Embracing the “Sharing” Economy: What this Shift Could Mean for Commercial Real Estate

sharing economyOver the past several years, Uber and Airbnb have become an accepted part of life in the new economy. The so-called “sharing” (or collaborative) economy optimizes the idle time of a variety of assets, including vehicles and real estate, to suit the needs of people who own such assets and those who are interested in access to them. This dramatic shift could have some significant effects on the commercial real estate industry.

Space sharing on the rise

Not only residential property is shared these days. Collaborative workspaces also are on the rise. Companies that own or lease blocks of office space divide them into smaller units they can lease or sublease to start-ups, independent contractors and others looking for short-term rentals or smaller spaces.

A customer might rent an entire office suite or space at an unassigned desk with access to high-speed Internet, office equipment and large common areas, along with amenities like coffee bars and dining options. The operators can charge premium rates on short-term space, while helping their customers contain their costs by renting space on an on-demand basis.

These arrangements appeal to independent contractors who seek the camaraderie of the workplace, as well as the cost efficiencies of sharing certain expenses associated with top-notch office space. But space sharing has spread beyond one-person or small businesses. Corporations are drawn to the opportunity to reduce the costs of lengthy long-term leases, especially as remote work and flextime opportunities grow.

Implications for landlords

The effects of space sharing may be felt first in lease negotiations. Standard leasing provisions may contain several issues for landlords and their tenants who provide office sharing. For example, office sharing will likely affect building infrastructure from increased elevator use. Sharing could also increase utility, insurance and other overhead costs.

In addition, office leases usually have restrictions on permitted uses, subleasing and assignment. Shared office space companies, though, might be able to get around this by using licensing or membership fees with their clientele. This may result in landlords having less control over their tenant mix.

On the other hand, building garages with paid parking might fill up much more quickly as more people make use of the same amount of office space, increasing dollars for landlords. Office sharing configurations could revitalize properties in up-and-coming areas. Moreover, some tenants that start out sharing space may eventually grow enough to need dedicated space, and they may find it convenient to simply move into another space in the same building.

Implications for developers

Developers may need to configure projects to take advantage of the office sharing trend. For example, they might construct more flexible spaces that could easily be converted for sharing purposes and include perks, such as gyms, dining options and expansive communal space.

Hotels may also need to adapt in the sharing economy. Although the success of Airbnb could have an adverse effect on vacancy rates for standard rooms, the rising popularity of space sharing in the business world could give hotels a way to recoup their short-term lodging losses. Renting out conference and meeting rooms to businesses interested in short-term space sharing could provide an opportunity to supplement hotel revenue.

The future is now

The sharing economy shows no signs of going away. Landlords and developers need to plan now for how best to respond to protect and improve their bottom lines.

© 2017