Location, location, location: what must landlords consider when choosing a site for their next flexible workspace?

Wybo Wijnbergen, CEO of infinitSpace, looks at what workspace landlords should consider when expanding or managing their portfolios, particularly when it comes to sizing up potential locations.

Related topics:  Landlords,  Property,  Commercial
Wybo Wijnbergen | infinitSpace
16th May 2024
question 88
"Landlords should recognise that non-prime locations may come with their own set of challenges. For instance, while rental costs may be cheaper, demand in non-prime areas may not be as high as in prime locations"
- Wybo Wijnbergen - infinitSpace

In commercial real estate, a ‘prime’ location is typically the holy grail. This has certainly been true when it comes to offices and workspaces.

Commanding prestige and convenience, surrounded by all manner of hospitality, retail and leisure, businesses, prime locations have allowed landlords to attract high-profile occupants requiring large spaces, as well as charging premium rents.

But in truth, the workspace market has evolved beyond this in recent years. The pandemic led to a complete transformation in how and where people work, with flexible and hybrid working becoming the norm. With that, our understanding of what makes a great workspace – and what makes a great location for a workspace – has had to evolve.

Weighing up the pros and cons: prime vs non-prime locations

It is important to note that prime locations remain highly desirable. Typically, the most significant appeal for landlords is the higher rental incomes that buildings in prime locations can fetch. The prestige and business history of a certain area, tremendous transport links and neighbourhood attractions like restaurants and bars or cultural venues can all draw in the highest calibre of occupants, catapulting demand and, in turn, rental prices.

Similarly, property values can be impressive – the inherent demand for real estate in these areas drives up property prices, resulting in substantial appreciation over time. For landlords, this represents not only this immediate rental income but also long-term capital appreciation, further bolstering the investment appeal of prime location properties.

Yet even with these advantages, there are pain points for landlords to take into account. High property prices and rental rates can translate to significant upfront investment and ongoing operational expenses. Competition among landlords in prime areas can also be fierce, meaning that strategic marketing and retention efforts must be accelerated to maintain high occupancy levels and rental yields.

Non-prime locations, on the other hand, offer a different set of advantages that are increasingly appealing in today's evolving workspace landscape.

Firstly, cost considerations play a significant role. Although prime locations command premium rents, non-prime areas – such as those just on the outskirts of the central business district (CBD) – often offer more affordable and diversified leasing options.

This can be particularly attractive for small and medium-sized enterprises (SMEs) or startups operating on tighter budgets, drawing in a wider variety of occupants – ideal for creating stable revenue streams in a flexible or coworking space.

What’s more, while non-prime properties may not offer the same benefits in terms of location, they have a key advantage that central properties often lack: space. While larger spaces create greater opportunity for more – and larger – occupant businesses, they also leave room for value-adding amenities such as parking, breakout and event spaces, not to mention other attractive commercial units like restaurants and retail outlets. Such amenities not only allow landlords to command higher rental premiums, but they can also give property values a welcome boost.

Promoting positive culture and wellbeing is also a plus. Non-prime locations can boast a more relaxed atmosphere compared to the hustle and bustle of a city centre, which can be conducive to employee wellbeing, offering a quieter and less stressful working environment.

Additionally, non-prime offices are typically situated closer to more residential areas, reducing commuting times for employees to make hybrid working easier and enhancing overall convenience.

With growing emphasis on work-life balance and employee satisfaction, non-prime offices have emerged as an attractive proposition for businesses keen to foster a positive work culture and retain talent – therefore boosting tenant demand and, in turn, occupancy rates.

However, landlords should recognise that non-prime locations may come with their own set of challenges. For instance, while rental costs may be cheaper, demand in non-prime areas may not be as high as in prime locations. Landlords may therefore need to invest more effort into marketing and tenant acquisition to fill vacancies and maintain steady rental income.

Additionally, the lack of proximity to major business hubs and amenities – such as strong public transport connections – found in city centres may limit the appeal of non-prime offices for certain occupants, particularly those in industries that rely heavily on in-person interaction.

The key takeaways

Different landlords will have different priorities when it comes to selecting a workspace location. But it’s clear that the choice between prime and non-prime locations is not a simple black-and-white decision – certainly not as simple as it would have been ten years ago.

Prime locations still offer prestige, high rental incomes, and significant demand, while non-prime areas provide unique benefits such as lower costs, a more relaxed atmosphere, and accessibility for a wider range of occupants.

Ultimately, the choice between the two boils down to the specific needs of the landlord and the type of occupants they aim to attract. But landlords need not come to this decision alone; partnering with a workspace operator, who can provide key insight into market conditions, local demand and business strategy, and then manage the project from conception to operation, may be a wise choice for many.

While location will in many cases be the most important aspect of this decision for landlords, it’s not a silver bullet when creating a great workspace. High-quality fitout, great sustainability credentials, good public and vehicular transport connections, strong additional amenities and an excellent on-site community management team are all crucial.

It is essential that landlords carefully consider all factors to ensure their decisions are well-informed and best aligned with the requirements of their portfolio. By weighing up the pros and cons of different locations and understanding the changing needs of occupants in a post-pandemic world, landlords can position themselves to thrive in the competitive market of workspace leasing.

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