training development skills

Why training provision is essential

Why training provision is essential

When the economy and property markets are storming ahead, training budgets are increasing. When markets are suffering, and cash flows with it, becoming less generous, many employers tend to reign in spending. However, this is a false economy. Let us explain to you here why training, and investment in your ‘human capital’ is essential in the bad times even more than the good times.

Boost the performance of your business

Human capital, i.e. the investment you make in the skills and knowledge of your staff throughout their careers, is what makes businesses thrive and grow. To grow as a company you need productive, effective staff performing at the top of their game, remaining relevant.

For most companies staff is their biggest expenditure, so to boost productivity for the firm you need to boost the performance of your staff. On-the-job training is slow, requires supervision, demanding time from managers and colleagues, leads to errors and lower performance than could have been. A better quality of work being delivered keeps clients and stakeholders happier, too. Training provides skill and knowledge, reduces the need for supervision and time wasted, improves client satisfaction and boosts performance & returns.

Attract staff, boost staff morale and retention rates

Good staff is hard to get and keep! Offering training can help attract new staff and retain those already in place. When an employer invests in their staff through training, staff feels appreciated, valued and invested in, as well as more confident in what they are doing and why they are doing it. The workplace is offering a better environment to staff. Increased employee motivation boosts morale in general. Increased job satisfaction in turn can lead to improved staff retention. This lowers recruitment costs and loss of productivity when a new hire is found and brought up to speed.

Employers’ challenges in providing learning experiences in today’s world

Firms are facing structural shifts from the aftereffects of the pandemic. What kind of workforce model to adopt for the hybrid working environment, how to deal with remote management & monitoring, balancing the needs for flexibility with requirements of productivity, dealing with company culture, collective responsibilities and accountability and crucially, how this impacts staff learning and development.

Firms are mindful of skills shortages, tight labour markets and wage increase pressures. Equally they know that more needs to be done for retain good people, increase productivity and have a more engaged workforce.

Employees’ challenges in being ready for today’s work requirements

Staff remain concerned that changes in the ways of working will mean less opportunity to gain knowledge and experience for collaborative interactions in face to face working groups, review meetings and peer group discussions. In addition, the benefits of informal mentoring, coaching and learning is lost in the remote world.

Many new entrants to the sector miss out on ‘on-the-job training‘ and feel that whilst they may not have the requisite qualifications, they are missing out on skills development such as getting a holistic understanding of the real estate industry and how it operates.

Equally others feel that individual specialist (in-depth) or tailored training needs are not identified that are necessary to upgrade or improve their skills, help them with job mobility and career development.

Part of ‘learning by working’ means knowing the ‘jargon’, being able to handle information, create business plans, interpret outcomes, make judgements on risk & return, understand what client need, to be able to argue a business case, make important decisions and many other facets that training alone cannot achieve – however, structured training from property industry professionals can help you in that.

Managers need to make sure such needs form part of the staff appraisal and career development process.


The best training solutions:

Best forms of training as workforce investment

  • Seek out training courses that offer a flexible approach – online or face-to-face learning
  • Seek out training that suits workforce needs – a comprehensive overview of the property sector with fundamental grounding & understanding or an in-depth look specific areas & segments or offers bite-sized learning programme.
  • Seek out training that is practitioner led – learn from experienced real estate professionals so that it is valuable and practical
  • Seek out training that delivers value – it is affordable, and staff feel they get to be more confident, knowledgeable, credible and act professional

The advantages of providing an in-house course

Your employees will have different backgrounds and levels of knowledge. Providing an in-house course will ensure everyone has the same essential knowledge base. Employers typically like to hire someone with the right aptitude and teach them real estate, rather than getting someone with property sector experience not necessarily having the right characteristics required to excel at their job. Providing tailored training helps boost their productivity over and above inefficient on-the-job training.

Quality external training providers offer real value

The benefit gained by providing training to staff is directly related to the relevance and quality of the training provided. Using a company, like Property Overview, that has decades of broad-based real-life sector experience, not from a text book alone, can offer training content that is most relevant to your staff and your company.

Why is it best to hire an external training company like Property Overview?

Tailor-made courses raises efficiency whilst an external training provider offers a training environment in which staff feel safe to ask their questions and explore topics.

Even the best companies in the property sector are doing are not set-up to deliver the best training course by themselves. Senior staff who have the required insight and aptitude won’t have the time to put detailed courses together, the opportunity costs would simply be too great. It would be difficult to coordinate amongst various colleagues and specialities to get a rounded course together offering insight and the all-important bigger picture. Besides lack of time, not every senior staff member is suited to be a trainer by nature. Trainers at Property Overview are extremely experienced, knowledgeable, approachable, patient and friendly, able to break complex topics down into simple concepts that are relevant to the attendees roles.

