When real estate companies take an interest in Coworking-style management
June 23, 2022
Real estate coworking solutions represent a new approach for real estate companies. Real estate firms are showing increasing interest in managing offices through coworking models. As responsible asset managers, real estate companies have traditionally focused on the predictability of their business. In other words, they have prioritized long-term leases over high returns.
Contract duration: a false sense of security for real estate companies?
But is the length of the commitment really a guarantee of security? What about company default? What about mergers and acquisitions, which take advantage of three-year periods to avoid renewing their leases and exploit real estate synergies between different structures? And finally, when the rent for a building depends on a single tenant, how can we mutualize the risk?
Experience shows that companies that sign 3/6/9-year leases typically stay in their premises for about six years on average. The rent-free period granted by landlords at the start of the lease to cover renovation costs is reasonable, since a thorough cleaning is always necessary (and sometimes even more than that).
On the other hand, it is often granted in the hope of achieving a decent return on investment once the work is completed. The problem is that, with an average occupancy period of 6 years, a rent-free period will significantly reduce the effective rate of return.
Business failures have fallen considerably in 2021 compared with 2019. As long as companies are on the EMP drip, they are safe. But the first repayments have begun, and the next few years are likely to see the emergence of new insolvencies, sometimes with even greater collateral effects for suppliers. And therefore a loss of tenants...
On the subject of risk management, who would like to buy a company with just one customer who accounts for 100% of sales? Not many people... But no one minds having just one tenant on a property, even on an entire building. In the event of departure, vacancy is guaranteed for 100% of the property.
Real Estate Coworking Strategy: Toward Flexible Office Management
Attitudes are changing. A few real estate companies are incorporating coworking management into their office strategies. They rely on various service providers, form partnerships, or—more often than not—are giving the matter serious thought! They have realized that their real estate portfolio must include a “dynamic” management component, although unlike equity portfolio management, this dynamism does not equate to risk, but rather reflects a short-term investment horizon.
Some of our tenants at Coworkea have one- to three-month notice periods and have been with us for four years—since we first started our coworking business. They stay for good reasons: the quality of our service and our competitive pricing.
The proposed short notice period is by no means synonymous with high turnover; rather, it reflects a certain “liquidity” in the real estate market. Just as the labor market has become more flexible and it is easier to find a client than an employer, the real estate rental market—with its regulatory constraints—is undergoing a major transformation.
Both small and large companies are moving away from the 3/6/9 lease in favor of a service contract. There’s no need to manage general services—you just bring your computer and that’s it.
Real Estate Coworking: Shared Office Space, a Key Advantage
Furthermore, mutualization is in full swing when common spaces are shared between different companies. Over and above the savings made and the reduced carbon footprint, a new ecosystem is created between unexpected skills that intermingle at the coffee machine.
Managing coworking spaces therefore presents a real opportunity for real estate companies looking to diversify their rental risks while offering a flexible and attractive solution. By incorporating this coworking approach into their real estate portfolios, real estate companies can optimize their returns while meeting the new expectations of modern businesses. To learn more about the flexible real estate market, you can consult specialized resources such as Business Immo.
For more information: https://www.coworkea.fr/contact