With Flex Space taking over 30% of the office market, brokers face new challenges – Trade Observer

With the office market increasingly moving towards flexible spaces, office brokers are facing a sea change that will have a profound impact on the way they operate. Partner Insights spoke with John Arenas, CEO of flexible space provider Serendipity Labs, about how brokers will need to adapt to the new office landscape and what opportunities will be available to them once they do. .

Trade Observer: How has the emergence of flexibility, including work from home and hub-and-spoke, affected the brokerage community?

John Arenas: The major real estate brokerage firms have developed new professions to deal with the emergence of flex office. They recognize that if 30% of all office space is to be flexible and they want to continue contributing to the cost generation and economy, they need to invest in these business areas. This includes maintaining their market share of tenant representation and their agreements with landlords so that they are experts in flexible property management. Their fee-based sourcing and product development businesses risk losing market share if they don’t create these new flexible office business lines. They even went so far as to join us as suppliers. CBRE did this with a product called Hana, which they eventually merged with another flexible operator. The other interesting thing is that the big brokerages are creating technology platforms that host flexible office availability inventory and pricing, so their brokers and clients can search, compare and book not only offices, but also meeting and office spaces. That’s what comes next.

CO: Do you see this as a fundamental shift in how brokerage firms and brokers operate, or just slight adjustments in their general business approach?

JA: With 30% of fees up for grabs, this is a major change, and not just for brokerages. Tenant representation agents have already started showing flexible office alternatives to conventional office space clients without their clients asking, as a significant percentage of office space requirements are less than 50 people, which fits into the flexible office model. So, as a broker representing tenants, doing your job well for a client will mean understanding their business problem and then solving it with a work solution that includes an outsourced workplace instead of just finding them square footage in a building. of offices. This is a major change in their approach to business. Instead of being the gatekeeper of information about what’s available and the price and taking your customers on a tour, it’s actually about trying to understand that customer’s business purpose. Do they need temporary swing space? Are they trying to support a distributed work strategy? Do they make sure they have an inspiring place to attract and retain employees? All of these are well suited for a flexible office operation. So if you are a tenant representation broker and only show square footage, you will be at a huge disadvantage.

CO: For seasoned brokers who have always worked with a conventional desk, is there a new body of knowledge required for this?

JA: It’s not rocket science, but it’s a whole new set of information to gather from the customer and the operator. It used to be that you asked the client how many people, how many desks, and what their budget was, then scouted out a space and helped them broker a deal. Today, you need to know all of this, but also what their working standards are, as they are increasingly looking for a compliant, outsourced and flexible working arrangement. The broker should understand which flex office providers offer a managed workplace for health and safety, for technology compliance and for hospitality service level delivery. These are the important differentiators among flexible providers. Also, who owns the establishment? Is it a regional operator? A national operator? Serendipity Labs licenses its platform and operates on behalf of the owners, so customers sign an agreement with an entity controlled by the owners. That’s a big difference if you’re an occupier who wants to trust the credit and financial strength of a particular flex office operation. Knowing that it’s owner-owned provides a lot more comfort than if the location were owned by an independent operator, or even a venture capital-backed coworking company.

CO: How will these changes affect the nature of the broker-client relationship?

JA: When you think about the number of buildings currently managed by a flexible office operator, that particular inventory is no longer available for sale, because it is sold by the operator. However, many flexible office operators – like Serendipity Labs – hire a real estate service/brokerage to represent the location as an additional marketing source. So brokers can still participate if they win the contract to represent the coworking operator as a distributor of that facility.

CO: How does all of this affect the earning potential of the broker?

JA: Previously, it felt like flexible office contracts weren’t opportunities for big commissions. However, as companies use flexible offices that can accommodate up to 50 or even 100 workers, the saving has increased significantly. And because the flexible operator pays a commission based on the value of the contract at a commission rate of 10%, the commission for the flexible office agreement can be equivalent or higher than a traditional sublease or a conventional agreement. for a contract of two, three or four. term of the year. In the UK market, which is a much more mature coworking market, the brokerage community has become incredibly attuned to how to sell flexible office space. There, more than 75% of all flexible office transactions are negotiated, while in the United States it is still less than 20%. This is the direction in which things are going in the United States. Flex will be part of the brokers’ business plan. When brokers learn to represent value and understand economics, it will become a majority market share of all transactions made through brokers.

CO: How Serendipity Laboratories work with brokers?

JA: We have agency agreements with brokerage firms and agents to represent our locations, and they get waiver on transactions from the brokerage community. If we have assigned a broker to our location and a referring broker from another company offers the deal, that referring broker receives a 10% commission, and the broker we hired to help us run our brokerage receives a waiver of half a commission. . This encourages everyone to get involved.

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