If you want to reduce your downside risk and future-proof your asset, you need to rethink and modernize your approach to running it. Flexible office space is a modern solution to help ensure your office building thrives in the long run.
Times are changing for commercial property owners, and unprecedented times call for innovative solutions.
If you want to reduce your downside risk and future-proof your asset, you need to rethink and modernize your approach to running it.
In today’s evolving office market, incorporating some degree of flexible office space into your portfolio can help you mitigate risk and reduce the cost, headaches, and downtime of vacancies in your buildings.
Evaluating Your Building’s Concentration of Risk
Traditionally, throughout any good market, you would look to consolidate spaces in your building.
If two 10,000-square-foot tenants left, you’d consolidate those spaces into one 20,000-square-foot office space and find a new tenant for a long-term deal.
After all, it’s easier to manage a single-tenant building than a double-tenant building or a ten-tenant building.
But office consumers have different demands today than they did a few years ago.
In 2024, if you have a building with 200,000 square feet of office space and the smallest transaction you can do is for 20,000 square feet, this creates a concentration of risk.
The best way to ensure the long-term success of your building is to rethink the way you operate it to align with the ongoing market shifts.
From Passive to Active: Rethinking the Way Office Buildings Are Run
For decades, office buildings have been set up like bonds. Real estate is, by definition, a passive investment.
But today, owning an office building is becoming an active investment and should be treated accordingly. It’s essential to run your building like a business, constantly measuring its risk profile and taking steps to reduce potential downsides.
Traditionally, your goal as a landlord was to sign a long-term lease with great covenants that bring in steady rents to cover your financial obligations.
This doesn’t apply universally anymore. Consumer preferences have changed, and relying solely on tenants occupying large swaths of square footage is a risky approach.
Pre-pandemic, it was safe to assume there was a 75% chance that your tenants would renew their leases. In our current market, there’s a case to be made that this has been flipped on its head.
So, what if there were a 75% chance your tenants would not renew their lease? What would this mean for your building?
How long would those spaces sit empty, how much would you lose in rent, and what would it cost you—in time, resources, and capital—to find a new tenant?
If the odds favoured your clients not renewing their leases, that would make every expiry date a critical moment, leaving you to worry about rollover risk and the potential subsequent fallout.
Failing to adjust your approach to running your building creates a real risk of your asset becoming obsolete well into the future, even through good markets.
Serviced Office Space: A Modern Approach to Risk Management for Commercial Assets
Incorporating a higher volume of smaller serviced spaces into your building helps spread your concentration of risk.
This is the foundation of serviced office space.
With this model, you can take a portion of your building and parcel it out into smaller footprints that can be occupied by organizations of varying sizes.
This has the dual benefit of:
- Reducing your concentration of risk
- Creating a robust product offering within the building
If the probability of renewal is 25%, then those tenants are likely looking to adjust their footprint. If you can accommodate their growth/contraction within the building, then the probability of retaining them is significantly increased.
When a tenant leaves, you’re not left with 20,000 square feet of vacant space. Instead, you’re left with more modestly sized private workspaces, shared meeting rooms, and open work areas that can be more easily filled, in turn reducing your downside risk.
It’s important to be aware that managing small spaces can be cumbersome and carries an element of risk, but these challenges can both be reduced by partnering with a coworking provider that has a track record of success —and that’s where iQ Offices comes into play.
Would you like to learn more about how incorporating flexible office space into your commercial portfolio can help mitigate risk and future-proof your asset? Contact us today to learn how we can work together to help you reach your goals and open opportunities for business growth through our shared office spaces and co-working spaces.
