Product to Service: How Landlords are Taking on Flex-Space
Antony Slumbers, a self-made prop-tech expert and upcoming Flex-Office Conference keynote speaker, spoke to essensys about the burgeoning flex-space market and how it’s impacting the commercial real estate value chain. Slumbers paints an optimistic picture of the relationship between property holders and coworking and flexible workspace operators, alike. Read below for a sneak peek of his thoughts and advice before seeing him present in Austin, TX.
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Antony Slumbers had worked in property since 1995 when he started the first commercial real estate website in the UK. He went on to design a software suite of property management tools – what’s now referred to as tenant engagement platforms – and gradually scaled his expertise towards space-as-a-service. In his experience dealing with landlords, he’s seen a lot of them cherry-picking bits of the market for their asset portfolio.
“CRE isn’t sexy,” says Antony. While landlords see flexible workspace as a means to diversify their portfolio, Slumbers warns against picking and choosing pieces of the market just because they’re interesting or appealing. What many longtime operators know after years of running a flexible workspace operation and what landlords discover shortly after trying to, is not to dabble. Implementing flex-space in a fragmented or ad-hoc way into your buildings “won’t work once you start taking it seriously.”
Fundamental Shift: Product to Service Model
The onset of coworking and shared workspace in the office market has burgeoned in such a way that landlords are finding themselves having to make an existential choice on adapting to this large-scale industry shift. Moving from a product to a service business model ultimately comes down to commitment and implication. Will landlords go all in or leave money on the table?
Slumbers referenced a recent article he wrote in which he represents the landlord-operator to flex-space space analogy regarding a bacon and egg sandwich. The pig, in this case, is a direct contributor by way of the bacon, whereas the chicken supplies the egg and takes no interest in the outcome of the sandwich.
Similarly, a landlord willing to accept that real estate is no longer a transactional product-based market (the pig) will go all-in, either by fundamentally impacting the structure of their organization and building their own workspace brand or by embracing an operator to do so. In the same grain, a traditional landlord will remain complacent and continue offering only long-term conventional space leases to operators (the chicken), unbothered yet will be leaving potential revenue to be claimed by the workspace operator tenant.
Launching a workspace brand is no easy feat. It requires an underlying transformation of how a property management or development company operates and is structured. From the market intelligence and the physical space to the delivery and provisioning of mission-critical services, “it’s a mindset,” says Slumbers, “and you must know who you are.”
Acknowledging Changing and Converging Roles is Critical to Success
One of the many effects this industry shift has had on landlords is accepting who their new customer is. The change from traditional rent collector to modern service provider forces property holders to cater to the individual end-user and space occupier versus the CFO signing the rent check each month. As a flex-space provider, “your customer is every person who walks into the building,” says Slumbers.
“Landlords are in a favorable position to understand the individual customers and to serve their space-as-a-service needs.” However, it’s the workspace operators who are truly building the relationships with the customers, who understand how end-users interact with the space, who can analyze space performance, and who can adjust the business where needed.
In that regard, operators have a competitive advantage, yet there is a world of opportunity for both sides to leverage their strengths and share the rewards. The increased convergence of landlords and operators will force market players “to find a business model that allows both parties to leverage their own capabilities,” explains Slumbers.
Traditional lease business models have resulted in margins of up to 400% for the operator, money the landlord loses out on. Meanwhile, joint venture partnerships and management agreements help to bring the landlord closer to the flex-space concept while also allotting them a piece of the profit. Co-purchasing is something Slumbers has begun to see, citing an example of WeWork’s recent acquisition of London’s Devonshire Square complex in conjunction with two fund management companies. It’s a “mutually great incentive to work together. It enables landlords to take part beyond just renting real estate while mitigating risk and lease obligation for the operator.” Creative relationships between operators and landlord facilitate a constant reworking of the asset to adapt it as needed based on market changes. Ultimately, ownership of the customer journey and member experience will drive new partnerships among workspace stakeholders and drive market growth.
Landlords: All-in or Partner-Up
When it comes to leasing versus operating a workspace, “the attention to detail and customer service is profoundly different. Fundamentally, who your customer is changing how you need to operate,” says Slumbers. If you’re a landlord, “you get pulled into a million different areas of business you never needed to worry about before,” says Slumbers. For starters, he cites needing to understand how the space is being used, optimizing the space, and driving revenue.
If landlords don’t build out flex-space on their own, going all-in, they need to pick partners to fulfill different layers of the business. From real estate strategy and brand image to infrastructure and workspace management software, industry consultants like essensys can remove the burden of delving clumsily into facets of the flexible workspace business that require specialized expertise and attention.
“If you want to do it yourself, you need scalability to create a consumer brand. But you need to be really committed.” Slumbers suggest that the very best operators will potentially be the owner-operators, those who control the ultimate product activation by overseeing both the building and the intricacies of space operation and member experience. He draws the parallel of how hardware and software work together in such a way that one enables and optimizes the other to deliver the best possible experience.
Aside from ramping up and running a workspace business, landlord operators must be forward-thinking, anticipating and preparing for further transformation of CRE and the workplace. Slumbers proposes three areas of workplace change to keep track of. First, “understanding the environmental conditions of the physical building in real-time” and being able to control conditions such as temperature, air quality, and lighting that impact the occupier’s well-being. Second, space utilization and indexing the granular data on how the building is performing, including how different spaces work for different categories of workers. Lastly, capturing data on who is using the space, in which markets they operate and drawing correlations and causations of how both people, companies, and industries translate to space usage.
The Future Market of Office Space
A concern for many operators and CRE stakeholders is the potential for office space absorption in today’s market. To what extent can new and existing operators launch new workspaces and attain the occupancy required for profitability? “The market has huge potential to carry on growing at the current rate for a decade before we even have to worry about saturation,” ensures Slumbers. More and more larger companies and corporations are moving to flexible space as a long-term real estate solution.
“The important equation is User Experience equals Brand and Brand equals Value,” Slumbers calculates. In a perfect market, not one operator is delivering the same products and services. Outlining, understanding and satisfying your target base is fundamental to success in the market. “It’s about defining the user experience that will determine their brand and tailoring their offering specifically for their desired market.”
Today’s landlords may find value in diversifying their buildings in a way that caters to a variety of the market. As an example, Slumbers imagines a property that offers Industrious, WeWork, Knotel workspaces along with a portion of space catering to the local demographic or niche workspace crowd. There is plenty of scope and growth potential to cater to all aspects of the workforce. It’s going to come down to user experience and services. Slumbers believes, “the industry is a force for quality.”
We can’t wait to learn more from Antony Slumbers about how technology is changing the nature of work and, in turn, changing the nature of demand for the spaces we need. See Antony deliver the keynote at the Flex-Office conference put on by the GWA in collaboration with NAIOP in Austin, Texas from September 12 through the 14th.
Antony Slumbers has been developing online services and products within the commercial real estate sector since 1995 when he launched the first commercial property website in the UK. For 12 years he designed, developed and hosted the UK and European websites for a major real estate advisor, and in 2001 launched the Property Management and Tenant Engagement Platform Vicinitee as a joint venture with Broadgate Estates, the property management arm of the UK’s second largest REIT, British Land.
Today Antony advises real estate company boards on how technology is impacting real estate, and the digital strategies needed to adjust to this new market. He delivers keynote talks across Europe and the US, tweets @antonyslumbers and blogs at antonyslumbers.com.
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