CBRE’s new report about flexible office valuations during market uncertainty found that the enthusiasm of lenders and investors has dwindled down after WeWork’s failed IPO. Still, demand for these spaces is continuing upward.
According to Julie Whelan, CBRE’s Americas senior director of research, said that landlords typically look for spaces with 15% or less flexible space as it is small enough to allow a building to have strong local market fundamentals, while still maintaining a diversity of tenants.
In the case that an operator fails or breaks its lease, Whelan adds that landlords might be better off financially. If the operator failed for reasons beyond finances, the landlord could explore a new flexible office provider to take over.
One of the biggest wake up calls within the industry is the issue with traditional leases. Now, operators are making the pivot towards asset-light, management-for-a-fee model.
“It allows the landlord more control over the design and operations of the space and direct influence over the membership mix,” said Whelan. “It also, most importantly, provides the landlord a higher net operating income, once stabilized.”