Emerging technology and evolving mindsets are producing a new generation of outside-the-box thinkers who are challenging the established notions of how to best market and utilize space. By 2020, the Bureau of Labor Statistics predicts that roughly 40% of the US workforce will be working in ways alternative to the typical 9-5 work week. These workers range from freelancers to independent contractors and solo entrepreneurs, but one thing is clear: the space as a service market is transforming the way the world works, and forward-thinking CRE professionals should take notice.
Read ahead to find out how to best adapt to changing expectations regarding space as a service.
What is Space as a Service?
Space as a Service (SPaaS) refers to the combined offering of a physical location and specific amenities to provide an on-demand experience that is all-inclusive. To break it down further, SPaaS combines real estate with user experience (UX), offering solutions in a variety of fields.
SPaaS is an offshoot of a larger cultural movement called the sharing economy. People are paying for access and are less concerned with ownership; some common applications of this business model include subscription services such as Netflix and Spotify and ride-hailing services like Uber and Lyft. Younger generations in particular are eager consumers of this concept, preferring the flexibility and convenience these options offer and placing less importance on possession and accumulation.
As a result, the convenience and practicality of SPaaS offerings are taking hold, prompting a surge in co-living and co-working spaces. Co-living consists of close-knit communities where tenants rent out individual bedrooms, usually on a month-to-month basis, and enjoy services and amenities that are managed as part of the community. Co-living residents may enjoy services such as on-site food and beverage tastings, fitness classes, dog parks, and more.
Co-working environments offer adaptable service and amenities required to accomplish tasks and produce results. Companies such as WeWork provide facilities that can be rented out to accommodate groups of different sizes and professions, also on a short-term basis. These companies manage both the properties themselves and the services provided to tenants. Many offices are fitted with fully-functional kitchens, gyms, and coffee bars but also go above and beyond with front desk staffing, cleaning services, professional development workshops, and social event planning.
How SpaaS is shaking up CRE
It was once enough to provide lessees with a space; soon, the addition of an all-inclusive service package will be the expectation. This evolution means that the role of property managers will undergo a dramatic shift as tenant expectations evolve to include community- and productivity-based amenities and services.
Further, shorter leases are an attractive feature of SPaaS as Millennials enjoy the flexibility of shorter-term commitments. This raises vacancy concerns, as keeping tenants lined up becomes a necessary focus. Short leases also offer flexibility and pricing advantages on the sponsor side, but trepidation about high turnover is understandable.
The co-living trend is good news for multifamily, because it’s an attractive alternative to single-family residential housing for many Millennials. This may help insulate against a multifamily demand dip as Millennials age and start families. Capitalizing on this market niche in primary markets may provide an affordable housing option to young professionals looking to remain in urban areas while also allowing for more profit-turning units to be built with less space.
How to Stay Ahead
As SPaaS continues to gain traction and grow beyond the office and multifamily spheres, taking steps to prepare for the eventual takeover of the sharing economy is imperative. Below are a few ways to adapt.
Keep the Amenities Coming
Think about tenant expectations and make sure your properties are capable of providing for their needs. For example, if you are looking to lease an office space that is not wired for fiber internet, but your competitors are prepared to offer this service, you may lose out. If your co-living space doesn’t have a dog park, but a nearby complex does, you may need to step it up. If you aren’t prepared to offer what your competitors do, it will be more difficult to attract tenants.
Focus on Community
Perhaps the most positive aspect of the sharing economy is the increased emphasis on community. It may become advantageous to hire an event coordinator in addition to a property manager to bring together desired amenities and services. Community features in office spaces may include a gym that’s not tucked in a basement, a bar fitted with power outlets, or even event hosting. Many of the features that have become so popular in multifamily spaces are now also growing in popularity in the workplace.
Make Your Assets Adaptable
With shorter term leases and higher service expectations, your properties need to evolve with your tenants. Use metrics like sustainability, flexibility, and productivity and look at the space through a hospitality lens to get an idea of what and how to adapt. Be sure to listen to tenants, former tenants, and service professionals about possible improvements and for insights about expectations. You may also want to consider flexible space design that will allow for multi-purpose use, like convertible offices that easily change to an open-concept space, or in the multifamily sphere, a rotatable coffee bar that turns into a cocktail bar for evening events. Providing a wider scope of services doesn’t have to require more space.
Leverage and Understand Technology
You likely cannot provide the top-of-the-line technologies to prospective tenants if you haven’t built out the tech stack of your own business. Start within to better understand the needs and desires driving SPaaS tenants. You may find areas of oversight that you can correct for an overall better ROI. Implementing value-add CRE tech will also drive back-office efficiency, saving you time and allowing you to better manage the demands of becoming a service provider.
Change can be intimidating, but don’t worry—the sharing economy is driving changes that in turn will allow for new and exciting opportunities. Becoming a service provider opens the door to a new dimension in CRE that allows for dynamic growth and the chance to demonstrate groundbreaking industry leadership. Think outside the box and you may come up with the next big amenity trend. Uncharted possibilities await for those brave enough to step up.