Finance Sustainable Buildings
The Flexible Spaces model seeks to list existing, underutilised building spaces for short-term use on online platforms. The spaces could be completely unused or in use but under-occupied. Depending on the lease agreements, either one of the following three parties could be responsible for arranging additional tenants to rent the space:
1.Landlord: The core tenant signs a lease which includes provisions allowing the landlord to advertise unused space through agreed processes. The landlord leads on finding additional tenants in parallel with the anchor tenant. The landlord controls who access the space.
2.Anchor tenant: An anchor tenant will sign a lease with a typical lease period, but with clauses that allow them to maximise the use of their spaces. The tenant leads on finding additional tenants and controls who accesses the space.
3.Third party operator: The anchor tenant and/or landlord work with a third-party space sharing platform operator who run their business model on a portfolio of underutilised space. The third party leads on finding additional tenants and controls who accesses the space, with oversight from the anchor tenant and / or landlord.
This model is particularly suitable for non-resident buildings as they could accept more adaptability and versatility, especially in office buildings. Due to the global COVID-19 crisis and rising prices, real estate trends have significantly change, so the adoption of this instrument could, to large extend, solve problems of early demolitions or longtime vacant places. Designing circular multifunctional buildings will lead to lower costs in converting the identified spaces while ultimately creating less waste.
Despite the benefits that non-residential flexible spaces could bring, when it comes to residential buildings, some potential issues could be generated, such as overcrowding or speculation. Therefore, proper policy/economic measures that avoid these side effects should be promoted such as proper densification strategies, maximum number of dwelling units, caps to rental prices, minimum number of social and affordable units etc., ensuring the environmental and social positive effects of flexible buildings.
This innovative business model is related to the full life-cycle of buildings. including specific projects addressing circularity tools or sufficiency issues.
We did not find any real business case. Instead, we present the testbed developed by ARUP.
MILAN FLEXIBLE SPACES TESTBED, ITALY
As a testbed for this model, we selected a tenanted office in Milan with the tenant organisation looking to expand into a 270m2 extension to their existing office space. The tenant organisation decided to extend the office (with agreement from the landlord) in anticipation of future growth in headcount. By applying the Flexible Spaces model to the testbed project, the additional net income earned would increase by 18% over the remaining 12-year lease term (circular base case) compared to the linear model.
A sensitivity analysis has been undertaken for:
The additional tenant rent received remains the largest source of uncertainty. Optimistic and pessimistic additional space use scenarios have been developed to compare their financial performance with that calculated for the circular base case. The optimistic scenario considers a greater uptake of co-working between 75% and 90% of unoccupied desks, while the pessimistic scenario considers an uptake of 50%, as well as a reduction in out-of-hours activity.
The quantum of savings in the circular base case could support a 58% increase in extension costs associated with making the space more flexible to break-even with the linear model. In reality, the costs associated with making the space flexible is unlikely to be this high. It should be noted that if additional investment was made in making the testbed project more flexible, the extent of additional space use, and therefore revenue earned from it, would likely be greater.
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