Coworking: the new tool office property companies are using to build tenant loyalty

Mar 14, 2023

Every three years, office real estate companies face the same question: will tenants terminate their leases or not? This issue, central to real estate strategy, has taken on a new dimension with the rise of remote work and flex-office arrangements. Vacancies, lease renegotiations, downsizing… real estate companies are facing unprecedented challenges. Fortunately, an innovative solution is emerging to address these challenges: corpoworking.

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The Context: When Remote Work Calls Commercial Leases into Question

Since the widespread adoption of remote work and flexible office arrangements, companies have been systematically reassessing their office space needs. Every three years when a 3/6/9 commercial lease comes up for renewal, real estate departments and senior management ask themselves the same question: Do I still need all this space?

The most common sentiment we hear is clear: “With the rise of remote work and flexible office arrangements, my employees are coming into the office less often. I no longer need as much office space—we need to streamline!” This reality affects companies of all sizes, from small and medium-sized businesses to large CAC 40 corporations.

For office real estate companies, this structural trend poses a major risk: a surge in lease terminations, a rise in vacancy rates, and, as a result, a significant decline in the profitability of their real estate assets. In a commercial real estate market already under pressure, finding ways to retain existing tenants has become a top priority.

The challenge facing office property companies: reducing vacancy rates

Vacancy rates are the real “make-or-break” factor for any office property owner. When a tenant leaves the premises, the financial loss is immediate: no more rent coming in, ongoing maintenance costs, often necessary repairs, and sometimes months or even years before a new tenant is found.

The chain of consequences is well known in the industry:

The tenant terminates the lease at the end of the three-year term
The property management company must undertake renovation work to bring the premises up to current standards
The period of vacancy is getting longer, sometimes lasting 12 to 24 months
The market value of the asset may decline if it remains unoccupied
The building's rental yield is falling, affecting the portfolio's valuation

Faced with this scenario, the most innovative real estate companies are seeking ways to increase the average length of their tenants’ tenancies rather than passively accepting lease terminations. It is in this context that the coworking model is emerging.

What is corpoworking?

Corpoworking is an innovative solution that allows a company holding a traditional commercial lease to sublet part of its vacant office space to third parties—freelancers, startups, and teams from other companies—using a model inspired by coworking.

In practical terms, corpoworking differs from traditional subleasing in several key ways:

All-inclusive service package: The tenant-host provides access not only to the offices but also to all related services (internet access, meeting rooms, reception, coffee, etc.)
Short notice period: typically 1 to 3 months, offering complete flexibility to both parties
No commercial lease: this is a service agreement, which is much more flexible than a 3/6/9-year lease
Self-management by the primary tenant: the property management company remains outside the contractual relationship

This hybrid model, which falls somewhere between traditional leasing and pure coworking, perfectly meets the needs of companies that have excess office space but want to maintain maximum flexibility regarding that space.

How does coworking work in practice?

Implementing a coworking solution within a tenant company typically follows a structured, multi-step process. Understanding this process enables property management companies to better support their tenants throughout this process.

Step 1: Assessing Available Space

The tenant company conducts an assessment of its office space: Which areas are actually occupied? Which workstations are permanently or frequently vacant? This analysis helps identify space that could be repurposed for coworking without disrupting the company’s core business operations.

Step 2: Defining the service offering

The tenant-host then sets the terms of their offer: number of available workstations, operating hours, included services, and pricing. This step can be completed independently or with the assistance of a specialized coworking operator, such as Coworkea, recommended by the property management company.

Step 3: Marketing and Management

Once the offering has been defined, the next step is to find future corpoworkers. The partner operator plays a key role here: it has a network of people seeking flexible workspaces and can handle marketing, onboarding and offboarding, billing, and day-to-day customer service. The real estate company, for its part, does not enter into direct contracts with end users.

The Benefits of Coworking for Tenants

For companies that lease office space, coworking offers a range of benefits, both financial and organizational.

An immediate financial benefit

The primary motivation is often financial: by monetizing its unused space, the company generates additional revenue that directly offsets its rent costs. In an environment where finance departments are scrutinizing every expense, turning a real estate expense into a source of revenue is particularly appealing.

In practical terms, a company that occupies 500 square meters but actually uses only 350 square meters can offer the remaining 150 square meters for coworking. If it rents these out at €300 per workstation per month and has 15 workstations, this represents €4,500 in monthly revenue, or €54,000 per year—a significant amount that can account for 20 to 30% of its annual rent.

Complete flexibility in terms of surface area

Unlike a traditional sublease, which involves a significant contractual commitment, corpoworking allows a company to retain full control over its workspaces. With a typical notice period of three months, the tenant can reclaim its office space at any time if its space requirements increase again—for example, due to a large-scale hiring spree or a significant return to in-person work.

This complete flexibility is one of the key advantages of corpoworking compared to traditional solutions for managing excess space.

