The Financial Benefits of Converting Sydney Commercial Space into a Flexible Workspace

Introduction

The real estate landscape is ever-changing, and Sydney is no exception. In a city where every square meter counts, landlords are continuously looking for innovative ways to maximise profits. One of the rising trends is converting traditional commercial spaces into flexible workspaces. If you’re a landlord with commercial property, you may find that transitioning from long-term office leases to a more adaptable workspace can offer several financial benefits.

High Demand for Flexibility

In the wake of the pandemic, the work environment has fundamentally shifted towards more flexible models. The 9-to-5 workday and the long commute are increasingly being replaced by remote and flexible work arrangements. Sydney, being a commercial and financial hub, has seen a particular surge in the demand for flexible workspaces, and this demand directly translates into financial advantages for landlords.

Revenue Consistency

Traditional commercial leasing often involves long periods of vacancy while searching for the right tenant. However, the high demand for flexible workspaces almost guarantees that you will have a consistent flow of tenants, reducing or even eliminating the dreaded vacancy periods. This consistency is crucial for landlords who depend on the steady income generated by their commercial spaces.

Price Premium

Flexible workspaces can command a premium price per square foot compared to traditional long-term office leases. Businesses are willing to pay this premium for the convenience of short-term commitment and the range of services offered, from high-speed internet to fully-stocked kitchens. Asa landlord, this means you can potentially generate more revenue per square foot, increasing the overall profitability of your property.

Adaptability to Market Trends

Businesses today need to be agile to survive and thrive, and their workspace requirements are no exception. As a landlord, offering flexible workspace solutions allows you to quickly adapt to market demands. This agility can make your property more appealing to potential tenants, thereby giving you a competitive edge in the market.

Occupancy Levels

The flexible nature of these workspaces often results in higher occupancy levels. Businesses can upscale or downscale their requirements with ease, allowing for a more efficient use of space. Higher occupancy levels mean more revenue and less wasted space, ensuring that you get the most out of your commercial property.

Minimised Credit Risk

Having a diverse range of tenants in a flexible workspace can act as a natural hedge against financial risk. If a tenant moves out or defaults, the impact is spread out across multiple tenants, reducing the financial strain on you as the landlord.

Increased Revenue Potential

When it comes to the financial incentives of transitioning to a flexible workspace model, many landlords focus primarily on the price per square foot or square meter. While it’s true that these spaces can command a premium rate compared to traditional office setups, the revenue potential extends far beyond that single metric. Here’s how.

Higher Price Per Square Meter

Firstly, let’s address the elephant in the room: Yes, flexible workspaces do often bring in a higher price per square meter. Businesses are willing to pay this extra amount for the flexibility and amenities that come with co-working spaces. The convenience of a month-to-month lease, high-speed internet, meeting rooms, and more can be highly attractive, making it possible for landlords to charge a premium rate.

Revenue Diversification through Amenities

Offering a co-working space allows landlords to diversify their revenue streams through various amenities and services that traditional office spaces don’t usually provide. Think about conference room bookings, printing services, or even in-house cafes. These services not only make the workspace more attractive to potential tenants but also open up new avenues for generating income.

Event Space Leasing

Many co-working centers feature communal spaces that can be transformed into event venues. By renting out these spaces for workshops, networking events, or social gatherings, landlords can tap into an entirely new revenue stream that’s not dependent on office leasing.

Tiered Membership Models

Co-working spaces often have tiered membership models ranging from hot-desks to private offices. This tiered approach enables landlords to maximise the use of space and cater to a broader range of clients, thereby increasing revenue potential. The pricing flexibility allows you to accommodate freelancers who might need a desk a few times a month as well as larger companies requiring a more permanent setup.

Partnering with Local Businesses

Landlords can also increase revenue by partnering with local businesses to offer special deals or services to tenants. Whether it’s a discounted gym membership or a special rate at a nearby coffee shop, these partnerships can make the workspace more appealing to potential tenants while also providing you with a cut of the additional revenue generated.

Low Turnover Costs

The concept of low turnover cost is often overlooked when discussing the financial advantages of establishing a flexible workspace or coworking centre. However, for landlords, this particular benefit could be a game-changer in terms of profitability and ease of operation. Let’s delve into why this is the case.

