FLEXIBLE office space accounts for a relatively small proportion of office markets across most major gateway cities, averaging between 2 percent and 8 percent, JLL data shows. But its rise to this level was swift, with an average of 25 percent growth a year between 2014 and 2019. In 2019 it accounted for as much as 20 percent of leasing activity in large cities.
The rapid expansion slowed a little, and then the pandemic came, which has since spurred renewed interest from landlords facing an excess of empty offices. As many employees’ perception of the workplace changes, office owners are actively increasing the amount of space in their buildings dedicated to flexible working. A smart move given the status quo.
Despite the obvious impacts of COVID-19 on office space, flexible workspaces look to be emerging as a strong offering and solution, for a return to and future of our work environment for both tenants looking for flexibility and landlords wanting to differentiate their assets. The global pandemic has people working from home, companies rethinking their workplace strategies, and commercial real estate players recognising the need for flexibility.
At a time of increased vacancies for traditionally leased offices and decreased member capacity, coupled with revenue opportunities for coworking spaces and the turn towards a hybrid model of working, there’s growing adoption of a different operating model that benefits both landlords and flex spaces. Management agreements, also called operating agreements, are gaining popularity because they can help provide greater resiliency for building owners.
What is a management agreement?
In its simplest form, a management agreement is a partnership between a landlord and a coworking or flex space operator. The property owner is incentivised to fill vacant space, and the space operator has the ability to manage the coworking space. In a management or operating agreement, both parties agree to share revenue generated from the coworking space.
Property companies have access to a necessary element of the industry: physical space. Yet, there’s more to the serviced office industry than location and space. Property management and coworking may be related, but they are two very different specialties. Having the access to space, does not mean that they know the ins and outs of operating a flexible workspace.
“Coworking spaces are like hotel businesses. Heavily geared toward hospitality and requires a lot more work, consistency and engagement than many landlords may be accustomed to or interested in providing. It’s about the bottom line, it’s about efficiency of management, it’s about practical management of the community and services”, Gregory Davis, Business development Director, Africa, IWG Plc., the largest global flexible workspace provider, points out.
Management agreements give landlords more control, a direct relationship with their tenants and promotes loyalty to their asset. Additionally, a flex space properly positioned and designed can be more profitable to a landlord than traditional leasing.
Benefits to the Building Owner:
- IWG provides direct expertise and operates turnkey flex-space solution
- Fee structure maximises alignment between landlord and operator
- Management fee is fully performance based as a % of net income
- Building Owner receives premium income 30% above market rent.
- Building owner secures flex-space, co-working and meeting room facilities within building driving activity and potential future up-size letting opportunities.
The successful property owners of the future will be those who understand that space is now a service. In seeking to capitalise on this they will need to consider their approach to flexible workspace carefully. For many of the larger property owners, launching a flexible offer just makes sense.
