Landlords on the Lookout for the Right Flexible Space Partner
Management agreements that allow flex space operators to share revenues with landlords could be on the horizon.
Landlords are increasingly looking to flex space operators to fill their vacant office space, according to a report by JLL.
While flex space operators have struggled through the pandemic, they could be in for quite a rebound once things return to normal. The combination of companies looking to downsize and save costs and workers wanting more freedom could buoy the space into the future.
While landlords want more office space, operators aren’t willing to take on new leases, according to Ben Munn, managing director of flex space at JLL. The solution could be management agreements that allow flex space operators to share revenues with landlords. Thirty percent of office space could be flexible by 2030, according to JLL.
“The shift to management agreements means the sector can grow quickly with the capital requirements spread across a greater set of partners,” Munn says. “Management agreements can also align landlords and operator incentives, creating a mutually beneficial partnership for all parties.”
Munn says this income stream, similar to hospitality structures, is variable with management agreements rather than fixed-rent leases. Landlords will absorb the cost of the fit-outs, but they will receive a more significant share of the revenue and reduce the risk of leasing to a single tenant. The flex space operator will handle daily operations.
Some landlords will look to run their own brands instead of partnering with flex space operators, JLL predicts. Other owners may look to acquire stakes in coworking firms, such as CBRE’s stake in flexible workplace provider Industrious. Finally, larger coworking operators, like IWG, may scoop up distressed smaller competitors.
There is demand out there for flex space. IWG, for example, recently inked a deal with Nippon Telegraph and Telephone to give the Japanese telecommunications group access to its offices worldwide, according to The Financial Times.
IWG is also moving forward with a model in which it is converting some businesses into franchises, according to The Wall Street Journal.
Demand for flex space will also likely propel new providers into the arena, such as Newmark Group, which is acquiring flexible workspace platform Knotel out of bankruptcy.