Spring 2020 Issue
"Many co-working companies have adapted their space and services for a corporate audience, with a hybrid of private offices and co-working spaces. This model has driven unprecedented growth, with more than 900,000 square metres of space added in European markets in 2019, representing 56 percent of the new “flex space”." space is just a small proportion of the total rent roll. IMPACT ON YIELDS Limited exposure to flexible space has not had a noticeable impact on yields. Developers and investors may benefit from diversification and the operator’s ability to use communal spaces. Lack of tenant track record and underlying tenancy risk typically increases an asset’s risk profile. Buildings where flexible space represents greater than 50 percent of Rentable Building Area (RBA) have so far traded at a discount. Recent deals on the Continent have shown a decreasing yield differential, although the current cycle and the absence of quality investment product will have to be taken into account. OPAQUE MARKET DATA As the flexible segment grows, it becomes harder to have a clear view on real occupancy and rent cost levels. Space which is listed as let could still be on the market. Some larger corporate deals will be well documented, but the majority of short-term deals are almost impossible to track. This means that real vacancy rates and supply levels become more opaque, and calculation methods prone to distortion. The rents paid by final users are also obscured, making it harder to agree development or investment decisions based on current forecast pricing and supply levels.
a decade of experience in the real estate and finance industries. In 2012, he took over the role of Outsourcing Analyst for Capgemini Consulting, where he advised the company’s real estate clients on the most efficient solutions for financial process externalisation. Since 2016, Alarcón has been part of the CBRE Corporate Outsourcing Hub in Warsaw, which drives the finance process transformation for property management and other CBRE business lines across Europe, Middle East and Africa (EMEA), delivering efficiencies and compliance. ABOUT CBRE CBRE Group, Inc is a commercial real estate services and investment firm. It is the largest company of its kind in the world. It is based in Los Angeles, California and operates more than 450 offices worldwide and serves clients in more than 100 countries. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. The CBRE Global Investors subsidiary sponsors real estate investments via investment funds and direct investments that it manages.
The incorporation of flexible space to the investment portfolio has the potential to increase and diversify a building’s income stream. Tenants command higher rental rates and improve effective occupancy relative to a traditional office lease. But this can be difficult to achieve, and there is little transparency about rental revenue and effective occupancy for the major flex operators — predominantly private companies. Landlords often do not negotiate a profit-sharing agreement, or share any potential increase in revenue to cover the risk. The relationship remains a traditional one, which introduces additional risk because of the creditworthiness, lease longevity and variable business models of flex space operators. i ABOUT THE AUTHOR David Casas Alarcón is an economist from the university of Malaga, Spain, with more than CFI.co | Capital Finance International
Author: David Casas Alarcón
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