Through Property Overview we are able to offer tailor-made in-house courses or standard courses open to individual bookings with content that suits all, either online or face-to-face, whatever suits you best. We are keen to work with you to deliver the best possible content. Our ethos of excellence and enthusiasm feeds through in all that we do.

measuring risk and uncertainty

Risk management needs to embrace uncertainty and structural change

The problem with risk is that it is not quite what it used to be. And despite decades of risk management a holistic view that does not simply tick boxes and looks at risk throughout the property lifecycle in all its aspects is missing. One of the ways some of the risks have been managed is by measuring and controlling certain risks using data and models that try to predict future outcomes.

In an environment of structural change historic data series become less relevant. For decades measures of past variance – standard deviation, tracking error, downside semi-variance and many more – have been used as a proxy for risk. They were attractive to analysts as they could be easily measured. Elegant theories were constructed on the founding assumptions of efficient markets and the reliability of the past as a guide to the future.

But there was a problem. The application of so-called Modern Portfolio Theory did not always work, particularly in private equity markets and especially real estate markets. The property sector’s response was to focus on portfolio characteristics that, in themselves, did not rely on past data. Factors like a portfolio’s WAULT, its concentration ratios and use of leverage were compared to benchmark equivalents to establish relative measures of risk in multiple dimensions. However, this did not help with markets.

Approaches such as econometric forecasting and fair value analysis still relied on backward-looking data and a trusting belief in the power of mean reversion. The global financial crisis torpedoed all that. Black swans became one of the most frequently used terms in 2008 and it became obvious that the past is, at best, an unreliable guide.

In the decade following the GFC our real estate markets have faced a succession of disjunctive factors that undermine the relevance of past data:

  • the near break-up of the Euro zone, now quiescent,
  • Brexit, the run up and the aftermath, still ongoing,
  • recognition of the threat of climate change with property as victim and cause,
  • epidemics, ash clouds and other threats affecting supply and demand, and
  • the exponential rise of the internet and reliance on technology.

They are factors whose impact will take years to work through and whose consequences are not quantifiable. We have moved from the known knowns of probabilities to Donald Rumsfeld’s world of known unknowns. Factors which we believe will have some effect on asset values but which defy conventional risk management. We have moved from and age of risk to an age of uncertainty.

Uncertainty, if left unattended, is economically corrosive. It causes decision makers to hesitate, procrastinate and to defer. The challenge to risk managers is how to react when shorn of their familiar tools of analysis based on known knowns, a.k.a. history.

There is no simple answer to the challenge, but there are several approaches that could be adapted to cope with market uncertainty. These are summarised in the remainder of this note.

In equity and bond markets the classic response to uncertainty is to hedge. However, this option is not available in private real estate. It takes time to change a portfolio and there is a 7% round trip involved. What can be done? If circumstances change, is unquoted real estate a sitting duck?

Uncertainty implies the potential for rapid changes in circumstances. This means that assets and businesses that can easily rotate or adapt to the new circumstances will do relatively well.

Thus, when managing uncertainty one should first of all take a razor sharp, holistic look at the existing real estate portfolio. Ask how flexible are the physical, legal and financial designs of each asset. For example, consider the following:

  • Prefer properties with low coverage ratios; they are easier to adapt and repurpose.
  • Think land rather than buildings; let occupiers do their own thing and carry the risk such as depreciation or flooding.
  • Only hold assets which are capable of changing to a more valuable alternative.
  • Forget land use as a basis for sectors. The Government is tearing up the rule book on Use Classes. Location is more important and always has been. Maybe degrees of illiquidity would be a better basis for sectoral definition.
  • Consider how the building is constructed. Structures comprising traditional bricks and mortar are more adaptable than high rise pre-stressed concrete.
  • Lease structure risk can trump location risk: vacant properties have more in common with the risk to income and each than the asset type they belong to.

Regarding market expectations, the use of stress testing avoids the need to identify a specific (unknown) factor. For example, a significant rise in bond yields can be assumed without the need to say why; then assets can be revalued to estimate its impact without resorting to intensive use of past data. Alternatively, if a factor is known but its impact is uncertain, then scenarios can be built up without associated probabilities. Also, alternative courses of action could be evaluated using processes drawn from game theory such as mini max regret which selects the option with the least downside.

These ideas do not yet add up to an elegant theory, but they offer practical ways of coping, and perhaps a source of out-performance in uncertain times. Property as a sector improves by having discussions that push the boundaries beyond the way it has always been done. We need to hear your view on how we can improve risk management, and incorporate the uncertainties that cannot be quantified.

thriving community

Converting the high street

Large city centres and local high streets all have one thing in common: continuous change. On-line shopping and the impact of the pandemic – which caused footfall an in-shop spending to drop – is seen ever more clearly as a threat to physical stores on the high street. However, the pandemic merely accelerated how people shop.

