Repurposing office space : Base principals

Posted on July 3, 2011

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What is this post about?

This post is part of a proposal for a low cost, low maintenance system to rent vacant commercial office space to many people for short periods.

It focuses specifically on Amsterdam, but is not limited to that city.

In this specific post we explore the several conditions playing a role in owning and exploiting Office space.

What is the ultimate goal?

The ultimate goal is the following:

  1. Affordable flexible office space to anyone who needs it – Using available office space and using every possible way to reduce handling costs per Client, where “flexible” is: with short lease periods which can be prolonged when needed.
  2. Make it profitable – For the building owners
  3. Make it a formula – So that it is not limited to a specific region or specific people and can be reproduced and re-used on a broad and wide scale

What is the potential?

  1. The emergence of self supporting incubators – For small businesses. Whether these businesses work together or not, having office space and working in a social environment where other entrepreneurs are can already create benefits.
  2. Magnet for European technology startups – Amsterdam can become a place where European technology startups gather and join.
  3. Added value for the city economy – If new business moves to Amsterdam, this will positively impact the reputation (if these new companies are innovative and cutting edge) and the economy of the city (due to the injection of new money and new people).  In brief: Amsterdam can become one of the leading technology capitals of Europe.
  4. Added value for the local community – When a building is in use, business and social life in the surroundings increase in quality.
  5. Reduction of losses and decay – When a building is in use and generating proper revenue, losses will be cut.

What are the core issues?

Empty space: There is a lot of empty office space in Amsterdam.

Les than profitable plans: Over the years there have been several plans to use this office space instead of letting it rot and decay. In most cases the revenues are less than the costs

Factors: There are several problems involved in making these plans work. Including: the cost of maintenance, the cost of operation and the impact of a changing business model on the organizations who are appointed to exploit these office spaces.

Classic office rental construction does not work for all: There is a present market of small businesses from whom the classic construction of office rental does not work for the following reasons:

  1. Risk of a long term contract – Business can change. The company can grow. The company might fail.
  2. Size of the office space – In most cases, the offered space is bigger than small companies need or can afford.

These small businesses can include:

  1. Freelancers – Working for clients on location, but also at home or at co-working spaces
  2. Start ups – Usually three to five people, but if successful potentially growing to 10 and even 100 people in periods of months and years.
  3. Home run businesses – Which can be in any traditional space from window cleaning to management of processes and people
  4. Foundations – Ranging from charity to advisory roles in preventing
  5. Providers of services – Like people providing courses and schooling, consultants, therapists, physical exercises and physical therapy
  6. Professionals from abroad – Wanting to work in a different city under proper conditions

The overhead of many short term contracts: Looking specifically at short term leases and “Flex offices” where people can walk in, work for a few hours, weeks or days and walk out again, these solutions generate a lot of overhead for several reasons, including:

  1. Payments and invoices – Each client using the facilities will pay and be invoiced. As these clients can be several per day and per month, this requires the constant attention of one or more people employed by the party exploiting the venue
  2. Access and restriction of access– When a Client pays to have access, a key or proof of granted access of some sorts has to be issued. When the Client no longer has rights to access the space, this Client has to be blocked access to use of that space. This granted and restricted access is to:
    1. The building itself
    2. Facilities in the building
    3. Office spaces and units within the building
    4. Keys and proof of granted access – Depending on the system, the Client will be issued a key or a proof of granted access  (which can be a shortlist based on data and time, checked by a person)

Access to buildings requires personal involvement: Most buildings are still facilitated with the classic means of access, which needs to be issued on a personal basis, including:

  1. Locks and keys – Metal, issued to a person and granting access to one or more spaces.

Overhead created by ever changing clients: The overhead created by a constant flux of users / Clients in a building include the following:

  1. Issuing and revoking keys – Done by person to person meetings involving appointments and missed appointments
  2. Ordering and issuing new/more keys – Required when more people are using the building
  3. Invoicing – On a Client per Client basis. Which can be multiple per floor and multiple per space. Especially when flex-spaces/desks are offered and leased per day and even per hour.
  4. Assuring proper use – By monitoring who goes in and out, who is rightfully there and who is not.

Consequences of empty office space

Empty office space has several consequences:

  1. Cost/Revenue – It costs money and brings no revenue.
  2. Decay – It is more prone to vandalism and loss of value due to vandalism
  3. Reduced added value – It is of no benefit to its surroundings
  4. Blocked by unwanted inhabitants – It can become squatted
  5. Unwelcome re-assignment – It might be forcedly become-assigned to a new purpose by the municipality

What is possible?