No More Agent Fees for New Tenants

In a traditional leasing setup, landlords often rely on real estate agents to find new tenants, which typically incurs a commission fee that can eat into profits. In a coworking environment, this cost is entirely removed. Thanks to the coworking centre’s ability to self-generate leads, along with the consistent sales efforts of the centre manager, you no longer need to allocate funds for agent commissions. This savings directly enhances your bottom line and contributes to the overall financial health of the venture.

The Vacancy Gap is a Thing of the Past

In the world of commercial real estate, vacancy periods between tenants can be financially draining for landlords. Not only do you lose out on rent during these periods, but you also incur costs for maintaining the empty space. Coworking spaces virtually eliminate this problem. Given the flexible nature of these spaces and the diverse range of clients they attract-from freelancers to small businesses to corporate teams­ there is a constant flow of tenants. This fluidity ensures that your property is consistently occupied, thereby eradicating the dreaded vacancy gap.

Elimination or Balance of Turnover Costs

Traditional office leases generally incur significant costs during tenant turnover. From advertising expenses to property restoration, the costs can be quite substantial. With a coworking setup, however, this issue is mitigated to a great extent. Once the coworking centre is established, turnover costs are either eliminated altogether or counterbalanced by the setup and exit fee structure commonly practiced in the coworking industry. As a landlord, this means you save money every time a tenant leaves or joins, enhancing your bottom line over time.

Self-Generating Leads and Client Acquisition

Another key factor contributing to low turnover costs is the local presence of the coworking centre. With a well-located centre, especially in high-demand areas like Sydney, you quickly become a go-to space for flexible work options. This local presence, combined with word-of-mouth and online reviews, allows the centre to self-generate leads. Essentially, your coworking space becomes a self-sufficient entity in terms of client acquisition, reducing the need-and cost-for external marketing efforts.

Full-Time Sales with Operational Cost

The role of a centre manager in a coworking space is multidimensional. Not only do they handle the day-to­ day operations of the space, but they also play a crucial part in business development and sales. This dual role creates a unique advantage: having a person on-site who is actively selling the space for 8 hours a day, 5 days a week. The investment in a centre manager, therefore, serves a dual purpose and offers an excellent return, eliminating the need to hire additional sales staff, thereby keeping operational costs low.

The Synergy of Cost-Savings

When you combine the elimination of agent fees and vacancy gaps with the low turnover costs, self­ generating leads, and built-in sales efforts of a coworking space, you have a compelling financial argument for landlords. Especially for those in high-demand areas like Sydney, the adoption of a coworking model provides not just increased revenue but also considerable cost savings.

Diverse Tenant Base

One of the most compelling features of a coworking environment is its ability to attract a diverse tenant base. Unlike traditional office leases, which often cater to specific business sizes or industries, coworking spaces are inclusive by design. They accommodate a wide range of clientele, each with varying needs and expectations. This diversity not only makes for an enriching work environment but also brings several financial and operational advantages for landlords.

Diverse Tenant Examples

•  Freelancers and Solo Entrepreneurs: These individuals are often looking for a flexible, hassle-free space where they can focus on their work without the distractions of a home environment.

• Startups: Small companies and startups find coworking spaces particularly beneficial for their budget­ conscious plans. They enjoy the flexibility to scale up or down as needed.

• Remote Teams: With the rise of remote work, many established companies now house remote or satellite teams in coworking spaces. These could be tech teams, marketing departments, or project groups who need an interim workspace.

• Local Businesses: From accountants to web designers, local businesses find value in coworking spaces because it allows them to have a professional setting without the high costs of a dedicated office.

• Consultants and Sales Teams: These professionals often need a flexible base for meeting clients or team members, making coworking spaces an ideal solution.

• Non-Profits and Community Groups: These organisations often seek out coworking spaces for events, training sessions, or even regular workdays.

Financial and Operational Advantages for Landlords

• Stable Income

Having such a broad tenant base ensures a more reliable and stable income. The variety of tenants means you’re less susceptible to market fluctuations affecting a particular industry or business size.