Many high streets have empty shops or feature a proliferation of nail bars, charity shops, vape stores, barbers and other low-quality outlets. It doesn’t make a very exciting high street.

How do we change this high street into a more attractive high street in the long run, how do we add alternative uses that revitalise the local high street in a sustainable way so they become hives of activity and a pleasant place to be?

How can investors convert the huge number of stores that have been vacant for a long time? The Local Data Company shows 37% of vacant stores have been vacant for over 4 years. It has been suggested frequently that perhaps nearly a third of retail units will have to go on to find a new use. How do we make that happen across the 160,000+ units that need converting? Can we make it work for all?

Ownership of high street stores is mostly very fragmented, so community engagement and a vision for the town centre needs to go hand-in-hand with cooperation of residents, landlords and tenants alike. The new uses need to fulfil a local need. Every high street has unique needs. One might need more residential or community use space, another might require healthcare, business or office space.

Not only do you need a long-term view and endless patience and dedication, but the numbers also still need to stack up. Retail units still often have rental levels that lie above those for other uses, and together with refurbishment cost a funding gap arrives.

If the minimum required rate of return on a conversion is not achieved, the unit often simply remains empty. There is a need to create thriving local communities offering a nice, clean and safe environment, employment, a broad rage of shops and facilities that serve all in the community. Where the finances don’t stack up for property owners the government might have to step in, or landlords that are willing to sacrifice a level of return as part of their impact investing or ESG drive.

A government-backed vehicle that is willing to take on vacant space and find alternative uses for those spaces – and carry some of the income risk – for the benefit of the local economy as a whole could be transformative.

It requires grit, dedication and a long-term view. Retail rents will fall, and other uses will become within reach over time. Do we have to wait for the destruction of the high street to see retail rents fall far enough to make other uses more viable? We need foresight and dedication, and deep pockets of landlords keen to make a positive impact on society as a whole.


Cléo Folkes, CEO of Property Overview, provides training and consultancy to institutional investors and those companies that provide services to them. Courses include “Understanding Property” and “Deeper understanding of real estate cash flows”.

Contagion to containment

Contagion or containment in the real estate industry

We had a choppy 2019 where the B-word dominated politics and daily life in the UK. After the December election outcome the property industry became turbo-charged, with confidence having returned in the market after getting past the worst of uncertainty.

But from Brexit and Boris we have moved on to the C-word: Coronavirus, COVID-19, contagion and containment. In the space of 1 week markets completely changed. I have changed what I do myself!

What will happen now? We have seen exponential growth in cases of COVID-19 in China, but with the contagion successfully being contained by massive lock-downs. Italy has now opted to do the same. As far as we know it should prove effective.

What happens when the lock down stops and people start to mingle and travel again, who knows. We also don’t know if the virus will wither in the summer heat or if it will mutate into something more unpleasant. Probably not. Yet we don’t know, nor how long it will last, and that is one thing investors hate: uncertainty.

With the prices of shares falling dramatically on stock markets people sought safety in quality bonds. As property is often seen as a bond-proxy this makes property seem attractive on a yield-comparison basis. Property yields, although low, are still much higher than for bonds.

In property the same flight to safety is likely to take place as well, and some segments of retail will be even harder hit than they were before. How property is being used has been going through structural change, and the COVID-19 virus might speed up the change. Will people work from home and food-shop on-line more?

I myself have stopped going out except for the most essential things as I have fragile loved-ones to protect. Many people have stopped going on discretionary sales-splurges in physical stores. Besides food stores and pharmacies, on-line is likely to get a boost whilst footfall on the high street slumps.

The impact is on demand and supply, a double whammy. It affects virtually everything, but especially retail, hospitality & leisure, and transport. London has 70,000 registered taxi-drivers alone! Supply-lines have been disrupted, factories affected. We await measures from the UK government to help contain this crisis, and for assistance to business.

We don’t know exactly what will happen. But with footfall down, badly positioned and poorly capitalised businesses will go to the wall. That will hit landlords. INTU wasn’t anyone’s favourite already, and it looks decidedly even more dicey now. The retail sector has had more than its fair share of tenant defaults in the recent past. The risk is of business contagion as we saw in 2008-2009, especially if the economy is badly hit.

There are also positives, such as the cost of debt will be lower. The oil price also just became a lot cheaper! Although an oil price war just adds to a sense of uncertainty. If you are well-positioned with long leases to strong tenants you can take on cheap debt to magnify returns: hopefully on the upside!

