Managed space – a vaccine for the Indian office market
Managed spaces can help the office market to recover from the aftermath of the pandemic, benefitting all the stakeholders – Landlord, Occupier and the Operator.
The Indian office market has not been immune to repercussions of the COVID-19 global pandemic during the past two years, and the impact was more significant than that of the Global Financial Crisis in 2008. Employees had to work from home, expansion plans were put on hold, and occupiers pressed landlords for rental waivers. While the healthcare experts worked towards developing a vaccine to fight the pandemic, the commercial real estate industry sought a way to bail out from this grave downturn.
Amidst all the hustle, Managed Office Solutions (MOS), a fully outsourced workspace solution, promised to provide a win-win situation for all stakeholders. In this model, everything is taken care of, from sourcing the property to its design, from fit-outs to its ultimate operation, all is conducted by an experienced third party, allowing companies to focus on running their core business.
Key occupier advantages of MOS are:
Location − MOS offers more flexibility than a traditional lease. Solution providers are not restricted to fixed locations, and some even offer spaces on a green field ‘build-to-order’ basis.
Low capital investment − Offices are typically fully fitted, ready to move-in and are on an operational service type contract, per workstation on a per month basis.
Risk − Property acquisition, holding and disposal risks are transferred to the MOS provider.
Phased occupation − Contracts can allow occupiers to ‘fill’ a building on an incremental basis.
Bespoke/turn-key − Location and office space design are determined by the occupier.
Supply chain management − The solution includes bespoke service with one partner/provider, which simplifies the operational supply chain involved in property management, including the management of contractors, utilities, security, parking, internet connection, etc.
Average term – Average lease term for MOSs is 3-5 years, compared to 9 years (3+3+3) in a traditional office space.
Privacy & security – MOSs provide more privacy, leading to reduced disturbance and increased productivity. They also provide more data security over the other flex space models.
The advantages for the landlord/developer are:
Due to cost pressures, occupiers are interested in fully fitted offices to avoid capex, assure flexibility for future scaling of business, and for shorter lease terms that the MOS model offers.
Landlords/developers are able to meet the occupier requirements via managed office operators by:
- Offering fully fitted offices without assuming the capital expenditures.
- Typically, leasing the entire project and then the operator subleasing it further in part or in full, filling a majority of the vacant space.
- Increasing occupancy stability as the average operator lease is 6-9 years.
Some of the benefits exclusive to MOS operators are:
- Higher occupancy - In most cases, the MOS operator leases a property after the occupier and all its requirements are finalised.
- Stability - Average tenure of the sub-lease is 3 years, higher as compared to the other flex space models.
- Scope of expansion - As the office is tailor-made under this model, there is higher probability of the occupier selecting the same operator to set up offices in other districts or cities.
- Ease of administration - There are fewer but larger occupiers compared to pure co-working spaces.
Going forward, a large number of occupiers are expected to adopt a hybrid work model. Organisations that require more flexibility in terms of contract length, location and bespoke services will actively consider MOSs. Owners and operators must adapt to and embrace this new model if they are to improve the tenant experience, gain cost advantages and strengthen their efficiency and sustainability.