It’s time for office property owners and investors to think outside the box and adapt to the changing needs of space users. Trends such as co-working, space as a service (SaaS), open-plan layouts, fewer fixed-desks and walled-in workspaces, and higher allocations to amenity space have implications for both cash flow and value changes, according to The Rapid Growth of the Flexible Office, a white paper by LaSalle Investment Management.
To maintain asset values, owners will need to respond to this new competition for office occupants, states the report. In some cases, owners will need to embrace less certain income streams in the flexible office market for the potential of greater income — either through higher rental rates, risk-sharing leases that optimize net versus gross income, or higher long-term average occupancy rates from positive spillover effects. In other cases, office owners may avoid the complexities of flexible office tenancy and hold out for lower-risk traditional office leases, even if the net operating income is slightly lower because greater income certainty could do more to drive a higher asset value. Finding the right balance between stability and income that enhances, rather than diminishes, office asset values should guide how investors react to flexible office trends.
The report includes advice for office owners, including pros and cons related to flexible office space, as well as a list of action items to consider in an analysis of which leasing model to use for a specific property.
To read the full report, click here.