In the face of a more challenging occupier market it will sort the wheat from the chaff.


The author, Cleo Folkes, is CEO of Property Overview, a property training and consultancy company servicing the property industry.

UK REIT performance

REITs: Castles of Sand?

On January 6th David Stevenson penned the FT article “Are Reits as attractive as we all first thought?”, highlighting recent work on REITs. Mr Rabener, a former hedge fund manager, for example has systematically challenged many of the main arguments in favour of holding REITs.


UK-REITs were launched in a fanfare with the Telegraph headline “Brown gets REITs right”. However, the results have been somewhat disappointing. FT author Stevenson points out how the FTSE NAREIT All REITs Index suffering a 47% decline during the crisis year June 2008 to June 2009 whilst the FTSE All-Share fell 25% in that period.  An horrendous set of performance numbers, albeit this might have been expected given the reliance on debt by REITs.

But it is actually the performance in the recovery period which has been surprisingly poor.  The MSCI World Index achieved returns of 212% over the last 10 years, whereas UK-focused commercial real estate funds recorded a lacklustre 162%, and UK listed property funds notched-up a paltry 105%, or an annual return of just 7.5% per annum. A remarkably poor return for an asset class in the recovery and growth phase of the cycle, especially taking into account the use of leverage, magnifying returns.

Many might have acted differently with hindsight. Hindsight is great for naval gazing, and always has an element of “fantasy”. Yes, I could have attended the primary school disco in 1990 rather than picking up my bicycle, and so prevented, Emma, my first girlfriend, from snogging Matt Green. But alas, it was not to be.

An investor could have lowered holdings in UK property and invested in global equities instead. We do not possess perfect foresight, and we have to recognise the probability of a range of potential outcomes. Should we assess a person who does not buy house insurance as clever because his house did not burn down? The answer is a resounding “no”: it is nothing short of fool-hardy. And so it is with investment mandates which have remits and rules, all specifically aimed at constraining large off-benchmark tactical positions.


Property has long been the ‘pin-up’ of diversification, but listed property appears to offer less diversification than direct or non-listed property holdings. Former hedge fund manager Rabener argues that the correlation of REITs with the overall stock market is extremely high with some researchers putting this as high as +0.8. But correlations over the longer term seem to decline, which is perhaps more important for institutional investors.

Correlations have taken on disproportionate importance in recent years, largely because of Harry Markowitz’s portfolio theory. Applying this, Rabener argues that a barbell holding of small-caps and bonds would achieve the same exposure as holding REITs.

Conversely, we feel this highlights the academic frailties of Markowitz rather than the weakness of REITs. Portfolio theory reduces portfolios to correlations, volatility and expected returns, but when this is applied in asset management it tends to be a limited historical sample including some distinctly dodgy numbers.  Apologies for calling a spade a spade!

The question is whether it seems likely that a property would have the same return as a ‘barbell’ holding of ‘small cap’ shares and bonds in all eventualities. Again we have a resounding “no” as an answer.

A long dated nominal bond has a high duration like property investment, but its sensitivity to prolonged high inflation is markedly different. This is a feature apparently forgotten because of the low inflation environment of the previous 30 year.  High persistent inflation would lead to sharp declines in the price of nominal bonds, just as they did in the 1970s. Property may be an imperfect inflation hedge and its price may decline, but its value is likely to remain much greater than a bond.

Retail Sector

Post-event naval gazing also fails to consider the enormous changes faced by the retail sector. In 2009, the retail sector may have already witnessed the death of Woolworths, but it was generally accepted that wages would return to real growth, and that, although cheap fashion was on the rise with Primark, the fundamentals of shopping would remain unchanged.

Move forward ten years, and real wage growth has been negative for much of the period. Mobile phones have been revolutionised into portal shopping devices. Wifi has become ubiquitous across the UK. Illustrating this trend is internet ‘newbee’ Boohoo, a mere teenager, which has already gained a market capitalisation greater than M&S.

All these changes have led to the largest changes in the retail sector in over 100 years, which has undoubtedly been negative for retail landlords. We would pose that it is the high weighting of retail in the REITs index which has led to the perception that this is a property story.

Will history repeat itself? The real question for investor is whether such a structural change in the retail sector is likely to occur again in the next 10 years. This seems unlikely with real wages recovering and internet shopping having picked all the low hanging fruit whilst facing the challenges of convenience, speed and niche knowledge.


Stevenson’s article questions whether it is time to re-examine the tax cuts attributed to REITs, because the wealthy 1% dominate equity ownership. Whilst we’re nit-picking: in terms of taxation, REIT structures do not remove tax, they avoid double taxation putting poorer members of society on an equal footing with richer members who can operate as sole-traders.