• Minimal Downtime

The diverse clientele almost guarantees that there will be minimal downtime in tenancy. This is crucial for landlords as empty spaces are a drain on resources and potential income.

• Up-sell Opportunities

The diverse needs of these tenants allow for multiple up-sell and cross-sell opportunities. For instance, a startup that begins with two desks may eventually need a private office, followed by a larger space as they expand, all within the same coworking centre.

• Networking Opportunities

The diverse tenant base can also be a selling point for new potential tenants. Many businesses find value in the networking opportunities that such a diverse environment can offer, attracting even more tenants to the space.

Service Add-ons

In a coworking environment, revenue isn’t solely derived from leasing desks or office spaces. One of the most lucrative aspects that landlords should consider is the potential for service add-ons. These additional services not only enhance the value proposition for tenants but also significantly contribute to the landlord’s earnings.

Types of Service Add-Ons

•  Meeting Rooms: Providing high-tech, well-equipped meeting rooms can be a significant income generator. These rooms can be rented by the hour or day.

• Virtual Office Services: Offering mail handling, a professional business address, and phone answering services can attract businesses that don’t need a physical space but require professional amenities.

• Premium Internet Plans: While basic Wi-Fi is usually included in the standard package, you can offer upgraded bandwidth or dedicated lines for an extra fee.

• Print and Copy Services: A business centre offering printing, photocopying, and even fax services can add a small but consistent revenue stream.

• Catering and Refreshments: Offering high-quality coffee, snacks, or even full catering services for meetings can be an excellent source of additional income.

• Events and Workshops: The space can be rented out for professional events, workshops, and presentations, bringing in extra income and increased foot traffic that could convert into long-term tenants.

• Support services

How Much More Can Landlords Earn?

The actual earnings from service add-ons can vary based on factors such as location, demand, and quality of services, but it’s not uncommon to see a 10-20% increase in overall revenue. In bustling areas like Sydney, where the demand for high-quality, flexible workspaces is high, the potential for additional earnings could be even higher.

Revenue Breakdown Example:

• Desk Leasing: 70% of Revenue
• Meeting Rooms: 8% of Revenue
• Virtual Office Services and Memberships: 10% of Revenue
• Premium Internet Plans: 3% of Revenue
• Print and Copy Services: 3% of Revenue
• Catering and Refreshments: 2% of Revenue
• Events and Workshops: 2% of Revenue
• Support: 2%of Revenue

Risk Mitigation

One of the critical ways that coworking spaces minimize risk is through a diverse tenant base. Unlike traditional office leases, which might be dependent on one or two large tenants, coworking spaces can host a wide array of businesses-startups, freelancers, remote employees, and even established enterprises looking for flexible arrangements.

This diversity ensures that the landlord isn’t overly reliant on any single tenant or industry, providing a buffer against economic downturns.

Coworking operations are resistant to changes in economy, downturns and crisis.

When the economy is good – the coworking centres are doing well benefiting from the influx of startups and new businesses. When the economy is bad and the confidence levels in the market is low, coworking centres do well as well attracting interest of businesses not wanting to commit to long term leases or unsure about their immediate future and in need of a flexible space to downsize or expand freely.

Enhanced Online Presence and Increased Foot Traffic

In today’s digital age, maintaining a robust online presence isn’t just a luxury; it’s a necessity for any business, including property leasing. When landlords invest in a coworking centre, one of the frequently overlooked benefits is the enhanced online visibility that accompanies it. Let’s delve deeper into how an amplified online presence can offer substantial advantages to a property owner.

Increased Footfall. Increased Exposure

A well-managed coworking centre naturally strives to sustain an active online profile via its website, social media channels, and online advertising. They may also collaborate with digital platforms specialising in booking coworking spaces. As the centre gains online visibility, it indirectly boosts the profile of the building itself. This elevated digital footprint draws greater footfall to the building, providing significant benefits for the landlord. The more people walking through the doors, the higher the likelihood that potential tenants get exposed to other available spaces within the building. While visitors may initially be attracted to the coworking centre, they could soon become interested in other amenities and offerings within the premises, making it easier for you to lease additional spaces.

