We spoke with Giovanni Palavicini, longtime flexible workspace real estate strategist and owner of Fronteras Commercial Real Estate, about his take on the convergence between commercial real estate and the flex space market. Read on to get the expert insight. To hear more insight from Giovanni and other industry experts, read the recap of Flexible Workspace meets CRE webinar.
How did you get into the Flexible Workspace Industry?
I studied Psychology and then completed my master’s degree in Real Estate. I began my career helping retailers and restaurants with their real estate strategy. Seven years ago, I began working for Regus as the Director of Real Estate, where I learned the traditional executive suite model and growing open coworking and other flexible workspace models. I traveled the US and Canada meeting with real estate owners and venue operators and helping them implement this model in high foot traffic locations, including office buildings, retail, airports, train stations and more. Since leaving Regus I have continued working as a consultant and real estate strategist helping flexible workspace operators with their business and real estate.
What is the biggest mistake an operator new to the flexible workspace market can make when selecting real estate?
Not Knowing Your Target Customer.
There are several major mistakes that operators often make. The first mistake I see is when operators don’t know their target consumer or their competition when selecting real estate. Unfortunately, this leads to poor real estate locations that can seriously impact the success of the operation.
Aside from “location, location, location” what other factors should an expanding workspace operator keep in mind when selecting an office space?
Workspace Operators are Not Office Users.
When selecting real estate, one of the biggest pitfalls among operators and the real estate community is the misunderstanding that flexible workspace operators are office users. The flexible workspace industry is a service that has traditionally gone in an office building. However, the most important factors for a good commercial real estate strategy in the flexible workspace market are retail-based. For example, your strategy must include understanding demographics, selecting locations with great access, convenience, visibility and signage.
What’s a common pitfall among workspace operators when negotiating a traditional lease arrangement?
Don’t Cut Yourself Short.
There are various pitfalls when it comes down to the nuts and bolts of the tedious lease negotiation process. But the most common pitfalls I’ve seen are opting for a space that’s not big enough to be lucrative enough for longtime growth, are not bartering for enough free rent, and agreeing to too much guaranty on the lease.
Is there a go-to operational strategy that can help operators be more profitable?
Optimize Your Space.
The space plan is key to the success of an operation. The space layout must include 70-80% private office or team space. This gives the operator predictable, consistent and steady income that they can count on for defined periods of time.
What is the biggest misconception about launching a flexible workspace?
Financial Model Over Community.
The biggest misconception of launching a flexible workspace operation is that building a strong community will make a location successful. The flexible workspace industry is a real estate business. If your financial model is not carefully thought-out for the long-term, then it won’t matter how strong your community is.
How long does it take for a new workspace operation to stabilize?
Focus on Your Real Estate Strategy.
In my experience, a shared workspace takes an average of eighteen months to stabilize. However, I have seen operations stabilize in as little as three months and unfortunately some never stabilize. For this reason, having a good real estate strategy is crucial to the success of a location.
In order to stabilize a workspace operation, what are the top three aspects an operator should pay attention to the most?
Plan Before You Launch.
For the best opportunity to weather the storm of stabilization, the three main things an operator should pay attention actually must all be in the works prior to even opening the location. The operator must have a detailed business plan, which includes having at least two years of operating capital at their disposal. They must pick great real estate with a well thought out space plan. Lastly, the staff that is hired must be focused on hospitality and serving the clients.
What are your thoughts about a potential “Coworking Bubble”? Is it something we should worry about?
Runway for Growth.
There is currently a lot of attention and interest in the flexible workspace industry, but I think this industry still has good runway for growth. However, we will see more mergers and acquisitions.
How can operators safeguard their investment in a workspace?
Technology is key to an operator’s success.
There must be a technology platform in place during the initial set up of the center. This includes phone system, Wi-Fi and the overall business management of the space. The ongoing technology platform will help with the previously mentioned items and to manage the inventory, point of sale and accounting.