Flex space UK Research | 18


New landlord offers are typically targeting 20-80 person businesses, which they believe is under-served by the existing flexible workplace offerings. The smaller end of the market is more management intensive and less economically viable. Revenue for flexible space is typically higher than space let on a conventional lease and landlords are benefitting from the uplift in the value of their asset.


The benefit of scale gives the landlords the ability to move customers around their portfolio. Landlords are banking on loyalty and by providing the right service are hoping the customers will stay in their portfolios long term.


“ WeWork have created a bubble of enthusiasm and a lot of landlords will get their fingers burnt, as they (landlords) don’t have the right skillset to operate their own product.”


London flex operator


None of the landlords we spoke with were entering the sector with the belief that it would be an easy journey. Operators viewed this as a defensive move by landlords and were dismissive of the potential competition. Successfully incorporating the supply chains to run a profitable operation, generating economies of scale and the provision of a service culture are the real challenges.


“ The risk and reward profile is attractive if you get it right.” London flex operator


Few landlords have the scale, will or resources to invest in their own product and landlord operations will be a small part of the offer. While some will continue to pursue a straight lease to an operator, the partnership model is gaining momentum as an alternative solution.


By partnering with an operator, the landlord benefits from the upside but without having to enter directly into the sector. In our interviews, nearly all operators had been approached by landlords directly to discuss partnering.


Just a few years ago this conversation was unthinkable for many operators and landlords.


6 out of 14


flex workplace operators currently have a partnership with landlords


11 out of 14


flex workspace operators had been approached directly by landlords about a partnering model over the last 12 months


But more needs to be done to give some level of comfort to owners that this is a very real opportunity for landlords to invest and participate in the sector. The hotel industry provides a model of the operational and contractual arrangements that could achieve this.


The obvious issue to the speed of adoption of partnerships is how do you value the asset? Traditional valuation models are coming under scrutiny and the challenge for the sector is to provide a consistent approach in assessing the operational income. Valuation models are moving towards a cash-flow model - akin to how hotels are valued - which are more reflective of trading performance.


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