Four Ways to Turn Your Commercial Property into a Flexible Workspace
How can commercial property landlords best leverage their asset to gain exposure to the flexible space market? Zoe Ellis-Moore, Founder & CEO of Flexible Space Association member Spaces to Places explores the four main options landlords have to get involved.
The flexible workspace market is growing rapidly, spurred on by a range of factors. Growing popularity of hybrid working models, the emergence of the ‘work near home’ concept, and a general push towards localisation of amenities are each contributing to increased demand for high-quality, flexible workspaces, and supply is struggling to catch up.
That imbalance presents commercial property landlords with an opportunity: leverage your existing property asset and gain entry to a trending, economy-changing market. The challenge, though, is figuring out just how to do it.
There are essentially four models that landlords considering entering the flexspace market can choose from, each with unique benefits and drawbacks. Here’s my thoughts on each of them, so you can make a more educated decision about what path to take.
Create your own flexible workspace brand
The first option – creating your own flexible workspace brand and operating the space yourself – is the highest risk/reward proposition out of the four. It requires the most work, in that you’re responsible for creating an entire brand from scratch and then managing the space yourself, but it also avoids the need to dilute your potential profit.
It might sound like a lot to take on, but this model is seeing a lot of attention from institutional landlords and commercial property investment groups. Three of the best examples of this market phenomenon are Shaftesbury’s Assemble, British Land’s Storey, and Landsec’s Myo. Legal & General has also tied itself to doubling its Capsule offering from 26 to 55 spaces.
These landlords-turned-coworking-brands, brandlords, let’s call them, are investing sizably into the flexible workspace market, and they might be doing so at exactly the right time. Due to the market’s relative youth, there are still gaps in the brand positioning coverage offered by existing operators. That means there are opportunities for new operators to capture demand from currently untargeted niches by doing something different to what’s already out there – or just doing it better!
Join an existing franchise
A close alternative to creating your own flexible workspace brand is to utilise your property as a franchise location for an existing operator running a franchise model. There are several of these in the flexible workspace market, including IWG and Venture X, both of which have significant brand appeal and offer frameworks around which you can build your franchise.
The benefits of joining an existing franchise as opposed to starting your own brand are clear to see. You get to skip all of the hard work of generating a brand concept that appeals to the market, you are able to make an immediate impact on launch with built-in brand recognition, and you unlock ongoing support from a company that already knows how to be a success in the industry.
However, it’s not all positive. As a franchisee, you’ll be much more limited than if you were an individual owner/operator. The same framework that helps make the transition into operating as a franchisee smooth can be inhibiting if you have different ideas. You’ll also typically sacrifice some of your profitability to franchising fees as you pay for the right to represent yourself under the franchisor’s brand.
Pursue a management agreement
If you want to expose your commercial property to the growing flexible workspace market but also want to limit your personal responsibility for success, without losing all right to the rewards of it, a management agreement might be the solution for you.
Under this model, you build a partnership with an existing operator and allow them to use your property in exchange for a split of the revenue generated by the space. This differs from a traditional lease in that you typically don’t charge the operator a leasing fee for their use of the space – your income comes from your portion of revenue instead.
Management agreements can be appealing because they lie somewhere between a traditional lease agreement and running the space yourself as an operator. You get the freedom to pursue other opportunities with your time instead but you also get the benefit of income that scales with the success of the venture. Even better – the decreased financial strain on the operator you reach a management agreement with, due to the lack of rent payments, means that the venture will generally be more resilient to market conditions, and arguably therefore more likely to succeed.
Lease your property to an existing operator
And finally, if you’re looking for the easiest and most detached way to expose yourself to the flexible workspace market by leveraging your commercial property assets, you can simply lease it out to an existing operator under a traditional lease agreement. There is very little upside to this decision versus leasing your property out for other uses such as retail or residential, but there’s also no downside.
With this model, you get to completely outsource involvement in the daily operation of the flexible workspace. That means it’s very low effort, but in turn there is relatively low reward. As a landlord with no stake in your occupier’s business, you simply collect rent. If the workspace ends up to be a roaring success, you’ll have missed out compared to if you were to have pursued a management agreement. On the other hand, however, if the workspace underperforms you’ll have made the right choice.
Choose the method that works for you
In short, there’s no best method of leveraging your commercial property to get into the flexible workspace market – it all depends on what you’re looking for.
If you want to be highly involved and invested in the success of the workspace then becoming a brandlord or joining a franchise might be the right choice. If, instead, you want to be exposed to the ongoing growth in the market without having to put in much work to achieve success, choosing a management agreement or traditional lease might make more sense.
Consider each of the above options and decide which suits you best. Whichever you choose, you’ll be entering a market full of exciting developments and with a bright future.
9 September 2021
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