Reviews and Recommendations

In a coworking environment, content tenants often leave reviews or testimonials online. Positive feedback not only enhances the reputation of the coworking centre but also reflects well on the building and its management. This social proof can be a powerful factor influencing potential tenants who are evaluating the building for long-term commitments.

Search Engine Optimisation (SEO) Benefits

A coworking centre investing in robust SEO practices can rank highly in search results, elevating the building’s name along with it. When people search for coworking spaces in a specific city or area, your building becomes more visible by association. The more frequently your building appears in search results, the more it gains legitimacy as a desirable location, thus making it easier to attract high-quality tenants.

Networking and Community Events

Coworking centres often host events, workshops, or networking mixers, typically promoted online. These events add to the online buzz surrounding the coworking centre, and by extension, the building itself. This sort of content marketing not only engages current tenants but also captures attention from the broader business community, making your building increasingly appealing for future tenants and partnerships.

A Natural Incubator for Future Tenants

The concept of a coworking centre serving as a “natural incubator” for long-term tenants is an often­ underestimated advantage for landlords. But what does the term “natural incubator” mean in this context, and why should commercial property owners pay attention? Here’s a closer look.

What is a Natural Incubator?

In the entrepreneurial world, an incubator is a supportive environment that helps start-ups and small businesses grow and succeed. In a similar vein, coworking centres can act as natural incubators for potential long-term tenants. They provide an environment rich with resources, networking opportunities, and a community of like-minded individuals. This setting is conducive for businesses to flourish and, as they do, their needs for space and amenities expand.

Tenant Evolution Within the Building

Businesses that start in coworking centres are often in their infancy or growth stages. As these businesses evolve, so too do their spatial needs. A small team might quickly grow to a point where coworking spaces can no longer accommodate them. When the time comes to upgrade, moving to a larger space within the same building is often the most natural and convenient next step. This progression creates a seamless transition for tenants and ensures that landlords have a consistent and growing source of revenue.

Ease of Expansion

Businesses that grow within coworking centres have firsthand experience of the building’s amenities, management, and culture. The convenience of remaining in a familiar environment reduces the friction usually associated with relocating, making the building’s other spaces more attractive options. Landlords can capitalise on this ease of transition to offer customised leasing solutions, creating a win-win scenario for all parties involved.

Reduced Vacancy Risks

Having a coworking centre as a natural incubator significantly reduces the risk of long-term vacancies in the building. Instead of sourcing new tenants externally, landlords can tap into the existing pool of growing businesses already present in the coworking centre. This internal ecosystem often speeds up the leasing process, reducing the time and resources typically spent on marketing vacant spaces.

Community and Networking

The community aspect of coworking spaces is not to be overlooked. Businesses often collaborate and network in these environments, contributing to their overall success and growth. A thriving community within a coworking centre can translate into a higher demand for additional spaces in the building, as businesses often prefer to stay within their established networks.

Superior Upkeep and Maintenance

The upkeep and maintenance of a coworking centre are often top-notch, and for a good reason. These spaces aim to provide a high-quality environment for their tenants, which by extension elevates the standard of the entire building. But what does this mean in practical terms for landlords? Let’s delve into some specifics.

Regular Maintenance and Renovation

A well-maintained coworking centre is continually updated and refurbished to keep its appeal. This involves regular painting, repairs, and often, upgrades to furniture and technology. For example, you might find that a coworking centre frequently updates its communal spaces with fresh paint, modern art, or ergonomic furniture. This consistent level of upkeep and maintenance reflects positively on the entire building, making it more appealing to prospective tenants of all types.

Tech-Savvy Amenities

Coworking centres are typically at the forefront of technology, offering high-speed internet, modern meeting rooms equipped with the latest video conferencing tools, and smart access systems. These amenities aren’t just for coworking tenants; they also increase the overall attractiveness of the building, as technology and connectivity are vital considerations for modern businesses when selecting an office space.

Pristine Condition 24/7

Unlike traditional office spaces, which might only be cleaned at the end of each day or even less frequently, coworking centres often feature round-the-clock cleaning services to maintain a clean and pleasant environment. This relentless pursuit of cleanliness has a trickle-down effect, making the entire building more appealing and comfortable for all tenants and their visitors.

