Today, commercial real estate has started to shift to renting and providing spaces-as-a-service. Commonly known as the SPaaS model, space-as-a-service has become the talk of the town in commercial real estate.
While space-as-a-service isn’t necessarily new, more commercial real estate agents and landlords are beginning to hear the term. To explain what SPaaS means for you as a landlord or CRE investor, you should first understand what SPaaS is.
What Is Space-as-a-Service?
Simply put, you can think of space-as-a-service as an on-demand space for freelancers and businesses.
Space-as-a-service provides an alternative solution to office needs. Essentially, companies and freelancers are given access to a space provided by the landlord but not as tenants. The occupants pay a monthly or annual fee to occupy office space or rooms for some time.
Think of your typical software as a service but apply it to a building. You’re paying a fee to access the benefits this building offers you and your employees.
CRE landlords who use the space-as-a-service model focus on providing a beneficial experience to their tenants. These benefits include but are not limited to providing them with office equipment, conference rooms, and other utilities and amenities.
The tenant, in this case, will be using the office space temporarily during certain times of the day, along with other businesses who may be using the area.
Who Benefits From a SPaaS Model?
For many freelancers, having the flexibility of choosing a temporary office space is seen as practical and convenient. Small businesses and freelancers take advantage of SPaaS because it allows a company to scale without repercussions.
For many businesses, committing to buying real estate or leasing entire offices is costly. Additionally, a company will need more space for employees, equipment, and clients when it grows.
When a company needs to downscale, they’ll utilize less space but pay for more space that they are using, effectively draining them of money.
The SPaaS model helps mitigate the commitment that causes this scaling issue. If a business didn’t have to worry about buying and renovating new office space, they would be in a better position to focus on their actual business and less time focusing on real estate.
For freelancers, having an office space, in general, is an improvement. Most of the time, freelancers don’t have capital in their earliest stages of operations to deal with the cost commitment of having office space outside their homes.
Regardless of size, any business can take advantage of SPaaS, which opens the market to anyone. Commercial real estate landlords and investors have a wider variety of prospects to attract and solidify their revenue for their real estate properties.
Why Is SPaaS Gaining Relevance?
Usually, businesses will look to upgrade their office space or expand depending on market needs, business performance, and new technology. These expansions typically involve real estate. Sometimes entire new sections need to be added on to accommodate these needs.
Technology is changing how we use our space, both physically and digitally. People can now work from home and in different locations just as efficiently as within an office. Tablets, laptops, and even phones provide the necessary computing capabilities to transform any area into a productivity machine.
Employees that can do their jobs at home or only need to come into the office a few days a week heavily benefit from a SPaaS model. The COVID-19 pandemic has recently affected how businesses look at office workspace and how much flexibility they can give their employees in their operation.
With the popularity of remote working, more businesses are looking into office spaces that can provide temporary benefits without committing to long-term leases or complete purchases of real estate property.
What Value Does SPaaS Hold for Commercial Real Estate Investors?
Space-as-a-service has worlds of benefits for landlords and commercial real estate investors. First, it will help reduce vaccines and increase utilization rates of commercial properties. The main concern for many investors is not seeing a return on their investments.
For real estate, this is especially damaging as, most of the time, owning property comes with plenty of expenses that are paid for by utilizing the real estate property itself. If you’re renting out property for a living, having an active or inactive tenant impacts your income.
If you’re renting out to businesses, you know that long-term leases will keep income flowing for a while, but not permanently. With a SPaaS model, you can rent out that real estate property to multiple businesses at a time and constantly utilize the space with no transitional period.
How Does SPaaS Change the Role of CRE Landlords?
Instead of focusing their efforts on being active landlords, most will take on the service provider role. The main focus of CRE investors and landlords will be to create attractive properties for businesses to use throughout the years.
The focus will be on having fantastic internet speeds, utilities, furnished offices, and up-to-date technology. While that may seem costly, remember that you won’t have just one business using and paying for the space, you’ll have multiple.
Your income as a commercial real estate landlord will multiply, leaving you ample income to invest into your properties to improve their state over time and maintain their premium value.
Exploring the Pros and Cons of SPaaS
Like any service, there are pros and cons to the space-as-a-service model. Generally, a SPaaS model isn’t ideal for businesses that require serious technological needs like supercomputers and servers.
Pros of Spaces-as-a-Service
- Lower costs
- No long-term commitment
- Instant access to facilities
Cons of Spaces-as-a-Service
- No direct influence on facilities
- No ownership of facilities
What Is Coworking?
The SPaaS model directly ties into coworking, which is people sharing the same working environment but working for different people and different goals. Both space-as-a-service and coworking follow a similar idea of sharing space for all types of people.
For example, people visiting the library aren’t there to read and research the same things, but they’re still sharing and working in the same space. Coworking spaces are environments designed to accommodate people from any business or agency.
Differences Between the SPaaS and Coworking Spaces
Coworking spaces aren’t office ready for companies; they operate to serve freelancers and entrepreneurs. SPaaS are office-ready facilities that include phone, postal services, private offices, fax machines, office furniture, and other business-centric utilities for people.
What Makes Coworking Spaces Attractive to Tenants?
For many freelancers, coworking spaces are a way to network and get out of their standard operation space. Remote workers similarly take advantage of coworking spaces to have an opportunity to interact with others and enjoy an open space for collaboration.
Human interaction generally drives the idea of coworking space. Remote work can get pretty lonely for many. Regardless, here are a few pros and cons of coworking spaces you might want to consider:
Pros of Coworking Spaces
- No long-term commitment
Cons of Coworking Spaces
- Lack of privacy
- Office hours
- Personal conflicts
Future Value of SPaaS and Coworking Spaces
From an investment standpoint, SPaaS and coworking spaces are the future of the real estate market. COVID has shown how essential and beneficial remote work is for businesses; now, more companies are seeing the direct benefit.
Some businesses now consider purchasing properties and leasing offices as optional expenses. Providing freelancers and businesses, not just one company, amplifies revenue and allows proper upkeep of real estate property.
Eventually, businesses may give up offices entirely and embrace a digital future, but that is speculation. In reality, people still crave human interactions, maybe not as often, but they still value working next to someone from time to time.
Providing that space for human interaction for freelancers and businesses capitalizes on small and large agencies. With recent events, the SPaaS model and coworking spaces trend are looking to continue for years.
Will Employees Accept SPaaS and Coworking Spaces?
Recent studies show that employees aren’t ready or even desire to fully commit to a whole week of office life. According to a survey from Fortune, of 10,000 office workers, nearly 86% want to work from home.
For many businesses having your employees only come into your office for two or even three days of the week means you’re paying extra to use your space less. The obvious alternative is to pay for space as you need it.
With workers fully embracing remote work and wanting to come into the office less, it’s safe to say that employees will be very accepting of a hybrid remote/office work style.
Businesses who agree with this sentiment will look for ways to save costs, and the most prominent method for them is through the SPaaS model or coworking space.
Break Into the SPaas Industry Today
In reality, there is no denying the popularity of the SPaaS model or coworking. Businesses will continue to consider it an attractive alternative to the standard nine-to-five corporate lifestyle many office workers loathe.
For many commercial real estate investors, this opens new avenues when investing in property. It’s a time to embrace change and reap the rewards of providing freelancers and businesses the space to collaborate and conduct business.
Contact Extrance today to gain a better understanding of how we can guide you in enhancing your investment management processes.