“Not furnished? But I can move in to WeWork tomorrow!”
This is the landlord’s nightmare – but some landlords are fighting back and improving their rents at the same time.
WeWork has irreversibly changed the commercial office leasing market in a range of ways. Tenants are now expecting spaces to be fully furnished, have working wifi and look cool – so they can concentrate on their business instead of worrying about interior design. Move-in lead times have shrunk to hours, lease lengths have dropped precipitously, and termination notice periods have plummeted to days – allowing tenants to minimise disruption and stay flexible.
These changes are difficult for landlords to address. Property companies are great at managing property and rightly question the enormous prices that designers and furniture suppliers traditionally ask to furnish spaces. Especially when the tenant could move out in a relatively short period, leaving the landlord to write off the furniture and pay to send it to landfill.
How to Solve this Difficult Situation?
Our discussions with a range of property experts have unearthed some observations that give clues on how to beat WeWork:
#1. WeWork has shown that tenants don’t really care about furniture; what they really want is ambience. So it doesn’t matter what colour the desk legs are, or whether they are sloped or straight – so long as everything works together to create a great space.
#2. WeWork has demonstrated that tenants like genuine furniture – not the latest new fashions.
#3. WeWork’s approach has created some friction with tenants who prefer to personalise their space by incorporating their brand colours and logos, as well as choosing breakout furniture that suits their culture, like sofas, bean bags or collaborative booths.
#4. When a tenant has personalised space, they are likely to stay for longer.
To the casual observer, these insights may not add up to much. But the strategic thinkers at leading REITs have built on them to create a compelling proposition that attracts tenants away from WeWork while improving profits and sustainability.
The REIT Response
Large property companies are tapping into the Circular Economy to deliver more compelling tenant propositions that counter the WeWork proposition. By using high quality remanufactured furniture, they are able to provide authentic, sustainable office spaces at a fraction of the cost of furniture from virgin resources. This cost saving creates value for both the landlord and the tenant.
These spaces can be bespoke to a tenant and, thanks to the local availability of remanufactured furniture and electronics, can be delivered rapidly. That is, the Circular Economy radically compresses the lead time compared to importing items made overseas from virgin resources.
For example, one office provider in London’s Southbank has been installing remanufactured furniture for several years. Thanks to streamlining of their fitout processes and pre-agreed furniture lists and prices, they have reduced the time to do a Category B fitout to two weeks. This includes design of the space with the client, construction of partition walls, installation of flooring and placement of furniture (remanufactured of course) – ready for clients to move in.
When the tenant moves out, remanufacturers take back the furnishings to bring it back to as-new once again – ensuring no value is lost through recycling or landfilling.
Top remanufacturers also provide free design services to bring all elements together to create wonderful offices which can be quickly adjusted to incorporate brand colours and bespoke spaces.
Dr Greg Lavery, from leading office furnishings remanufacturer Rype Office, explains:
“The key to using remanufactured furnishings is good design. We employ experienced Architects and Interior Designers who help landlords to furnish an unlet space so tenants can move straight in. Then we help the tenants to personalise the space. We don’t charge the landlord or the tenant because the design allows us to understand what the client needs – which is what all good suppliers should do anyway.
“What many landlords don’t expect is that we offer financing at 2.5% to 6.5% effective interest rate, so they can cover their payments from their rental incomes. And if the landlord chooses to buy furniture up front, we provide a guaranteed buy-back price – that is a big surprise for them, but it shouldn’t be because we want our high end furniture back.”
How Remanufacturing is Helping to Beat WeWork:
Bespoke fitout exactly meeting client requirements (leading to stickier tenants)
Stylish, authentic furniture
Profits from furnishings
Leasing to match outgoings with rental incomes
Take-back of furniture when no longer required, avoiding waste and removal costs
For some REITs, the use of remanufactured office furniture to pre-furnish offices has come from a sustainability perspective. They have recognised the greenhouse gas emissions and waste savings that can be achieved through using remanufactured furniture. For greenhouse gas emissions, remanufactured furniture alone can reduce the GHG footprint over the entire 40-year life of a commercial building by 24%, because furniture comprises 30% of a building’s GHG footprint and remanufacturing has been shown to reduce GHG emissions by 80%.
Time to Act?
The world of office space is changing rapidly and those who respond fastest will reap the rewards. There is a way to beat WeWork and other flexible office space providers which creates value for landlords, tenants and the environment.
 Source: Treloar, GJ. Et al, 1999, Embodied energy analysis of fixtures, fittings and furniture in office buildings, Facilities, Volume 17, Number 11, pp. 403-409 (Accessed on 14 June 2019 at https://www.academia.edu/18481731/Embodied_energy_analysis_of_fixtures_fittings_and_furniture_in_office_buildings)
 Sources: Giuntini, R., Gaudette, K. Remanufacturing: The next great opportunity for boosting US productivity, Business Horizons, Nov-Dec 2003, p. 44. McKenna, R. President and CEO, Motor & Equipment Manufacturers Association, Testimony before the International Trade Commission on: Remanufactured Goods: An Overview of the U.S. and Global Industries, Markets, and Trade, Investigation No. 332-525, Feb 2012.