.
- BOMA Canada, 2021. “The Circular Economy Guide for Commercial Real Estate - Appendix A”
- McKinsey, 2023. Embodied Carbon in Buildings: The Urgency of Now
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