As a commercial property lawyer, subletting office space is bread and butter work. At RPC, we are always seeking to protect our corporate occupier clients by ensuring their leases allow for ultimate flexibility when it comes to break clauses, group sharing and subletting, but sharing space is a concept being explored in far more creative ways.
Agency surveys have for a long time shown a strong appetite by occupiers to save costs through better use of their space, by seeking to make their space more efficient and disposing of vacant space. However, finding new occupiers and seeking landlord's consent is often a costly and lengthy process, especially when there is more than one landlord involved. The "institutional lease" with its full repairing, insurance obligations, and tying tenants to obligations in the longer term, reflects a traditional focus on who a building might be sold to, rather than a focus on satisfying the businesses who occupy that space.
Enter WeWork and other shared workspace providers who have been cropping up, fulfilling a need in the office market for flexibility and customer care. Landsec has also entered the flexible serviced office market with "Myo" offering occupiers a selection of fit-out options and styles of meeting rooms that can be rented by the hour. Both hope to help businesses grow by removing headaches associated with leasing new office space such as setting up IT networks.
These newcomers have seen that the standard approach of a lease committing occupiers to a term of several years, even with the ability to break, assign, sub-let and share occupation with group companies, does not suit all businesses. It particularly doesn't suit start-up businesses which can grow from 2-3 people to 30 people within a matter of months. Increasingly, it does not suit more established businesses either as greater numbers of employers seek to embrace flexible working and a vibrant environment for their staff and clients.
What works for occupiers though, is not it seems, proving attractive to investors, demonstrated by the recent failed WeWork IPO. So, as the market transitions from the investor-friendly "institutional lease" to the occupier-friendly shared workspace, there ought to be a happy middle ground. Undoubtedly, improvements to secure occupier data and a more income-focused valuation model will be the first steps towards this.
Companies such as Workthere (backed by Savills and free to use) are making strides to secure better data on occupancy and pricing of office space. Yardi is another market leader: using machine learning systems to develop and support property investment and management software. RockportVAL has a cash flow modelling and valuation platform based entirely online and in the cloud, eliminating the need for costly IT infrastructure requirements or support.
Getting this right is important for the whole real estate sector, not just offices, as sharing space becomes more and more prevalent.
Just this week I heard of "cloud", "ghost" or "dark" kitchens which target the food delivery sector. These new operations focus on underused real estate (such as car parks and empty high street restaurants) and algorithm-driven optimisation to lower overheads and increase output. Karma Kitchen is one such example, setting up and hiring out kitchens in urban locations in the UK to serve the ever increasing demand for a greater choice of ready to eat meals. Kitchen United, a Google-backed start-up, is another example in the USA. It charges a monthly membership fee for use of premises, dishwashing, packaging services and access to its technology system for processing online orders from a range of delivery apps.
Sharing space in new and innovative ways makes so much sense; I can only see it increasing in popularity and spreading to other sectors especially as businesses learn the lessons from one sector and apply them to others.