COMMENT In today’s rapidly evolving commercial property landscape, the line between traditional office space and hospitality-driven environments is increasingly blurred.
The rise of serviced office operators has redefined expectations, with occupiers looking for a blend of workspace functionality and premium services that resemble those of high-end hotels. “Hotelisation” is fast becoming part of the conversation when talking about office spaces, as is the shift from “tenant” to “customer”. This shift raises an essential question for commercial property landlords: should they attempt to compete in the hospitality space, or is it more prudent to focus on what they do best: maximising the performance of the asset?
Commercial property owners, or the people that represent them, are, by nature and training, asset managers. Their primary focus is on ensuring that a property’s value appreciates, securing long-term occupiers and optimising rental income. The skills required for these tasks are markedly different from those necessary to deliver high-quality hospitality services. While it might be tempting for landlords to venture into this space, the complexities involved in providing a hospitality-level service can detract from their core responsibilities and should not be underestimated. Plus, with any operational model, leveraging economies of scale is crucial to drive operational margin performance.
Creating an experience
Hospitality is not just about offering a comfortable workspace; it’s about creating an experience. This includes concierge services, community events and very often amenities such as cafes, gyms and wellness programmes. Such services require a completely different operational model, one that is often alien to the traditional landlord’s skill set. Venturing into this area is very likely to result in suboptimal service delivery, leading to occupier dissatisfaction and potentially harming the asset’s long-term performance.
Serviced office operators like Runway East, on the other hand, are specialists in hospitality-driven workspace environments.
By outsourcing the hospitality aspect to operators, owners can ensure that their buildings offer the level of service occupiers expect without having to divert resources from their core activities, while at the same time reducing operational risk. The expertise of serviced office operators allows them to create vibrant work environments that are difficult to replicate without significant investment and operational know-how. In turn, that drives high occupancy and premium rents: Runway East typically trades at 92% occupancy and delivers a 30%-plus rental premium.
Strategic partnerships
Rather than attempting to compete with serviced office operators, property owners should consider forming strategic partnerships with them. Such collaborations can be mutually beneficial as they allow landlords to offer a diverse range of spaces in their buildings, catering to different occupier needs while still focusing on the asset’s financial performance.
For instance, a landlord could lease part of their building to a serviced office operator, allowing them to manage the flexible, hospitality-driven workspace. This not only enhances the building’s appeal to a broader range of occupiers, with improved leasing velocity and occupier retention across the building, but should also provide the landlord with an income stream at a premium to a traditional lease, provided that the partnership lease is correctly structured. What’s not to like?
While the allure of hospitality-driven workspaces is strong, most office owners should resist the temptation to delve into this space themselves. The expertise, operational complexity and investment required to successfully manage such environments mean that it is best left to serviced office operators.
Instead, property owners and their asset managers should focus on their core activities: capital allocation to maximise the performance of their building and sound asset management practices, which should include strategic partnerships.
Serviced office operators are well-positioned to adapt to changing market conditions and occupier expectations, and are able to pivot their service offerings to ensure the building remains competitive in a rapidly changing landscape. Partnering with an established serviced office operator reduces operational risk and drives revenue, which should ultimately feed into a building’s asset value. There’s the potential for everybody to be a winner: property owner, operator and the end customer – how often can that be said?
Andy Williams is chief financial officer at Runway East
