Future of Real Estate: Space as a Service Model

The Space as a Service (SPaaS) business model in real estate is an innovative approach that responds to the evolving needs of today’s tenants and real estate users.

It revolves around offering fully serviced, flexible space that meets the preferences of a diverse clientele, from start-ups and freelancers to large corporations seeking adaptable work environments.

This model is not just about renting physical office spaces; it includes a variety of services and amenities such as IT support, maintenance and community management, facilitated through digital platforms to enhance user experience and operational efficiency.

The global real estate market has seen a significant shift towards SPaaS due to the increased demand for flexibility and on-demand services.

This shift is underscored by a growing preference for managed and serviced office solutions, which saw a surge in demand following the pandemic as companies sought more resilient and adaptable workspace solutions.

SPaaS Value to Tenants: Flexibility and Scalability

Tenants benefit greatly from the SPaaS model because of its inherent flexibility.

Traditional leases often lock companies into long-term commitments that do not account for the ups and downs of the economy or business growth.

With SPaaS, however, companies can lease space on more flexible terms and scale up or down as needed. This is especially beneficial for startups and dynamic companies that experience fluctuating growth rates and need to quickly adapt to changing staff sizes or project requirements.

SPaaS Value to Providers: Steady Revenue Stream

From the provider’s perspective, SPaaS offers a steady revenue stream.

Flexible leases, while more short-term, can command higher rates per square foot due to the additional services provided.

In addition, high tenant turnover is mitigated by a potentially larger customer base of smaller, more flexible tenants, as opposed to relying on a few large tenants.

Providers can also maximize utilization of their property by offering different space configurations and shared services that attract a broader range of tenants.

The growing demand for flexible co-working space, accelerated by post-pandemic changes in work habits, means that properties can maintain higher occupancy rates.

Commercial sPaaS Real Estate Business Model

SPaaS flips the traditional real estate script by offering space that businesses can use on flexible terms.

Whether it’s a hot desk, storage space, private office, co-working space, or an entire floor, SPaaS providers create versatile environments that accommodate everyone from solo freelancers to large corporations.

One of the great benefits of SPaaS is that it’s not just about renting space. Tenants get a full package of services that can include everything from IT support to security to cleaning.

That means less time worrying about the logistics of office management and more time focusing on what’s important: your business.

How it Works in Action

So how does this work in practice?

One practical example of SPaaS in the commercial real estate industry is WeWork.

Known for its coworking space, WeWork – a popular proptech company – offers flexible office solutions and coworking spaces that meet the needs of modern businesses by providing short-term leases, physical space, fully furnished offices, high-speed internet, daily cleaning, and other office management services.

Businesses interested in WeWork’s offerings can easily explore various workspace options through their website. The platform allows users to view different locations, amenities, configurations and pricing structures, providing a comprehensive overview without the need to physically visit each location.

Once a suitable space is identified, prospective tenants can schedule a tour to view the facilities firsthand, allowing them to ask detailed questions and assess the suitability of the environment for their operations.

After the tour, if the company decides to move forward, the team works closely with them to customize the space to meet specific business needs, including layout, furnishings and design elements that align with the company’s brand.

The flexibility of leases is a major benefit of this model.

WeWork offers terms that can range from just a few months to several years, giving companies the ability to scale up or down the existing infrastructure as their needs change, without the long-term constraints typical of traditional leases.

Few Grain of Salt

WeWork is currently facing significant financial and operational challenges.

The real estate tech company has entered Chapter 11 bankruptcy protection, which includes restructuring its debt and renegotiating leases to improve its financial position and operations.

Financially, WeWork has experienced a difficult period with significant financial losses, increased member churn and urgent cash needs.

These challenges necessitated a 40-for-1 reverse stock split to maintain its listing on the New York Stock Exchange, underscoring the company’s efforts to stabilize its financial position, investor relations and business operations.

But does this mean that sPaaS business models are fundamentally flawed and doomed to fail?

Not at all.

Despite WeWork’s financial and operational challenges, the “space as a service” business model itself still has significant potential.

However, WeWork’s struggles are largely due to factors outside the inherent potential of its business model.

These include management decisions, poor CEO performance, risky ventures, rapid and uncontrolled expansion, and high operating costs relative to revenues.

Despite this particular case, the concept of providing flexible, technology-enabled workspaces is increasingly relevant, especially as companies seek more adaptable working conditions post-pandemic.

Key Software Solutions in the Space as a Service Real Estate Business Model

So what a company needs to launch a SPaaS business in 2024?

In terms of software, there are three main components:

Property Management System

First and foremost, a solid property management system (PMS) is essential for SPaaS providers.

This software centralizes all aspects of property management, from tenant screening and lease administration to maintenance requests and financial accounting.

By automating these processes, a PMS increases the efficiency of property operations, reduces the likelihood of human error, and provides a scalable solution for managing multiple properties or units.

Openkoda Property Management Software is emerging as a top contender in the real estate industry, particularly valued for its advanced real estate AI capabilities and comprehensive toolset designed to enhance the management of rental properties.

This open source real estate software platform integrates a variety of features that streamline property management operations through sophisticated artificial intelligence.

This not only ensures speed and accuracy, but also reduces the manual effort involved in document management, which can be a significant time saver for property managers.

Property Listing Search Engine

Another essential software solution for Space-as-a-Service real estate companies is a property listing search engine.

This tool helps prospective tenants find suitable SPaaS offerings by allowing them to search and compare different properties based on location, price, amenities, and lease terms.

For SPaaS providers, a well-optimized search engine not only increases the visibility of their properties, but also improves the match between available space and tenant needs, resulting in higher conversion rates.

Customer Relationship Management (CRM) Software

Finally, space-as-a-service real estate companies need robust customer relationship management (CRM)-an essential tool for maintaining tenant relationships and managing sales leads in the SPaaS model.

CRM systems help SPaaS providers track all interactions with current and prospective tenants, from initial inquiries and tours to ongoing service requests and lease renewals.

Do you want to learn more about the Space as a Service Model in Real estate? Check out our full overview of this important market trend in the link below:

Future of Real Estate: Space as a Service Model