Most flexible workspace operators are tenants of the buildings they operate from. Though this approach works well for many, there’s an opportunity for workspace operators to own the buildings they operate from in order to increase their control, improve their offering, and increase their revenue.
This article is part of our workspace best practices series.
“In the past, when I had leases, I put a lot of money into the infrastructure; when I left, it was the landlord who got that advantage, not me.”
New York City Commercial Real Estate expert and founder of WorkHouse, Debra Larsen, shared with Allwork why buying real estate from which to operate a workspace is a smart business strategy.
Larsen explains that by owning the building “you get to control your work destiny within the building. You are not looking at the end of lease term to calculate the price you will pay and charge for, and additionally, by owning the building you also get to control the building staff; those in the lobby, those in maintenance, and those in reception.”
The perks go beyond giving you more freedom on how you operate. Being a real estate owner can also make it easier for you as an operator to control your margins. “When you own the building, you don’t have any profit that needs to go to the landlord, you get to use or invest that profit elsewhere.”
Additionally, owning real estate is beneficial for exit strategies. “Owning the real estate gives you more options for an exit strategy. In case things don’t work out as expected, you can always resort to vacating the building and capitalizing on what the building value has been appreciated to. Similarly, you can also sell the property and keep operating the workspace business.”
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“When you lease the space you operate from, your exit strategy is reduced to buying out or going public.”
Buying real estate, however, also has its disadvantages.
“Buying the building is much more equity intensive; you need more capital in order to get started, and it also requires a lot more experience.”
As a landlord, you need to think about water tanks, heating systems, AV systems, facility management, to name a few. Owning the building might require more capital and experience, but it can create a lot of value in the long run if done right.
“These days people like WeWork are basically financing their new locations through landlords.” In short, the landlords get to keep a significant amount of the profit generated so the operators can pay off their leases. This is a trend that is likely to grow as more landlords opt to get involved in the industry and begin their own flexible workspace operations.
Larsen’s last word of advice on the topic is, if you do decide to use this strategy to grow your workspace business, make sure you “keep real estate separate from your flexible workspace business.”