"We saw a gap in the market between coworking and long-term leases," explains Oliver Knight MRICS, head of Myo. The thinking goes that these smaller companies will forge a lasting relationship with the landlord directly. When they outgrow this type of space, there are options within the rest of Landsec's portfolio for them to decant into. "We're also looking to attract existing customers who want to have accommodation for specific projects or require additional amenity space, meeting rooms or a place to hold events," Knight continues.
Seeing coworking as something to draw in not only SMEs but also corporate clients is a view shared by Chris Hiatt FRICS, director of Landid, which has developed several buildings along London's western corridor. "The way the market's going, particularly outside London, is that larger tenants looking for 100,000 ft2 (9,290 m2) will take 50,000 ft2 (4,645 m2) on a long-term lease and the rest on a more flexible basis," he says.
Rather than develop its own product, however, Landid has opted to put coworking providers into its buildings. Spaces operates out of the Porter Building in Slough and the Charter Building in Uxbridge, while Fora has a long lease at Thames Tower in Reading. "They are set up to do it as a business," says Hiatt, explaining this business model. "Plus, having them in helps sell the story of the building and gives other tenants the option of extra space that is more flexible."
This is not the only model for landowners and investors to get a slice of the coworking pie. Investment firm Blackstone acquired the majority stake in The Office Group in June 2017 in a deal that valued the business at £500m, and Brockton Capital have made significant investment in Fora. There is also the option of pursuing a joint venture with a coworking operator, as Network Rail did in 2011 with The Office Group to refurbish empty space in five main-line stations.
"Time will tell who are the winners and the losers but serviced offices require very specific skills sets and management akin to hospitality, which are not traditionally part of an investor's core business," says Matthew Greenstreet FRICS, director in project management and construction at London-based consultant Drees & Sommer. He points out that speculative office developers are building-in concierge-style customer service – so at Landid's properties, for instance, you might see everything from dry cleaning, to a "little black book" of suppliers, to after-work beers being offered. "I don't see serviced offices as a new asset class – it's a transformation of an existing one," Greenstreet continues.
Robert Campkin MRICS, EMEA head of corporate capital solutions at Colliers International, sums up the implications for the market: "The traditional relationships between landlords and tenants had left some occupiers feeling neglected. The positive effect of coworking disruption for everyone is that investors and developers are increasingly recognising occupiers as customers. They are becoming more in tune with the occupier's increasing demand for flexibility, and heightening their service levels and efforts to accommodate a business's bespoke requirements."
- This article originally appeared in the June 2019 edition of Modus