It’s Time To Reimagine The Landlord-Operator Relationship In The UK, Here’s Why

Published on July 5, 2021 - By Kate Tattersfield

• During Coworking Assembly’s latest webinar, experts discussed how to overcome current barriers to making flexible workspace on the UK high street work. 
• There’s a shift in the balance of power from owners to tenants now that people/businesses can engage in the economy without the need for physical space.
• One of the topics discussed was why are some landlords willing to leave them empty rather than turning them into flexible workspaces?

On 30 June Coworking Assembly webinar hosts Naima Omasta-Milsom and Tash Thomas were joined by three expert panellists, Alice Fung, Bex Trevalyan and Ojay Mcdonald.

The order of the hour? Flexible workspace on the UK high street. 

Or more specifically, how we can overcome current barriers to making flexible workspace on the high street work, by reimagining the relationships between landlords, tenants, operators, and local authorities. (As explored in this LEAP-commissioned report.)

We’ve summarised some of the main points covered in the discussion below. 

But before you check them out, be sure to subscribe to the Coworking Assembly newsletter to make sure you don’t miss out on webinars like this one in the future. 

You can also hear panellist Alice Fung deep dive into what flexible workspaces can do for the high-street—at a time when the 15-minute city is gaining traction—on this podcast. 

Unlocking empty retail properties—why are some landlords willing to leave them empty rather than turning them into flexible workspaces?

• A recurring challenge is persuading landlords who own a couple of properties to take the risk of working with smaller and younger enterprises (i.e. flexible workspace operators).

• Sometimes it’s easier for landlords to leave their shop(s) vacant—because of the way rates liabilities work, it can be cheaper to do this.

• As a flexible workspace operator, you should build relationships with local authorities as well as landlords; getting buy-in and sponsorship from senior directors and councillors can help.

• Leverage the reputation of the council who can back you if you don’t have a long trading track record, and might be able to underwrite rates for a specific time. 

• Have a really clear business plan and demonstrate your prowess when it comes to finances. Is the landlord open to a revenue share model?

We’re seeing a shift in the balance of power from owners to tenants now that people/businesses can engage in the economy without the need for physical space.

• Due to the way the commercial property tax system works in the UK, sometimes even identifying the property owner can be a challenge. 

• There are different types of landlord—some aren’t bothered about how their property is used as long as it’s accruing value. 

• Identify those landlords who are keen to engage in business, entrepreneurship and the community. (They’re the ones who will be interested in taking things forward and repurposing for the right reasons.)

• Shopping centre landlords may be willing to take a small risk in order to create a buzz and demonstrate that they’re supporting local businesses.

Some say that peppercorn leases could help “get town centres moving again.” But how often are they used in reality? 

• Peppercorn rent was a hot topic following the 2008 financial crash and had the potential to reignite town centres. However, the reality didn’t live up to the hype. 

• Some landlords are put off by the impact peppercorn rent might have on the long-term valuation and income of the property. 

• The good news is that meaningful discussions about restructuring tenant-landlord relationships are taking place now—revenue/ turnover-based rent is being considered and some large landlords are committed to introducing it.

• Public sector landlords tend to be more open to outcomes-based agreements or social-based leases. (It’s not commonplace yet though, and some properties are still used purely as a revenue generator.)

• Peppercorn rent tends to be for very long leases (15 to 20 years). The tenant needs to have the covenant track record to be able to negotiate for the peppercorn, and most flexible workspace operators are startups. 

• One option is to partner with a more established organisation, such as a charity. 

• Change is afoot—we’re seeing a shift in the balance of power from owners to tenants now that people/businesses can engage in the economy without the need for physical space.

How do you package the flexible workspace offering to retail and shopping centre landlords to make it appealing?

• Find your ally within the property company, e.g. the Sustainability Lead (if there is one). Identify the person who will help you to champion your cause. 

• Think about how you’re going to package your proposal. What are the local needs?

• “Here’s a low-risk high-footfall, medium-return opportunity”. 

…What about Category E and business rates?

• The new Category E use class could help pave the way for flexible workspaces on the UK high street by making landlords less worried about risk—landlords can convert a retail unit into office space without a planning application then flip back if it doesn’t work out. 

• NOTE: New legislation in England that comes into force on 1 August 2021 will allow Class E uses to be converted to housing without the need to submit a planning application. 

• The business rates valuation system is in need of an overhaul. Some flexible workspaces are playing more of a local socioeconomic function than a commercial one, so why are they paying the same business rates as retail units? 

• Are we taxing property too highly and under-taxing the capital that flows in and out of the country? Huge structural changes are needed to enable local areas to thrive in the future.

Further reading:

• The report: https://lep.london/flexible-workspaces-our-high-streets
• Interesting project: https://www.weareeveryone.org/every-one-every-day
• Public service infrastructure: https://bit.ly/2UiAsnD
• More on Class E, etc: https://bit.ly/3xi9hIf