Indeed, the introduction of REITs removed a flat tax on property companies and replaced it with a progressive tax based on income. The notion of the 1% benefiting from REITs is good for newspapers, but the largest beneficiary of REITs are the 9.9 million people who have an occupational pension which attracts a nil tax rating.


Taking it all together, it’s best not to leap to overreactions when naval gazing.  A poor 10-years should not change structural allocations, with gold performing poorly between 1980 and 2000, before rebounding sharply. Likewise, your ex-girlfriends decision to snog Matt Green at the school disco in 1990, should not lead you to detest all discos, just him!


Alan Thompson is a finance lecturer at Abertay University. He previously worked as deputy head of market and liquidity risk at Virgin Money, as European Economist at Aberdeen Standard, as Chief UK Economist at Pantheon Macro-economics and as Euro-area economist at the Bank of England. He is a CFA charter holder. Alan teaches An Introduction to Property for Property Overview in Edinburgh.

My hopes and fears for UK property in 2020

We start every year by wishing everyone a happy New Year, and everyone is always full of hope and expectations. We do not know what the future holds except for a few surprises, and a year wherein the inevitable will happen.

The property industry is slow, but massive changes do take place over time. International Property Consultants become one-stop behemoths, driving and enabling technological and cultural change in how business is done, although equality and diversity are still very far off. New ways of working, ESG, climate change, co-working, flexibility, digital twins, whole-life carbon, space as a service are just some of the words that have already become quite common place.

With Brexit unfolding, demand has actually held up better than expected. The irrational consumer kept spending more and for longer than expected. Geo-politics create a more complex picture: whereas Brexit creates uncertainty, the UK might appear a safe-haven to those coming from areas with great unrest.

Much of the retail sector is going through structural change, but that is nothing new. Retail is always evolving. What is sold how and why, and to whom, is simply an on-going process. Nonetheless, there have been some obvious victims in the property industry. We hear of funds suffering redemptions, Intu’s struggles, declines in valuations spreading.

Property is a very cyclical sector, and it will remain so, and each downward cycle is triggered by something slightly different from before. Investors have been ready for the ‘late cycle’ for perhaps a few years now, with an increasing focus on good covenants and steady-long term income.

The place of the WeWorks of this world in this has intrigued me for a long time. What happens in a crisis? Will companies vacate the flexible space they took on? Will the space-as-a-service providers hand back the keys having received lengthy rent-frees, will landlords step in, or will quite a bit of space hit the market at exactly the wrong time? Who will benefit?

The market often proves quite resilient and for longer than imagined, but 2020 will prove to be a remarkable year, for better, for worse

A very happy New Year everyone! Let’s build a great 2020.

CBRE buying Telford Homes: a symbol of change

At Property Overview I teach people the basics of property, and how the industry, like any other, is in a constant state of change. In my consultancy work this topic is even more prominent, and I would say urgent.

Companies, CBRE included, act on the current and expected structural changes in the industry. It can be a fight for survival or an exciting opportunity to grasp growth in new areas. This is where the deal, announced in early July, for CBRE to buy Telford Homes through its wholly-owned development and investment division Trammell Crow, comes in. The announcement took many by surprise, me included.

Property consultancy is being impacted by dozens of trends at the same time, for example money flows, technology, disruption, ESG, demographics and cultural change to mention just some. CBRE, like others, are future-proofing their business by insulating weaker business areas and investing in growth areas. And by adding more services.

CBRE aims to dominate the market and add market coverage. Besides offering a one-stop shop – so there is no need for clients to go elsewhere for specific services – diversification in activities can help make the company more robust.

By adding in Telford Homes CBRE is probably hoping to strengthen its reach within the Build-to-Rent (BTR) sector in the UK, a sector seeing strong growth from only tiny beginnings 5 years ago. CBRE doesn’t have a large estate agency and residential investment presence like some of its competitors. It could attempt to gain market share by adding a specialist brokerage or advice function or, in this case, by adding services on the delivery side.

In the UK one of the many factors that held back institutional investment into the residential Private Rented Sector (PRS) was the lack of suitable stock. Investors accessed suitable large schemes either by forward purchasing schemes from developers or to build the stock themselves and take the development profit attached to it whilst also having more control. Few investors opt for the riskier route, leaving a strong demand for ready-made BTR schemes.

Word on the street is that residential schemes are currently being put on hold in a tougher for-sale housing market. Telford Homes opted to move away from the for-sale market due to a decline in demand, especially in London, its home market. Another factor to consider is that the future of Help-to-Buy, a government-supported scheme that helps housebuilders sell new build stock and support prices, isn’t secured.

