Commercial Real Estate Landlords Team Up With Flex Space Operators

Demand is increasing for the flexible office space sector, but the latest trend to hit commercial real estate comes with a twist.

Flexible office space is known for creating dynamic environments that are highly versatile while comprised of everything a traditional office needs, such as desks, computers and chairs.

In recent years, landlords have sprinted to offer flexible office space in their buildings, according to JLL. Otherwise, without flexible office space, these landlords risked irrelevancy.

Now, landlords are bypassing leasing space to a specialist flex-space operator and instead partnering with specialists to deliver flex offerings themselves. JLL stated these partnerships are bringing space and service together as flexible space demand surges.

Tashi Dorjee, flexible space solutions lead for Australia and New Zealand at JLL, said large flex operators with growing portfolios are choosing these types of agreements.

“They have the resources to propose a financially attractive business model, guide the design and build process,” Dorjee said, “plus they have the capacity to train and manage on-site staff, and fill the space to generate revenue.”

These management agreements have the initial risk of installing fit-outs for landlords, but then they will receive a more significant share of the revenue. In fact, where there are economic shocks, such as the coronavirus, which has drastically shaken the real estate investment industry, the risk of leasing space to flexible space operators is alleviated.

This trend is not new to real estate, according to JLL. In the hotel industry, many chains operate the space rather than owning the property. Landlords then receive a percentage of either profit or revenue.

When entering these management agreements, Dorjee said that landlords are positioning their buildings to attract tenants based on the differences in owned flexible space. At the same time, to add value for existing tenants.

Many owners of substantial office buildings have recently launched their own flexible space brands, such as ISPT with Flex, and Dexus with SuiteX. The move has bypassed management agreements.

Dorjee said the motivation is to compete with flexible space operators. The strategy is to court both small to medium-sized clients while offering their regular large corporate customers a more efficient way to either contract or expand.

“The developments that drove the explosive growth of the flexible space sector, including tenants’ need for agile office portfolios and a superior workplace experience for their workers, are not only still there, but will continue to drive demand well into the future,” Dorjee said. “The product just has to evolve to meet their ongoing needs.”