If you’re considering entering the flexible working environment to reduce voids, then you will probably encounter the ‘Management Agreement’.  The Management agreement is rapidly superseding the traditional FRI/SPV leasing format for flex operators looking for their next location.

Operators such as IWG (Regus, HQ & Spaces), Orega & Boutique Workplace are now primarily only seeking management agreements. There are several ways to structure the management agreement but put simply they are based on profit share models between the operator and the landlord.  

Leveraging Industry Expertise

A management agreement provides landlords with a convenient way to enter new markets by collaborating with an operator. This partnership allows commercial real estate investors to expand and diversify their offerings, leveraging the expertise of an operator to mitigate the operational risks associated with managing flexible office spaces.

A competent operator begins by working closely with the landlord to understand their objectives. By doing so, they can effectively contribute to achieving those goals on behalf of their client. Striking a balance in management agreements that addresses the needs of both the operator and the landlord is crucial for instilling confidence in the flexible workspace sector over the long term. Ultimately, this confidence will drive the necessary levels of activity to meet the increasing demands for flexibility from today’s workforce and their employers.

Before entering into a management agreement, it is essential to establish an open dialogue between the operator and the landlord from the outset. Both parties must clearly define their respective responsibilities, comprehend the associated risks and rewards, and align their efforts to achieve short- and long-term objectives for the workspace. Seeking independent advice before engaging with operators is advisable, as it allows an advisor to assess the feasibility of converting vacant space.

Tip: Seek independent advice from a flexible working expert before engaging with operators.  A feasibility study will analyse your stocks potential to enter into a new market and what ERV can be achieved.

Fostering Growth

In the short term, both parties must fully grasp their obligations within the agreement. For instance, they should determine who is responsible for developing and approving the proposition, designing the space, planning and managing the fit-out project, launching the new space, devising sales and marketing strategies, and setting pricing and operational standards. Clear delegation of specific roles within the contract is essential.

Each operator operates with its unique business model, which should outline projected income, operating costs, and expected returns. By understanding these factors, both parties can work together effectively to achieve sustainable growth in the flexible workspace industry.

Tip: it is also advisable to set measurable milestones that will trigger options to exit an arrangement or reduce the level of fee’s payable.

If you’re interested in reading more about the growth of management agreements and what customers expect from their flex space, check out this report from Savills.  The Workthere Flexmark 4.0