When it comes to letting out office spaces, traditional long-term lease models are becoming a thing of the past. Soon, contemporary workspaces will be divided up into micro-units and accessed in a highly flexible way. What’s more, real estate will be packaged with other services to deliver better value for money.
This new model is known as Space as a Service(SpaaS). Cockerton + Co can help you embrace Space as a Service design and operating principles to keep your asset relevant and appreciating over time.
The norms of commercial real estate are being challenged like never before. This is due to a number of factors, including:
- Technological innovation
- Employment and working trends
- The rise of ecommerce
- The global pandemic
Accordingly, the need for large, centralised, long-leased offices is declining. Many businesses have realised they can save money—and improve employee productivity and well-being—with flexible, decentralised working arrangements.
In some cases, this means employees working remotely either full-time or part-time. In other cases, it means teams coming together for collaborative work in on-demand workspaces, often in small local hubs.
The upshot is that tenant needs and demands are changing. Businesses and workers are now starting to favour flexible, distributed and tech-enabled workspace models.
Picture a scenario where you work for an international bank. Your latest project requires collaboration with a number of stakeholders from different national countries. But instead of convening in one far-way regional office, you hire on-demand office space for a week.
In addition to being in a convenient location that’s easier for your team to reach, the space offers services tailored to your needs. When your team needs an executive boardroom with IT assistance and premium catering services, the space already has the services available.
In another scenario, you work for a creative agency serving startups. This time, your on-demand workspace is a chic environment that creatives feel at home in. And when you need additional help on a project, you just connect to the space’s freelancer marketplace to quickly find the resources you need.
This is Space-as-a-Service: a form of commercial real estate that goes beyond just providing bricks and mortar. It’s about providing flexible, customised, tech-enabled, service-oriented real estate that meets the needs of modern people and organisations.
The current shift in real estate trends is similar to the way modern businesses have embraced cloud-based software, paid for on a monthly rolling basis. In the past, using computers was once about ownership, but it’s now about accessibility.
The same trend is happening with real estate. Landlords must start to think of themselves as active service-providers, dedicated to servicing their customers and providing value that competitors don’t. They are no longer just passive rent collectors.
In the short term this may seem daunting, as the SPaaS model means greater operational complexity. But with the current high supply and low demand for generic office space, not adapting is a risky choice.
And those businesses that do repackage their real estate with appropriate service and content offers? They’ll be well-positioned to create sustainable, profitable business assets.
Co-working, co-living and brandboxing are examples of Space-as-a-Service for commercial, residential, and retail real estate respectively. Landlords provide a suite of services allowing tenants to easily access and use the space: from digital infrastructure and soft furnishings to professional services, back-office support and staffing. SPaaS companies typically provide these services on short-term service agreements rather than using long-term leases.
We are really only in the first iterations of Space-as-a-Service offerings (and we have already seen the limitations of the most basic of models). There are “blue oceans” to explore now in adding new technology, business services, innovation programmes, community curation and thought-leadership events to spaces. These additions have the potential to truly differentiate and increase the value of these buildings.
Cockerton + Co does just this kind of innovative thinking when designing new place-making, leasing strategies and business models for your real estate. We specialise in designing, building and operating unique, high-value Space-as-a-Service hubs for business innovation.
Contact Cockerton + Co today for help designing your Service-as-a-Space offering
It’s no longer sufficient to build a box and expect occupiers to come. It is the service layer and the curated community that differentiates a location and enables it to capture premium rental rates.
We believe that real estate businesses have to move their thinking away from filling physical spaces. The future is a customer-centric, hospitality model of designing and delivering the new office environment—think hotels, business accelerators, and content-rich conference experiences.
The rise (and fall) of generic co-working operators has brought attention to the flaws in their business models. For instance, landlords are disconnected from their tenants and don’t fully understand their needs. As a result, they are missing opportunities to create specialised, high-value communities that attract relevant players in the business ecosystem.
Many of these co-working operators now have poor occupancy rates, plus a generic look, feel, and customer experience. As a result, they rely on heavy discounting, which reduces their profitability.
