Space-as-a-Service comes of age

Steve Jude, CEO of NewFlex gives his thoughts on Space-as-a-Service for Property Week.

In the past few weeks, the speed of change has been breathtaking. Ideas that were once regarded as outlandish have become mainstream very quickly.

So, what will occupiers learn from the crisis, and how will these lessons be reflected in their businesses?

Just before lockdown, I spoke at a private dinner for property clients of a global accountancy firm where I focused on the niche concept of space as a service. Leaning heavily on ‘The Trillion Dollar Hashtag’ by Antony Slumbers, I proposed that occupiers would start to include space that can be procured ‘on demand’ as part of their corporate office portfolio. A conventional office may form a core part of an occupier’s portfolio, but it will be an increasingly small part.

As all finance directors know, taking a long lease on space that is rarely utilised to full capacity is very inefficient and costly for an occupier. Taking less core office space and supplementing this with the ability to flex into more office space, meeting rooms and breakout areas as demand requires reduces these inefficiencies.

Space-as-a-Service is a niche idea that will quickly become mainstream.

This new model benefits both parties. The upside for occupiers is that their total occupancy costs fall. The upside for building owners is that the reduced core space can be offered at a higher price per square foot. Everyone wins.

Space-as-a-Service is a niche idea that will quickly become mainstream at a time when most businesses are urgently trying to survive by shedding costs quickly.

In this environment, a long-term, fixed lease with quarterly payments is potentially terminal. For the businesses that survive the crisis, the move to a more flexible structure can’t happen fast enough.

Upsides to home working

The crisis has also shown us that home working is not so bad after all. The ease and ubiquity of Teams and Zoom has enabled managers to squeeze extra productivity from home workers, while enabling colleagues to manage their home life better, instead of commuting. The demand for home working has been accidentally and forcefully realised.

Before the crisis, thoughts about flexible working and flexible offices were already in the minds of UK business leaders. After the crisis, we expect to see these thoughts crystallise into a significant reduction in the demand for conventional office space.

This new environment presents thoughtful landlords with an opportunity to increase rents by embracing the concept of Space-as-a-Service.

Landlords that offer this amenity will have more demand and loyalty from occupiers, and will be able to charge more money per square foot.

Landlords who don’t offer Space-as-a-Service will join a race to the bottom for the reduced number of occupiers who will accept the pre-crisis status quo. This is not a good place to be.

A space-as-a-service strategy is already being pioneered by AXA at 22 Bishopsgate, where 20% of the building will be held as a flexible amenity for occupiers of the building. AXA is leading the way to the future and many others will follow.