Will real estate be able to compete with ‘Space as a service’?

Ralph Mitchison - Menzies Accountant

Ralph Mitchison – Partner & Property Specialist

Since their introduction by San Francisco software engineers in the early 2000’s, co-working spaces have increasingly gained in popularity among freelancers and start-ups. Now, 19 years later, WeWork is not only one of the market leaders, but is also London and New York’s largest office occupier.

Besides their core market of start-ups and freelancers, larger multinationals are also increasingly looking to extend their geographical coverage, while still enjoying the same benefits, such as reducing lengthy commitments or the initial large capital outlay. Eventually, driven by constant technological developments and incoming workforce demands, the office-based businesses down the middle will also start to follow this trend.

Why follow the trend?

There are several good reasons why more businesses are following the lead of tech companies. Reduced staff turnover and productivity increases can be obtained by providing staff with a wider range of amenities in the office and saving on space is possible now that businesses need less storage due to computers being replaced by laptops and remote working improvements which easily allow staff to work away from the office.

Who will it benefit?

For growing businesses with fluctuating headcount and space requirements, this flexibility is very appealing. The possibility of flexible booking of short-term commitments, with contract terms ranging from 3 months to 2 years, allow occupiers to leave quickly when they are not satisfied or in need of more space. Additionally, these arrangements allow the occupiers to concentrate on their own growth rather than dealing with the burden of facilities management.

Competition is heating up

As a result, the more traditional real estate companies, with a fairly simple business model, are now experiencing fierce competition from IT-savvy, Uber-like, app-based service providers. Market growth predictions illustrate this appetite, showing up to 30% annual growth in flexible working spaces across Europe in the next five years, according to JLL.

Real estate companies must adapt to survive

The key of success for WeWork and similar businesses, is their smart use of space, by leasing a considerable amount of square footage, maximising the space and providing extra amenities. Additionally, WeWork’s brand recognition allows them to be on top of the list when searched by for customers. Although this shouldn’t necessarily mean the end of conventional real estate companies, in order to survive, they will need to adapt to this changing environment and new demands by looking for different and smarter uses of their owned properties.

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