We’ve heard about software as a service (SaaS), but a trend is growing in popularity in the real estate world: Space as a service (SPaaS). Defined as “the change in the real estate model from asset ownership to monetization of access and services that include physical space,” SPaaS isn’t a new concept. In fact, multiple companies have offered space for co-working for years:
- Servcorp (1978)
- Regus (1989)
- Impact Hub (2005)
- Convene (2009)
- WeWork (2010)
- Industrious (2012)
Changing demand and space requirements have pushed CRE toward more flexible offerings, especially since 2020 and the continuing evolution (and employee expectation) for hybrid working options. The co-working space model enables multiple companies to share a facility. But how sustainable is this approach?
The Reliability of SPaaS
A cost-effective approach to short-term leases, SPaaS supports business models in search of flexibility. Since more companies want more flexibility as they review their expectations for the frequency with which they expect their employees in the office, many in the CRE industry expect demand to grow. Here’s why.
- Organizations recognize the value of hiring remote workers able to “dial in” from wherever they are, geographically, without needing a fixed space or company location. Not only do businesses benefit from needing less space to accommodate their workforce, but they also benefit from an expanded candidate pool. Co-working spaces shared by companies in similar or the same verticals — or even those providing similar services and products — also foster a collaborative environment.
- Another growing trend has been for more people ordering food deliveries in lieu of eating out, with over 85% of the population ordering food delivery at least once a month. A result of this consumer habit? More ghost kitchens springing up — especially in metropolitan areas. These central kitchens work on a term lease, and because they’re delivery-only, they require less space.
- Many companies are leveraging extended reality to engage employees and clients — a market that reached over $30 billion in 2021 and may hit at least $247 billion next year.
- The sharing economy model, where people share resources like cars, homes, and workspaces, is becoming popular for another critical reason: reducing environmental impact. For companies with robust Environmental, Risk and Compliance (ERG) policies, SPaaS offers another solution for reducing the carbon footprint.
SPaaS Use Cases
As businesses look for workspace solutions to accommodate changing needs, an increased demand for flexibility has led to more possible use cases for SPaaS.
A small startup needs to rent office space once or twice a week for employee or client meetings because it’s raised seed money to get started but hasn’t yet done a Series A funding round to raise additional funds to cover a permanent location.
A freelancer working from home must meet with clients several times a month and opts to use SPaaS to book a conference room. A smaller company is starting to scale and, as it expands its workforce, uses SPaaS to rent additional space until it evaluates its complete operational requirements. A university needing to accommodate a growing student population uses SPaaS to lease classrooms and lab space near (but not on) campus.
SPaaS Pros and Cons
The biggest benefit to these spaces? They’re dynamic, highly adaptable, and often scalable, thus able to meet evolving business needs, especially for startups. Among its pros, SPaaS offers:
- Flexibility, with today’s technology enabling businesses of any size to operate with more agility.
- Cost-effectiveness, by offering businesses an opportunity to keep costs down since these spaces are designed for short-term, more temporary rentals (and shorter commitments).
- Increased sustainability, helping businesses reduce their environmental impact by shrinking the space they occupy.
Finally, SPaaS helps businesses improve productivity by enabling them to give their employees an environment that includes amenities and services like high-quality furniture and equipment, food service and fitness centers, 24/7 access, and networking opportunities.
There are a few cons for companies and people to consider with SPaaS. For example, many co-working spaces may lack privacy and, since they’re shared, may be noisier than some people prefer. Also, when renting from an SPaaS provider, you may have less control over layout, furniture, or amenities than if you owned or held a longer-term lease.
Some SPaaS options may have hidden costs like cleaning, maintenance, or security fees. Read the fine print before signing a contract to understand all the costs involved. Depending on your area, SPaaS providers may have limited availability when you need it — companies with needs that fluctuate based on the season should plan accordingly.
What does SPaaS Mean for the Future of CRE?
Technological innovations and tech-enabled structural changes have facilitated fundamental changes in how businesses operate and how (and where) people work and live. The ubiquitousness of smart devices like phones and tablets, the exponential growth of high-speed connectivity including 5G, the profusion of IoT devices and the proliferation of cloud computing, not to mention an increase in the use of artificial intelligence (AI) and robotics, have fundamentally reshaped how we occupy and use space.
As demand changes and supply shifts, fewer companies are seeking long-term office leases in favor of the option for more freedom to secure the right place at the time they need that’s best fitted to current and evolving needs.
The shift will affect the CRE industry in how:
- We package and offer real estate, moving from rent collection to charging for a service. CRE will need to understand customer behavior and leverage data to provide personalized customer user experiences.
- We determine valuations, which will go beyond cap rates, location, NOI, and square footage to include calculations on the portfolio or asset’s ability to generate revenue from multiple business lines. Location will always be important — but the most successful CRE companies will provide more than a “mere” physical space to offer value-add experiences that attract and retain customers by nurturing collaboration, productivity, and wellbeing.
- We adopt digitization. CRE still lags behind many other industries regarding digital transformation, but it’s slowly catching up, from temperature control to keyless access and tech designed to improve real estate management and delivery. To make the SPaaS magic happen, CRE needs to embrace and maximize the value of technology.
SPaaS won’t render traditional CRE providers obsolete; however, the future of CRE is changing from a product to a service mentality, and those embracing the change will see more favorable outcomes than those that don’t.
Are you a commercial real estate investor or looking for a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United: an organization of CRE professionals from 92 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.