With interest rates still near record levels and market volatility at an all-time high, the future of landlords’ traditional office portfolios may feel increasingly uncertain, prompting many to explore innovative solutions to keep their properties viable and profitable.
One such solution is converting traditional office spaces into flexible workspaces, an asset class only gaining momentum in response to evolving occupant demands as occupants seek flexibility and high-quality as opposed to ‘shell and core’ fit outs and rigid, lengthy leases.
While the benefits of converting into flex space are numerous (higher occupancy and potentially rental yield, to name a few), there are naturally unfamiliar challenges associated with this newer real estate type, which may be holding some landlords back.
So, here are the obstacles landlords should consider to successfully navigate adopting this new workspace type – and, importantly, how they can overcome them.
Obstacles to conversion
Understanding the obstacles to conversion is a vital first step in addressing the issue. That is why infinitSpace recently conducted a survey of 250 UK office landlords to identify their most significant concerns.
The research found that the most significant challenges included: costs (52%), planning permission (33%), regulatory hurdles (31%), lack of expertise/resources (20%), uncertainty concerning market demand (19%), structural incompatibility (18%), and a desire to avoid risk amid global economic instability (15%).
Furthermore, two-thirds (64%) of landlords believe that the current planning system requires reform to facilitate the conversion and retrofitting of commercial properties for different uses, underscoring a broader sentiment that regulatory environments need to evolve in tandem with market trends.
Breaking down the biggest barriers
Let’s look specifically at the most significant hurdles to conversion: cost, regulatory concerns and a lack of expertise.
Unsurprisingly to many, cost remains the most common obstacle. Renovation costs, coupled with potential downtime during construction, can strain the finances of even the most established landlords. To address this, landlords could consider phased renovations that allow parts of the building to remain operational during the transition. Additionally, exploring financing options tailored for property conversion projects can provide the necessary capital without overwhelming existing financial structures.
It’s also important to note that financial terms related to flexible workspace occupiers can lessen the financial burden of investments, as offering occupants free months at the beginning of the term is less common. As such, landlords can boost ROI from the day a flexible workspace opens its doors.
What’s more, looking long term with regard to finances is key. Despite the initial investment, by successfully adapting to market demand, landlords are likely to experience an uptick in occupancy levels and, therefore, higher rental income in both the short and long term as their property is increasingly ‘future-proofed.’
Navigating the labyrinth of planning permissions and regulatory requirements was also high on landlords’ list. Working with third-party operators who can support in understanding and achieving planning and regulatory compliance can streamline this process, ensuring that all requirements are met efficiently.
A lack of knowledge of executing the conversion was similarly demonstrated to be a concern. Landlords can mitigate the lack of in-house expertise by partnering with experienced workspace providers who can bring a wealth of knowledge and resources to the table, from understanding tenant needs to implementing the latest technology in workspace management.
Overcoming challenges on the path to success
Converting traditional office spaces into flexible workspaces presents a viable solution for landlords facing the challenges of high interest rates and market volatility.
While the process does include contention with some obstacles, strategic planning and collaboration with industry experts can help landlords navigate these challenges successfully. By embracing innovation and adaptability, landlords can transform their properties into dynamic, future-ready workspaces that truly meet the evolving needs of modern tenants – the most important single thing being to remain laser-focused on the customer.