The for-sale market previously offered higher returns, but housebuilders that sit on sites, have staff on their books and debt to pay off increasingly consider offloading schemes to institutional investors by changing them to suit Build-to-Rent. Doing this lowers their profit margin, but it decreases risk as the sale to an investor is certain, and income is secured. BTR also offers good prospect of demand going forward. For a development division like Trammell Crow this can add an important string to their bow.

Commercial construction is mostly even more volatile than housebuilding. Alas housebuilding is quite different from building commercial assets, and one cannot simply switch. You build people’s homes, a highly personal and emotional property which demands greater perfection and attention to detail. Commercial developers struggled to switch to develop residential. Gaining specialist residential knowledge and adding a source of more stable income to Trammell Crow makes sense.

Telford’s sites are located around and in non-core London, the city that is the powerhouse of the U.K. and which long-term should be able to support many BTR schemes.

Trammell Crow might also have bought Telford Homes to get a route to residential investors, for access to sites and the knowledge how and what to acquire, or to gain knowledge on BTR-related planning, design, construction and investment management. It helps CBREs consulting business.

I can see why Telford moved into the BTR market, but not necessarily why CBRE bought Telford Homes as their best route in. Telford have limited BTR experience themselves and limited UK market coverage. I am keen to find out more about how this investment will pan out, and how Telford Homes will be integrated into CBREs bigger plans. Will CBRE aim to buy other such developers? Do you see better ways to buy into the growing BTR sector? Will others follow suit?

Cleo Folkes is CEO of Property Overview Ltd, a property training & consultancy business based in the UK.

This article was published in the Property Chronicle on 19th August 2019

New Frontiers: Flexible Space Operators and Landlords fight a turf war

Flexible office space providers or those that deliver ‘space-as-a-service’ are major tenants in many cities around the world. Manhattan and London are particularly well-serviced with a boom in space taken by such operators. When there is a boom, there is often a bust. But even when the balloon bursts, the world will be a different place. For small and big landlords, and for flex-space operators alike.

With the flex-space offering, tenants have their need for ease of leasing and lease-flexibility filled. Landlords of large offices see empty space let-up on long leases to the operators. A more dynamic environment is created, and tenant base is diversified. But landlords of smaller buildings now suffer much higher vacancy as many their former occupiers move to flexible space. They face a smaller pool of clients. There is no turning the clock back.

In the previous two articles we set out the business model of flexible office space providers and the threats and opportunities they might provide, and the eco-system that is being created. WeWork claims to create a community and doesn’t simply let office space. It provides a space for living a life, not just work. Space-as-a-service and lifestyle.

As property becomes more and more like an operating asset as investments go into more alternative, less traditional properties, landlords get more comfortable operating in this way. Many have decided they want a piece of the action and start up their own ventures.

Landlords Get In On The Game

Providers of flexible, co-working space are getting competition from traditional large landlords that own large buildings (such as property companies, property agents) as they evolve their business models and jump on the bandwagon. They are driven by the need to redefine relationships with their occupiers.

There is a clear, belated, recognition that the traditional landlord-tenant approach is altering. The flex-space operators business mix is becoming diversified. The hunter becomes hunted!

The core letting business continues to offer traditional fixed-term leases but with more flexibility built in through breaks. Unsurprisingly, space use and design now reflect modern working practices. Considerable thought is being given to how teams work best, how work-flow and movement is made more efficient and how communications are made easier.

In addition, some of these new frontier operators are capable of owning their own buildings, and sometimes do so. They will undertake joint-venture developments with owners keen to let vacant or refurbished space. An interesting new feature is in ‘participating leases’, where the upside (or downside) is shared between operator and landlord. This is similar to ‘turnover rent’ type leases. The underlying hard property factor is clear to see: the flexible space operator is another option for the current investor to help monetise vacant space, or by helping to remove structural void costs.

Turbulence and Disruption

The new operator model has a strong bias towards branding. Operators deliver their own vision of the space. Its services delivery is aligned to its end users to attract existing and new occupiers, thus removing the traditional agent role. This is called disintermediation.

For the owner-landlord, the brand operator effectively becomes the tenant, the letting agent and the leasing operator as a ‘three-in-one’.

Operators do far more than simply let space. They are equally technology-savvy. They understand the fragmented and imperfect nature of the real estate market place. They capitalise on opportunities such as leveraging or enhancing the use of CRE databases. The potential exists for blockchain technology for market intelligence, information sharing, data exchange or for gathering, verifying & comparing data. These factors drive competition and transparency.

They know that their varied tenant base provides them with data that is valuable for the long term – much more than yields or valuations that traditional property investors appear to think about.

Landlords Listen

What does this mean for large-scale investors and landlords? In many respects, no change! For example, in terms of property location, build quality and sustainability we have a status quo.

