Serviced offices – commonly called “coworking spaces” – have been on the rise for a few decades, but they have only recently started to experience a drastic increase in popularity. That’s because the job market has been seeing some new trends surfacing, serving as a catalyst for coworking popularity. MillenniaIs entering the market, for one, but there’s also a fierce war for talent: more and more employees are longing for a comfortable work-life-balance and job resilience is therefore becoming more and more important.
These trends result in a higher need for job flexibility, with the actual workplace being one of the key areas experiencing this need. However, the already existing, traditional real-estate market hasn’t been able to fulfill the need. Real-estate financial systems in regards to valuation of real-estate objects prevent traditional landlords to offer the needed flexibility – they find difficulty in valuating and financing objects that offer flexibility, instead of 9-year leases.
These long-term leases are becoming too risky for a lot of companies. The reduced visibility of future economical outcome jeopardizes long-term plans such as investing in real-estate. lt has become nearly impossible for companies to predict where they will stand in five years or more. lnstead, companies look no further than the horizon – “What are my priorities for the next 24 months or less?”. This requires a new, flexible strategy. And to facilitate the flexible part of their facilities strategy, companies turn to flexible office operators.
Cost vs. debt
Not only do these operators help companies satisfy flexibility needs, they are also a way for them to cope with the new IFRS 16 lease standard. Because of this standard, companies will no longer be able to book a lease as a cost if it lasts for more than 12 months. Today, a lease is still a cost, but under the new legislation, a lease of more than 12 months is considered debt. This in fluences the company’s debtratios. But when companies implement flexible office agreements in their strategy, they won’t compromise covenants or future investment projects where they need to collect new debt.
And then there’s also the fact that serviced offices are an ideal way for companies to lower their capex. Take a 5.000 square meters office space, for example. The cost to furnish and equip a space like that, easily equals an investment of a few million euros. This cost can be avoided when companies let their employees work in a serviced office. This system change makes flexible office operators thrive worldwide. And as a side effect, it is making a company’s working environment more and more of an USP for job seekers.
Based on more than twelve years of experience in the OaaS (Office as a Service) and HR field and being well aware of the numbers that are out there, I personally expect the rise of coworking to continue until it reaches some 40 percent of the yearly office take-up. I believe 60 percent of the traditional office leases will keep existing. There will always be a steady tenant base of corporates and banks who, even in the case of a market turndown, will always have a need for their own office spaces. But a 40 percent share for flexible office spaces is inevitable.
In some markets, this number already is within reach. Take London, for example, where 30 percent of last year’s office take-up was flexible office space. 1 believe other markets will follow, and that the peak hasn’t been reached yet. This will of course in the end also result in some current big building owners absorbing certain coworking models. They will find management deals with operators or will have integrated partners. We’re already seeing proof of this today. Huge property owners such as Blackstone, Brookfield or Oaktree Capital have already taken over or invested in flexible office operators.
In the serviced office business, as in the hotel business, you have 3-star, 4-star and 5-star environments. This is a good and perfectly normal thing. Just as different types of travelers have different wishes and needs when it comes to their hotel, employees have them when it comes to their”office”.
Employees range from “jeans and t-shirt” workers to white collar employees – all of which you need to make the economy run, but with different styles of coworking environments to meet their range of needs. And as the war for talent continues, meeting specific needs becomes increasingly important to attract and maintain talent for different types of jobs. From a flexible office operator’s point of view, this positioning of the desired object is important to determ ine the kind of tenant. Otherwise, operators aren’t able to offer the most relevant environment.
I do believe it would be a bad thing to try and mix the different types of clientele. And from what I hear from employees, they agree with me on this. “Jeans and t-shirt” employees, for example, have a much bigger need to actually work together, whereas white collar employees usually need closed offices for matters such as confidentiality and security. One works closely with high-level customers, such as diplomatie institutions, international corporations and banks, the other attracts more creative colleagues. One drinks wine, the other drinks beer… Plenty of reasons for building owners to look for matching concepts, rather thanmixing.
Even though I have been mentioning “coworking” a few times by now, 1 should point out that I do not only dislike the term, 1 also believe it is an incorrect term for the offering. At Welkin & Meraki, we prefer to say “flexible serviced office”. Because only 10 percent of our business is the actual coworking – the other 90 being private serviced offices. At Welkin & Meraki specifically, 1 believe in the business of renting out offices, meeting rooms, flex desks and all related business services for an hour, a day, a week, a month, a year or even longer, and for one to more than one hundred people.
ldeally, in the end, serviced offices will have become the mirror of places where people are feeling good, where employees like to work. And as financial players who seek stabile investments will keep investing in real-estate, companies seeking fora more comfortable risk-and-return relationship, will find a partner in flexible office operators. In the end, as usual, everything will balance out.