The development of an ecosystem and synergies

Beyond the financial benefits and flexibility, some companies are discovering that coworking offers an unexpected avenue for business growth. By welcoming freelancers, startups, or teams from other companies into their spaces, they create opportunities for networking, partnerships, and sometimes even new business collaborations.

The host company thus becomes a hub for local innovation, bringing a new energy to its own offices. This aspect is often underestimated when setting up a coworking space, but it significantly contributes to the appeal of the offering.

The benefits for office real estate companies

While the benefits for tenants are clear, office property companies are the big winners in the widespread adoption of coworking. This model effectively addresses several structural challenges they have faced since the rise of remote work.

Tenants with greater financial stability

A tenant who generates revenue through coworking is a more reliable tenant. They optimize their cost-per-square-foot ratio, which reduces the risk that they will terminate their lease for purely financial reasons. As a result, the property owner has a more stable tenant who is less likely to renegotiate for a lower rent or move out.

A significant reduction in the rental vacancy rate

This is the most direct and measurable benefit for real estate companies. By enabling their tenants to adopt coworking, they avoid lease terminations and, consequently, periods of vacancy.The resultingincrease in average occupancy duration automatically improves the profitability of their assets.

Market research in the commercial real estate sector shows that a 10% to 15% reduction in the rental vacancy rate can improve the return on a real estate portfolio by 5% to 8%. For a real estate company managing several hundred thousand square meters of office space, the financial impact is significant.

No direct contractual involvement

One of the aspects most appreciated by property owners is that coworking does not require them to be involved in day-to-day management. They are not party to the agreements between the host tenant and the coworkers. Their role is limited to encouraging and facilitating the implementation of this solution—in particular by recommending trusted operators such as Coworkea.

This hands-off approach allows them to enjoy the benefits of coworking (loyal tenants, low vacancy rates) without having to deal with the operational challenges (managing tenant onboarding and offboarding, billing, and customer support for coworkers).

Increased value of real estate assets

An office building whose tenants have implemented coworking solutions is viewed as a more dynamic and resilient asset. Against the backdrop of a shifting office real estate market, investors increasingly value properties where tenants have adopted flexible space management practices. Coworking is thus becoming a key factor in enhancing the value of real estate assets.

The role of coworking operators like Coworkea

Successfully implementing a coworking solution often requires the expertise of a specialized operator. This is where Coworkea comes in; the property management company can designate Coworkea as a trusted partner to assist its tenants with this process.

The operator’s role is multifaceted and spans the entire project lifecycle:

Consulting and implementation: assessment of available space, definition of the offering, pricing structure
Marketing: Connecting with corpoworkers through an established network of people seeking flexible workspaces
Operational management: onboarding of corpoworkers, access management, monthly billing
Support and ongoing optimization: occupancy rates, reporting for the tenant-host, rate adjustments

By partnering with an experienced operator, the tenant-host can launch their coworking business quickly, without having to develop in-house expertise that isn’t part of their core business. The property owner, for its part, ensures that the solution is implemented professionally, without compromising the quality of its building management.

Corpoworking and 3/6/9 leases: a winning combination

The 3/6/9 commercial lease is, by its very nature, a binding commitment for the tenant. The option to terminate the lease every three years is often seen as the only source of flexibility in a commitment that can last up to nine years. Coworking radically changes this perception.

By incorporating coworking into its real estate strategy, a tenant company can:

Dynamically adjust real estate costs to reflect actual occupancy levels, without waiting for the three-year review
Avoid moving, which often involves significant costs and disruptions to business operations
Sign or renew a lease for a larger space, knowing that the extra square footage will be put to good use through coworking
Enjoy a strong relationship with your property management company, which is reassured by the tenant’s financial stability

For the real estate company, this combination is particularly advantageous: it can negotiate leases for larger spaces with tenants who are willing to commit to longer terms because they know they can adjust their costs through coworking. It’s a virtuous cycle that benefits the entire chain.

Conclusion: Corpoworking: The Future of Commercial Real Estate Management

Co-working is emerging as the strategic tool of choice for office property owners seeking to retain their tenants in a post-COVID environment characterized by the widespread adoption of remote work and the streamlining of office space.

By allowing their tenants to turn their vacant space into a source of income, real estate companies simultaneously solve the tenant’s problem (excessively high housing costs) and their own problem (the risk of vacancies). The model is a win-win at every level:

Tenants can optimize their real estate costs, gain flexibility, and develop new synergies
The real estate company is reducing its rental vacancy rate, building tenant loyalty, and enhancing the value of its portfolio
The commercial real estate sector as a whole is becoming more resilient in the face of changes in the world of work

Incorporating coworking into a strategy for managing an office property portfolio is no longer an option—it is a necessity for real estate companies that want to maintain and improve the long-term profitability of their assets. With partners like Coworkea, this transition toward more flexible and smarter management of office spaces is now accessible to all market players.