Higher-End Finishes and Aesthetics

The pursuit of a quality environment often means that coworking centres invest in higher-end finishes, from marble countertops in the kitchen areas to stylish lounge furniture that transforms workspaces into comfortable, attractive settings. These aesthetic choices set a standard for the rest of the building, and landlords can often charge higher per-square-metre rates for other spaces in the building by association.

A Showcase Space for Potential Tenants

When a building has a well-maintained coworking centre, it serves as a showcase space that landlords can use to attract other potential tenants. Businesses considering renting space in the building can tour the coworking centre to get a feel for the level of quality and care they can expect, thereby making it easier for landlords to close deals on other parts of the property.

Other Benefits

Having a coworking centre in a building isn’t just a boon for the landlord or the businesses that make use of the coworking spaces. It also creates a plethora of benefits for other tenants within the building, whether they are retail shops, gyms, or traditional office tenants. Here’s how:

Boost for Retail and Gyms

The increased foot traffic generated by a coworking centre can significantly benefit any retail shops or gyms located in the same building. Coworking spaces tend to have higher density, packing more people per square metre, and these individuals are potential customers for on-site retail and gym facilities.

Additionally, coworking centres often host events and meetings, bringing in non-tenants who are also potential customers. This creates a consistent flow of visitors, which translates into more business for these establishments.

Advantages for Other Office Tenants

For traditional office tenants in the same building, the presence of a coworking centre can offer a significant value-add. These companies can optimise their own office layouts for higher efficiency, knowing that they have access to meeting rooms and lounge areas within the coworking centre. This eliminates the need to allocate precious square footage for these functions within their own offices, allowing for more effective utilisation of their space. As a result, they can focus on core business activities in their private office areas, leveraging the coworking space for meetings, brainstorming sessions, or simply as a change of scenery for their employees.

Offloading Unused Parking Spaces

For landlords, the constant demand for parking spaces in coworking centres offers a chance to offload any underused or vacant parking spaces. This is especially beneficial in metropolitan areas where parking is often at a premium. It presents an opportunity to generate additional revenue from an asset that would otherwise go unused. This makes the property more attractive to potential tenants who place high value on convenient parking options, thereby increasing the property’s overall value and appeal.

Ghosting Vacant Spaces as Event Venues

In many cases, buildings have areas that are either temporarily vacant or less optimally used. Instead of letting these spaces sit idle, they can be transformed into event venues in collaboration with the coworking operator. This offers a two-fold benefit. First, it provides an additional revenue stream for the landlord, as these spaces can be rented out for conferences, workshops, or social events. Second, it enhances the appeal of the coworking centre, giving its members access to larger spaces for their events, thus increasing member satisfaction and retention.

Utilising Vacant Spaces for Temporary Office Needs

Similarly, vacant spaces can also be turned into temporary office areas. Businesses within the coworking centre occasionally find themselves in need of more space, perhaps due to a short-term project or seasonal increase in staff. Having the option to expand into these temporary spaces can be a huge draw, again benefiting both the coworking members and the landlord.

Summary

Converting your Sydney-based commercial property into a flexible workspace is more than just a trend; it’s a strategic move that offers numerous financial benefits. From meeting the rising demand for flexible work arrangements to enhancing your building’s online presence and foot traffic, the advantages are manifold.

The space can act as an incubator for growing businesses, providing a natural progression from co-working to long-term lease within the same building. Additionally, the meticulous upkeep and state-of-the-art amenities typical of co-working spaces can elevate the entire building’s appeal. In a competitive real estate market like Sydney, staying ahead means adapting to modern business needs, and a flexible workspace does precisely that.

At Anytime Offices, we specialise in transforming your property into a buzzing coworking hub that elevates both your revenue and tenant satisfaction. With our expertise, setting up and managing a coworking operation becomes a seamless and rewarding venture for you. Interested in unlocking this potential? Give us a call for a cost and obligation-free evaluation and feasibility study of your property. Discover how your commercial space can become the next sought-after coworking destination.