Property Week – 24 May 2019
In a recent article for Property Week, Julian Carey at real estate investment trust Stenprop has argued that Multi-Let Industrial (MLI) landlords are at risk of losing out to service operators and becoming passive owners of commercial property assets, asserting this has already happened in the office sector. Click here for article.
In response to this, Douglas Green has suggested that MLI landlords and the wider sector has a lot to learn from the flexible workspace sector, where landlords and operators alike can profit from a growing industry which promises strong rewards on investment:
As the concept of space as a service within the office sector has developed, so too have different models of operating by property owners depending on their risk appetite and the size of their balance sheet.
As lease lengths have shortened, some owners have been happy to grant operators such as IWG and WeWork a traditional long-term lease. Others have opted to create their own operations, such as British Land and The Crown Estate. L&G has launched a flexible workspace operation called Capsule. Others have invested in an existing operator, such as Blackstone taking a majority stake in The Office Group.
For others, GKRE has pioneered another way to enter flexible workspace though a joint venture management agreement with an operator. These can be described as the outsourcing by a property owner of the sales, marketing and all revenue generation of their asset as flexible workspace to an operator under the terms of a service agreement. These agreements are quickly becoming a favoured route for property owners as they can provide returns in excess of ERV.
Owners also rightly see such agreements as lower risk. Such agreements are working well for commercial property owners – they could work just as well for MLI owners, too.
With more than 5,000 flexible workspace operators in the UK, property owners are spoilt for choice and competition is fierce. MLI property owners need not fear operators entering their market but should see it as an opportunity to be grasped instead.
Douglas Green, director, GKRE