Are Old-School Office Landlords ‘Cool’ Enough to Compete?

Office developers and landlords in Ireland need to understand the difference between a trend and a generational shift

Last week UK-based co-working company WeWork officially launched in Dublin with the opening of space at Iveagh Court. This global leader in flexible office space already has a presence in 74 cities around the world and is set to expand its footprint in Dublin, rapidly. Not only will WeWork lease premises in Ballymore’s Dublin Landings in the Docklands, the company has just been announced as the anchor tenant of the new Central Plaza development (former Central Bank on Dame St./College Green being developed by Hines), which is expected to be completed by late 2019.

This is a strong (and arguably premature?) move by WeWork into a growing but relatively finite marketplace that already plays host to indigenous co-working companies like Iconic Offices and others. Over the past decade, the so-called ‘trend’ of co-working in Ireland has certainly grown beyond providing affordable workplace solutions for start-ups and businesses in transition.  It has become a choice and even a statement from world-class businesses about how contemporary offices need to function and about what their contemporary employees have come to expect. The Financial Times ran a story about this generational shift  back in 2016, explaining:

“If co-working is the future, big businesses want a piece of it.Corporate employees are swapping suits for jeans and occupying desks at co-working spaces, traditionally a refuge for freelancers, start-ups and workers in the creative sectors seeking companionship and the use of a photocopier. The appeal for blue-chip employees is clear: the vibe is cool, working alongside energetic start-ups and techies.”

So where does that leave traditional office landlords?

It is important to understand the scale of the marketplace and its current drivers. In 2017, 8% of all office leasing activity in Dublin was for co-working space and this figure is set to multiply  by the end of 2018. Globally, 30% of the office market could be flexible space by 2030.  While the early driver for this sector was undoubtedly affordability, desks and particularly private offices in high-quality co-working locations are now higher than average market rents. This clearly indicates that cost is no longer the main driver, but it appears that flexibility is. Well, flexibility  coupled with good facilities, good coffee and good company.

For landlords offering traditional offices, it is worth checking out the quality with which you are now competing.  A lick of paint over damp spots between tenants is no longer going to cut it.  Also, how flexible can you afford to be or will your lender allow you to be?  10-year leases without a break clause are the single biggest point of resistance for new tenants yet are required by most lenders. The commercial reality is that dynamic businesses simply do not know where they are going to be as a business in 10 years. This lack of flexibility means that, in effect, traditional leases penalise both failure and success.

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group