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20 May 2021

Life after Serviced Offices – the legal implications of ‘Offices As A Service’

Serviced offices have been all the rage for years now; consider WeWork, Regus and countless others. But Covid has exposed some key shortcomings: tenants can give up space at the drop of a hat and they have little loyalty to a location because it's not linked to their brand identity, despite the provision of free beers.

This means serviced office providers, and ultimately landlords, suffer in a downturn.

It’s time to explore whether there is a better way of doing serviced offices. Rather than entering long leases with serviced office providers, we anticipate technology platforms will enable landlords to take a more collaborative approach to maximising asset usage and yield, whilst de-risking their position. Imagine being able to list space (be that an entire office floor, or a desk) on a platform, and tenants seamlessly renting it, in much the same way that you’ve done through Airbnb. Or, an existing tenant being able to advertise spare desk capacity to others?

Change is afoot

Some employers are now entering contracts with one serviced office provider granting employees gym-style access passes to a variety of regional offices. But, if the serviced office provider does not operate an office in an employee’s local area, the benefit is lost. Small serviced office providers cannot compete with their larger counterparts, as they are unable to offer an appropriate range of regional offices for employees. However, change is just around the corner with technology platforms set to level the playing field.

We anticipate employers being able to contract directly with technology platforms to enable employees to access professional workspaces in many different locations operated by a range of serviced office providers.

A landlord advertising just one desk on a technology platform can probably organise this in-house. However, if advertising a whole office floor, then a landlord will likely need the help of a new-age serviced office operator to greet end-users on arrival and maintain the space.

The key change is the allocation of risk and reward. Rather than accepting rent from just one serviced office provider, a model where landlords pay a fee to both the service office operator for operating their building and to the platform for advertising the space puts landlords firmly back in the driving seat, and simultaneously diversifies occupier mix and could increase yields. Naturally, this raises some interesting questions – should the technology platform’s fee be related to their performance? Will the serviced office operator accept a fixed-fee or prefer a profit-share if goodwill is generated from their brand identity?

From the employer’s perspective, is their contract with the platform, operator or landlord? What is clear is that the traditional lease is not, in this scenario, fit for purpose.  We expect the employer to licence space through a set of carefully drafted standard terms and conditions.  Rather than negotiating a lease and incurring the expense that that involves, the process becomes as easy as a tick of a box. Do you agree to the terms and conditions? Yes. Great, here are the keys.

How will this be structured as between the landlord, serviced office operator and technology platform? Landlord-Operator or Investor JVs could enable spaces to be purchased, fitted out and listed with greater efficiency.  Limited partnerships may be a practical vehicle for these projects.  We may even see something akin to a franchise agreement between the platform and operator, to ensure platform-wide standards for space management across the country.  Platforms are initially unlikely to own property, and their focus will be on raising capital – family offices and the investment arms of established property players recognising the opportunity for PropTech to disrupt the market are likely to be early investors.

Creative thinking can solve these questions and we think the opportunities will be worth the investment.

This article was first published in CoStar on 19th May 2021.