In terms of the market place, there are steep, continuous changes. The scale of operators is ballooning, and new formats arise. The power of branding and technology comes to the fore. Operational complexity rises steeply. Long-term impact of demographic changes on office space demands should be considered. Specific factors investors that own office space should consider are:

  • Floor Space: design & uses
  • Lease: structure, length, pricing, terms, flexibility, etc
  • Occupier base: mixed
  • Portfolio: more diversification away from traditional occupiers
  • Risk sharing: with brand-lease operator
  • Market: space absorption, holistic approach, etc
  • Investment Analysis: Cashflows and Valuation to reflect underlying changed business model and economics: an ‘Operational Approach’ to office property cashflows and valuation (think in terms of RevPAR, stabilised occupancy, EBITDA, capitalisation rates/stabilised yields, etc). The static rent roll type analysis is long gone. The cashflow is now much more business operating driven than the ‘fixed income’ investors often aimed to get from real estate. The assumptions and complex variables are both non-property and property specific.

The office property cashflow begins to resemble an operating business – a new frontier subject to innovation and disruption.

thriving community

New Frontiers: Space Management Beyond Bricks & Mortar

Co-working is changing how space is let and managed in offices, retail and industrial with flexible offerings, service provision and a huge difference made by technology. The rise of the co-working, flexible workspace phenomenon in recent years is remarkable. In 2018, We Work arguably became the biggest single private occupier of office space in London and Manhattan. Hot on its heels is the emerging complementary ‘co-living’ trend. In this second article in the series we look at the structural changes taking place in office space provision, although other sectors see similar changes albeit at a smaller scale.

Think and View Space Differently

The flexible workspace providers – or should we call them operators – think and view space differently. The focus is on workspace as an ‘eco-system’, not simply square footage. It re-defines the traditional landlord-tenant relationships. It re-brands office use, which changes from a place of work to a place of life.

How work is done and how it is seen is being reshaped. The tenant is a ‘member’, other occupiers become ‘your community’, the physical space delivers ‘an experience’ and the corporate or individual business growth is a ‘journey’. It feels like a place you want to be at and be connected to. The operators and other members have values and an ethos like yours.

The concept of flexible workspace is not fundamentally new. In a sense, serviced-office companies like IWG/Regus have operated for close to 3 decades. The solutions have been ‘re-packaged’ but still deal with the following:

  • ‘Wholesale’ to ‘Retail’: instead of the traditional tenant having to bulk-buy space (i.e. a fixed amount of space with a fixed floor layout, at a fixed rent for x number of years in a fixed location), they now buy ‘retail’. They buy a flexible product as and when and where to suit their needs.
  • ‘Direct’ to ‘Indirect’: instead of the owner-landlord having a multitude of direct tenant relationships, something they hate as it’s time-consuming, they have a single relationship with one tenant. This gives indirect exposure to the underlying tenant base which changes over times, and reflects a mix of new and established businesses.
  • ‘Passive’ to ‘Active’: tenant-occupier management becomes more dynamic, pro-active or at least responsive, demand-driven and fluid. Very different from the traditional passive asset manager.
  • Structural Changes: global cities are urbanising and growing. This is underpinning long-term structural growth in office-based employment and thus office space demand. This is coupled with the changing nature of working patterns and the enterprise economy. To an extent it counteracts the trend towards less office space per employee. The most technically footloose companies have the interesting paradox they demand prime, centrally located office space: face-to-face meetings are invaluable. Companies like Google and Amazon like the dynamic atmosphere of co-working-type spaces and their staff like to work in physical teams and enjoy a pleasant office atmosphere.


The co-working business model is seen and wants to be seen as operating differently. They consider themselves a facilitator, connecting human workers with their physical environment.

The ‘space’ they sell is not just square footage. They provide a community and collaboration, amenities, workspace and shared space, networking, wellbeing, innovation (labs, think tanks, idea generators), support and operational services, hybrid formats (start-ups, next stage growth, small, medium & large businesses), multi-locations choices for drop-ins and on the road working, flexible/shorter commitments, express timeline to sign-up/move-in and can be very cost efficient.

To rent space on a proper long-term contract is complex, fraught with difficulties and time-consuming. Occupiers are tied down, and in the UK, they will be responsible for dilapidations, cannot sublet easily, et cetera. Co-working and flexible space mean the traditional barriers to entry (having to use a letting agent, do a property search, negotiate leases, design space and infrastructure set up, commission this, and more) are made user-friendly.

The Property Investor

Real estate landlords are impacted by the changes in tenant demand and non-traditional space operators offering flexible working space. Landlords can react in various ways: they might ignore the trend and carry on as usual, they might let space to the flexible-office space operators, they more-and-more try to set up their own flexi-space ventures in direct competition, or they partner up with co-working operators in various ways.