But while all this is happening, new opportunities for real estate owners are materialising. Demand for traditional office space in big cities is continuing to drop. While this is partly due to COVID-19 health concerns, large organisations like Deloitte and Unilever are giving their teams the freedom to work where they choose. Many of their teams will be better served by local SPaaS offerings, rather than centralised offices that require long commutes.
As many co-working operators find themselves struggling to generate sustainable profit, landlords are instead starting to create SpaaS propositions.
The first step often involves deciding how much space they will convert. In addition, they must decide how they will build authentic identity, and how that will differentiate their space. Landlords must also determine how they will shore up their new business model with service-based revenue streams.
When making the transition, hiring an external specialist (like Cockerton + Co) to maintain relationships and create revenue streams can be a great help.
Space-as-a-Service offerings can help reposition a poor-performing asset, activate new developments, and create ‘stickiness’ within communities. This stickiness arises from the fact that communities with clear industrial identities and a service model that supports the sector are difficult to leave.
These valuable innovation ecosystems actually have lower churn rates and higher price per square foot rates, and they reduce landlords’ reliance on expensive lettings agents.
Cloud computing. IoT devices. Smartphones. High-speed connectivity. These technologies, combined with the integration of collaboration software into modern working practices, are enabling staff to work productively from anywhere.
Accordingly, businesses are seeing the value in providing multiple flexible workplace options close to where their staff live. This enables the personalisation of working practices and connectivity to multiple hubs of talent and ideas.
Peoples’ employment ambitions and structures are changing rapidly, and many people are seeking alternatives to salaried jobs. This is largely due to the rise of platforms that enable people to easily set up small businesses, and to directly access customers and projects.
Workers no longer need to join large corporates or commute to fixed offices to monetise their skills. Instead, many are now starting businesses, becoming contract workers, or using job/capability matching platforms to find work (think Uber or YunoJuno).
Talent, talent, talent. It’s the key to organisational success for big and small companies alike. And they chase it far and wide—from east London to the coding clubs and the universities, far from the city core.
If a multi-site landlord is able to offer a hub-and-spoke workplace offering, whereby a corporate tenant takes small suites across geographies, then the tenant’s exposure to talent dramatically increases. This is why we are seeing the emergence of corporate innovation teams setting up ‘satellites’ across multiple clusters of technology and startup sites.
And now that businesses have acclimatised themselves to remote working due to the pandemic, the trend’s likely to continue.
Due to the astronomical growth of ecommerce, retailers are moving online and reducing the amount of display space they use. So how can landlords reactivate these empty spaces? By using Space as a Service offerings, they can attract innovative micro-retailers who are looking to test their products and grow brand awareness in physical assets.
Landlords could support these retailers in new ways such as:
As your business shifts from providing real estate to providing services, data management and branded user experiences, you’ll need new operating models and technical infrastructure.
Your success will depend on how your customers experience the space within and around the physical assets. This includes the service’s price, ease, value-added services, content and community. So when adopting a SpaaS model, it’s vital to think carefully about curation and choose your partners wisely.
Landlords will also need to understand their tenants (and their businesses) better. This will enable them to provide continuous improvements to their services and give the customer new reasons to be part of the space over time. This is a long-term commitment, not just a short-term activation strategy. Thankfully, there are many precedents for these business model shifts, as similar trends have hit almost every other industry.
Space-as-a-Service offerings can attract high-value tenants, drive occupancy through space utilisation, and create new revenue streams beyond rent. These are critical benefits investors will be interested in.
Yes, this means traditional leasing models will need to be recut. It means investing in technology to fit out the space, engage your target community, provide services and to market your offerings. And it means adopting a more sophisticated operational model. But with these industry changes, landlords will maximise their commercial returns and drive value in the overall asset and its community.
Building generic office spaces and rolling out another co-working offer is just a race to the bottom in price. The future of real estate is not in simple building ownership and lettings—it’s in how you service the space, who you bring together, and how you orchestrate the entire ecosystem.
