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Have Co-Working Spaces Thrown A Spanner In The Works For Commercial Landlords?

Nathan Stanogias 30 August 2019

The conventional office leasing model has gained fierce competition from the new and shiny co-working model that has become a hand-in-glove fit for modern businesses. Should commercial landlords revisit their office leasing strategy to recapture potential tenants? We dive into whether co-working spaces have thrown a spanner in the works for commercial landlords. Read on.

Across the globe, employees want workplace freedom. The ability to work remotely has become so important that job seekers are hinging their decision on whether their potential employers can cater to a modern way of working.

If they can’t, they often move on to more aligned opportunities. This is where co-working spaces have been so clever in their identification of a market in need of a bit of a freshen up – that is the commercial real estate office market.

Startups, early stage businesses, and freelance workers have historically been presented with limited office space options that have failed to provide them with the flexibility required when in a lean financial position.

This is where the conventional leasing model has been revisited by co-working leaders to provide these types of businesses with flexible leasing solutions and world class office spaces. New co-working space providers are investing in the business of diverse workspace solutions, and it’s paying off.

Global co-working and flexible office space player WeWork has proven this, as they continue to secure interest from the world’s bigger businesses, which demonstrates how it’s not just startups making the move to co-working culture – for example, Japan’s SoftBank is one of their biggest investors (and believers).

The biggest differentiator between traditional office spaces and co-working spaces is the lease terms. In the United Kingdom, the United States and the wider APAC region, leases are almost always long term. Anywhere from 5-10 years for prime commercial real estate is a given, and they’re typically what people would call inflexible in their terms.

Given that the nature of business is changing due to rising costs and competition, we’re seeing a shift in mindset toward favouring co-working among even the biggest businesses who traditionally would seek out typical office spaces in circumstances such as when expanding into a new region.

The idea of achieving information mobility (being able to access key business information anywhere, anytime) is now feeding into the importance of workplace mobility, where being able to work sufficiently without being restricted to one physical work station is paramount.

The way that this shift in sentiment affects traditional office spaces is in ways that directly correlates to the way we are doing business today. Some companies are taking workplace innovation to another level by introducing iterations of a 4-day working week and expanding their teams by making hires who work remotely full time.

Traditional office spaces, you can argue, don’t provide the flexibility required to achieve this level of workplace innovation and lean approach to business. So from that perspective it’s easy to see how co-working spaces have captured the imagination of PropTech companies and real estate startups across the globe.

It was long thought that co-working spaces would never outgrow their association with small business, startups and tech companies. But that’s changing now as big businesses are shifting up their culture by moving to co-working sites to be among the hustle, and ultimately the exciting environment, of entrepreneurial players.

Co-working spaces are providing a level community, collaboration and workplace mobility that traditional offices can’t, and this is of keen interest to agile operators – even if they’re big players.

Steven Marinucci, National Head of Commercial Real Estate Banking and Financial Services at Macquarie Bank, says that co-working spaces have risen rapidly in popularity and taken away the burden of traditional leases, while also providing businesses with another layer of flexibility required to scale up (or down).

"It’s huge in popularity now, and it’s only going to get bigger. The emergence of smaller online retailers who eventually get to the critical phase of their business growth, whereby they need a dedicated space to work out of are now seeking out these kinds of office spaces.

"So nowadays we’re seeing these tenant profiles go straight into serviced offices to get a feel for working outside of home, and they don't want to take on the risk of taking on their own tenancy, which is what you would typically do in decades past. A lot of people use it as their own stepping stone to their own tenancy. Or in some cases, this also suits businesses wanting to be flexible. What’s really welcomed this shift, too, is the rise of PropTech and technology in general.

"It’s here to stay and it’s technology that's helped businesses such as WeWork deliver these new office solutions. In markets that experience contractions due to cyclical industry shifts, these spaces have taken away rental burdens where there was, historically, a commitment to long leases," he says.

Do you think co-working spaces have thrown a spanner in the works for commercial landlords? Leave your comment below.

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