Our final article will look at the turf war between traditional landlords and the co-working operators. Turbulence and disruption are felt on either side as operators and investors come to terms with the continuous change in the market place.

The New Frontier is not fixed in place: its borders keep changing.

The author, Kaushik Shah, is a senior real estate practitioner teaching the course Deeper Understanding of Real Estate Cash Flows running on 21st March in Central London, UK

New Frontiers: Does WeWork Work for Occupiers AND Investors?

Life is rarely simple, and often perplexing. Office property, like most other forms of property, is continually going through a transformation of what is needed by whom and how. Tenants, demanding changes to suit their needs, are in the driving seat and many landlords try to catch up with the demand.

Real Estate investment is more and more following an operational model rather than a bond-like investment delivering ‘fixed income’. Investors increasingly look for higher or diversified returns in an over-crowded market. They seek alternatives to offering longer leases in a world where traditional office, retail and industrial/logistics units have seen leases shorten dramatically since the 1980s.

This need for a stable income, a steady cash flow, low volatility and security of income is turned on its head by the new co-working & serviced office trend. Co-working has taken the office markets by storm in cities like New York and London: landlords are willing to let to them or partner with them, and for now tenants are keen to take space. Tenants are not tied in, so they are happy.

Co-working and serviced office space operators make money from operating margins and business mix: buy-in space in bulk and let to multiple tenant types at a steep mark-up. They offer space, convenience, a ‘community’, a service. The ‘members’ are willing to pay a substantially higher rent providing them short-term commitment and flexibility. They are packed into a room, with high membership rates like in a gym: probably they won’t all turn up at the same time. Each ‘member’ is given little space, and emphasis is placed on communal areas, events and apps to create a community and feed entrepreneurship and dynamism.

But how about the landlords and investors? What do they make of the ‘WeWork revolution’? Are they able to turn things round in their favour? Do they jump on the bandwagon, should they offer co-working space themselves? What’s the same, and what is different from standard office leasing? What should landlords consider? In this first article we look at the bigger, cyclical picture. In two follow-up articles we will look more at the operational realities, challenges and opportunities.

Back to the big picture and business cycles. The problem is how to see these operators from a landlord’s point of view. The co-working and serviced office operators take long leases, and in turn mop up demand from occupiers demanding flexible leases on short-term commitments. It is what keeps average lease lengths from shortening further for investor landlords. It halts downward pressure on rents, and some argue that is has extended the property cycle. The other factor is user-growth in the technology sector (for example, fintech-blockchain) and the advent of the gig-economy, having an impact on how space is utilised. A co-working type offering meets the requirements of that new type of enterprise. So, that’s perfect then, right?

Is it? There are various points where we feel unease with these co-working/serviced office providers. The serviced offices phenomenon is not new. Regus, now ‘updated’ into IWG, is bigger and much older than WeWork and the co-working phenomenon. Regus and other providers who have been through boom and bust cycles know how difficult it is to have long-term commitments and short-term income, both clearly not aligned. The short-term tenants scale back their presence or evaporate by going bust or having to change their business model.

Co-working operators flooding the market are attracted to WeWork’s valuation and brand recognition. As economic cycles turn, innovation slows, and supply outstrips demand, we fully expect these operators to struggle to deliver performance, given their high operational leverage.

The older, more mature providers like IWG are actually making a profit. WeWork is grossly ‘negative cash flow’ given its expansion phase aiming for scale and market share. WeWork is riding largely on the rent-free periods. What if there is a perfect storm of an economic bust, declining tenant demand and income, and rent-frees have come to an end, plus money needs to be spend on updating the furniture, fixtures & fittings?

WeWork has insulated itself by having rental guarantees provided by subsidiary companies – and I hear they replace even those with lesser guarantors once the rent-free periods have come to an end. Is that good news for a landlord? We doubt it.

So how does a valuer see this tenant? We hear that that having a small amount of co-working space added to an office building boosts value as it increases that building’s dynamism and helps attract other, bigger, steady tenants. But when the amount of flexible office space is over say 20% of space, it takes value off a building because of the above problems.

Landlords and Investors are faced with a world wherein some things don’t change much, like the location, build quality and sustainability of a building, whilst other things undergo rapid, cultural and structural change. Co-working operators are turning office landlords’ worlds on their head. Business cases are studied. Cash Flows and covenant strength are double checked. Heads are scratched. And wishful thinking continues.

Authors: Cleo Folkes and Kaushik Shah, who provides the course Deeper Understanding of RE Cash Flows, a course that looks into the many forms and functions of cash flows within the property industry and how they fit into the decision making process. Real life is complex, and this course provides rare insight and an overview.