Landlords are turning to flex space operators more frequently to fill their office space vacancies, according to JLL’s recent analysis, GlobeSt.com reports. The COVID-19 pandemic has not been kind to flexible space providers as businesses implemented telework policies, but they might be in for a positive turn as workers return to their offices. As companies look to decrease their real estate footprint and workers want more freedom, coworking spaces appear to be the best of both worlds.
Flexible office space is the potential solution in situations when landlords want more space, but operators don’t want to assume any new leases. The fix could be management agreements that let the flex space operator share revenues with landlords. If that’s the case, 30% of all office space could be flexible by 2030, according to JLL Managing Director of Flex Space Ben Munn.
“The shift to management agreements means the sector can grow quickly with the capital requirements spread across a greater set of partners,” Munn said in JLL’s report. “Management agreements can also align landlords and operator incentives, creating a mutually beneficial partnership for all parties.”
Munn also acknowledged that the flex office space income stream could vary with management agreements rather than fixed-rent leases—much like hospitality structures. Landlords carry the burden of fit-out costs, but also enjoy a bigger portion of the revenue and decrease their risk of leasing to one client. Meanwhile, the flex space operator would handle the office’s day-to-day operations.
JLL also predicted that there could be landlords who will want to operate their own brands instead of work with a flex space operator. Other CRE owners might want to buy a stake in a coworking company like CRBE did with Industrious. There are other coworking companies like IWG that will simply acquire smaller, struggling competitors.
Flexible office space providers might have struggled during the COVID-19 pandemic, but the demand for their real estate remains. Confidence in the co-working model also remains high—in recent months, IWG, which owns Regus, recently purchased a stake in The Wing, a women-focused co-working startup. Meanwhile, flexible office space provider The Yard recently announced it’s converting a defunct Courtyard by Marriott hotel in New York into co-working space. In March, Newmark celebrated a court’s decision to approve its acquisition of flex office space provider Knotel, which recently filed for bankruptcy.
Joe Dyton can be reached at firstname.lastname@example.org.