It might be possible to build a solid business case with the following elements:

  1. More effective ways to exploit empty space – By introducing more effective ways to manage and administer the lease of- and access to office space
  2. Move from loss to break-even and profit on vacant buildings – For building owners / exploitation companies
  3. Create added value for the surrounding area – In the sense of trade, livelihood, the flow of (new) people

Ideal scenario

In the most ideal scenario, the following is established:

  1. Short term leases for individual units – Office space (“units”) can be leased by Clients for periods of time ranging from one day to several months or years
  2. Enough traction – There are enough local and international companies and people who need and will use and rent units as offered
  3. Space is offered and available – The building owners are willing to provide such space
  4. Low costs of operation – The cost of operation is minimized
  5. Profitability – Each building can reach a state of profitability
  6. Continuity – Profitability is sustainable

Who might benefit?

The following groups and people might benefit:

  1. The surrounding area – Offices filled with people bring life and business to the surroundings. From lunches, shop visits and cups of coffee, to the possibility to exploit in-house cafes and other facilities.
  2. Small scale entrepreneurs– Who now work from home, are reluctant to grow scale due to lack of office space under the right conditions, including:
    1. Freelancers – Working for clients on location, but also at home or at co-working spaces
    2. Start ups – Usually three to five people, but if successful potentially growing to 10 and even 100 people in periods of months and years.
    3. Home run businesses – Which can be in any traditional space from window cleaning to management of processes and people
    4. Foundations – Ranging from charity to advisory roles in preventing
    5. Providers of services – Like people providing courses and schooling, consultants, therapists, physical exercises and physical therapy
    6. The municipality – Empty office space means dead zones, where no or hardly any human activity or commerce is taking place, and decay due to the buildings and surroundings not being maintained. In general these dead zones become unsafe places avoided by people and have a negative effect on the cities economics as they generate no revenue for surrounding business and facilities.

Working towards a solution – Making almost all parts of the process automated

Formula one hotels: One example of fully automated facilities for human use are the “Formula one” hotels in the Netherlands and Belgium. How they work is as follows:

  1. You check into a vacant room, using a touch screen and a Pin-machine for payment.
  2. Once paid you receive a code or RFID card to open the door of the facility and your cabin.
    1. This card is valid for the period you paid for. After that period, it will not grant you access.

The rooms themselves are designed to be low maintenance. Even if there are still human hands needed to clean the spaces, the design is such that this maintenance can be done as quick as possible.

The same principle is possible for office space.

Solution Starting point

Buildings and Renters

The classic market for office space has lease-periods of 3 to 5 years. These lease periods are – in most cases –automatically prolonged unless the Renter cancels before the deadline.

The less change there is per building, per floor, per Renter, the better, as costs per building will remain minimal.

The space leased is usually at least an entire floor of a building per Renter. The more floors a Renter rents per building, the better, as the administrative costs per building decreases and management of buildings and office space become more effective.

In other words: It is not beneficial for the companies exploiting buildings to have an increase in individual Renters per building as this will increase the administration per building. Less Clients, renting more office space is better.

The companies owning, maintaining or exploiting these office spaces usually have their administrative process based upon these simple rules of thumb.

Maintenance

Each building needs maintenance. Whether it is used or not. Assuming that a building is used, the maintenance can be separated in three parts:

  1. Ad hoc maintenance with urgency– This is maintenance over facilities which are used and needed on a day to day basis. For instance:
    1. Elevators that malfunction
    2. Electricity, heating, water and Internet not being provided
    3. Toilets and faucets not working
    4. Windows, doors and locks malfunctioning or broken
    5. Replacements of locks after break in / loss of keys for access
  2. Regular maintenance related to human use– This includes cleaning of all public facilities including:
    1. Toilets
    2. Hallways
    3. Windows (washing)
    4. Elevators
    5. Stairways
    6. The entrance
  3. Structural repairs and upgrades– This relates to the building itself and includes:
    1. Repairs of wear and tear on doors, windows, floors, walls, mechanical parts (including hinges and locks)
    2. Repairs and replacements on heating- and airconditioning systems
    3. Upgrades of facilities like Internet Access and Access points
    4. Re-arrangements of rooms
    5. Repairs and upgrades on public areas like the entrance, corridors, stairways, meeting rooms and toilets

Cost of operation

The cost of operation are the month to month and year to year costs involved in running a building. These costs exclude the maintenance mentioned above and include:

  1. Municipality taxes – For: exploitation of the building, pollution and cleaning, use of water, use of rights for the type of facility, right to use the soil.
  2. Payments of mortgage and/or interests – Based on the source of the money invested in the building
  3. Gas, water, electricity – No further explanation required
  4. Administration – Including: invoicing Renters, assuring payments to be done, arranging maintenance.
  5. Personnel – To run a business with real estate, you need people. The more buildings and the more maintenance and administration, the more people are needed.
  6. Vacancy – Empty buildings cost money as taxes and mortgage/interest will continue to be. (Tax wise the loss due to vacancy can be written off and used to compensate profits made elsewhere)
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