When real estate companies take an interest in Coworking-style management
June 23, 2022
As good asset managers, property companies used to focus on the predictability of their business. In other words, they favored a long commitment period over a good return.
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 tells us that companies that take out a 3/6/9 lease stay in their premises for an average of 6 years. The rent-free period granted at the beginning of the lease by real estate companies to cover works is legitimate, since a clean-up is always necessary (and sometimes even more so). However, 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 considerably 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.
Attitudes are changing. Some rare real estate companies are integrating coworking management into their strategy. They are relying on different service providers, forging partnerships or, more often than not, giving it serious thought! They have realized that their real estate assets must include a "dynamic" management component in their portfolio, although unlike equity portfolio management, this dynamism is not synonymous with risk, but with a short investment horizon.
Some of our Coworkea tenants have one or three months' notice, and have been with us for 4 years, the start of our Coworking activities. They stay for good reasons: quality of service and competitiveness. The short notice offered is by no means synonymous with high turnover; rather, we can speak of real estate "liquidity". Just as the job market has become more flexible, and it's easier to find a customer than a boss, so real estate leasing, with its regulatory constraints, is undergoing a revolution. Small and large companies alike are abandoning 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.
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.
Further information: https://www.coworkea.fr/contact