Features Newswire

Space-as-a-Service: What It Is and What It Means for the Future of Real Estate

Servcorp was founded in 1978. Regus was founded in 1989. Impact Hub was founded in 2005. Convene was founded in 2009. WeWork was founded in 2010. Industrious was founded in 2012.

Co-working isn’t new. And it isn’t a result of the pandemic. However, COVID-19 has popularized the controversial asset class.

Over the last several decades, changing demand for real estate has continued to push the industry away from long-term commitment and toward flexibility. In response, real estate owners and developers around the world have introduced offerings to accommodate a changing consumer base who value experience more than ever.

Convene was founded to create places and experiences that spark human potential. It was driven by a belief that long-term leases no longer make sense for most companies and that the future of real estate will be on-demand. So, they partnered with top landlords to create a network of premium places to meet, work and host events.

Convene also recognized that the very nature of work was changing and that office buildings no longer supported the evolving needs of today’s increasingly mobile and collaborative workforce. They saw an opportunity to offer an outsourced real estate solution for companies that need full-service, turnkey meeting and workspaces with a focus on flexibility, choice and experience.

While Convene may have been slightly early to market, the pandemic blurred the lines between work and life, and forced companies to re-evaluate the purpose of the physical places they thought were so crucial to their culture and growth. Workspace professionals found that human desires for flexibility and personalized experiences are quickly changing the places in which we live, work and play. And that offices need to embrace service and hospitality to offer places that inspire and foster a true sense of collaboration and productivity. That’s what space-as-a-service is all about.

So what exactly is space-as-a-service? Space-as-a-service (SPaaS) is simple in its application but it is complex and revolutionary in its implication.

On the simple side, space-as-a-service is a business that generates revenue by providing real estate (space) as a product (service). WeWork is a well-known example of this type of business. They are in the business of owning, leasing and/or managing space for the purpose of monetizing that real estate by providing an office setting as a service.

On the complex side, SPaaS implies the de-construction of enduring business practices used in commercial real estate transactions — specifically, the long-term lease model. Equally important, the growth of SPaaS reveals that the driving forces changing so many industries, from transportation to food to media, are putting mounting pressure on the real estate industry. This driving force is the growing consumer preference (and willingness to pay) for access over ownership, for on-demand, for zero friction and for maximum convenience.

Why is space-as-a-service happening and what does it mean for the future?

SPaaS is a byproduct of technology-enabled structural changes in the CRE marketplace. Technology is paving the way for fundamental changes to how businesses operate, how people work and live and where they do it. The greatest enablers for this transformation are the growth of high-speed connectivity, use of smartphones, proliferation of cloud computing and IoT devices and the adoption of artificial intelligence and robotics. These technologies are re-shaping the way we use and occupy space.

Another significant driver in the growth of space-as-a-service is the benefit to the consumer over a traditional lease model. Here are a few of the advantages:

• Lower cost: pay for the space you need, sometimes even only the space you use

• Higher flexibility: no long-term commitment provides greater freedom to change and move, offering individuals and companies less rigidity in planning and greater variety in utilization

• Lower friction: less time buying and building, more time occupying and executing.

Demand is changing, and supply is changing with it. A greater cohort of people no longer want to commit to long-term office leases, gym memberships or even year-long apartment rentals. Instead, people want the freedom to find and access the right place(s) they need at the right time and that best fits their constantly evolving needs. This consumer shift will impact the real estate industry in ways that include:

Packing & Offers
Real estate will be less about collecting rent for a product and more about charging for a service. With a product, there’s less need to focus on user experience and/or branding. People find a product they like at the right price and buy it.

Traditionally, if your space is the right size in the right location at the right price, people will rent it. However, with a service orientation, the user experience and brand are vital to differentiation and performance. Real estate also needs to provide a great experience through understanding customer behavior and leveraging data to fine tune and even personalize the experience.

Valuations
Valuations will be determined by more than location, square footage, cap rates and NOI. Instead, real estate valuations will be determined by the asset or portfolio’s ability to generate revenue from multiple lines of business, on its brand value and net promoter score, driven partially by the service and experience it provides. While location will remain important, the highest-valued real estate companies will provide more than just physical space. In a world in which companies no longer need a space to work (as a must-have), real estate owners and operators will win and lose on their ability to provide a value-add experience that nurtures productivity, collaboration and well-being in order to attract and retain customers.

Management
Real estate lags behind other industries regarding digitization. That’s changing fast. Technology has changed how we interact with almost every aspect of our daily lives, but real estate remains largely untouched. That’s changing across nearly every department of the real estate organization as technology changes how real estate is managed and delivered. From keyless access to temperature control to food ordering SPaaS delivery, technology is the key ingredient that makes the SPaaS magic happen.

For commercial real estate landlords, this transformation has changed their fundamentals from the provision of real estate to providing service, SPaaS and branding. In the future, the value and success of CRE landlords depend on building “user experiences” around physical assets. Landlords will need to think creatively about using data analytics to better understand their occupants and customer journeys within the context of how they engage with the asset or building.

While SPaaS won’t make traditional real estate providers obsolete overnight, the future of real estate is changing from that of a product mentality to a service mentality. Those who embrace this change and innovate will win. Those who refuse to invest in experience and hospitality will end up with product that no one wants or that will be valued for what it is: lower quality.

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