Examining the impact of Space-As-A-Service (SAAS) provision on office rents in the UK
Tenants now expect more from their office than simply a space for work. Demand for a range of services, from mobile applications to on-site fitness facilities, has grown. Do these extra features command a rent premium, however? A new study investigates....
The workplace is changing.
An increasing emphasis on creating a positive workplace experience in a highly serviced environment is fueling this change.
Enhancing productivity, lifting worker satisfaction, and attracting talent are all important corporate objectives, and the office environment can play a significant role in accomplishing them. As a result, corporates can no longer evaluate the quality of an office solely by its physical characteristics and location. Provision of services is now an important consideration too.
The concept of the "innovative office" has been around in various forms since the 1990s but it has seen particularly rapid and widespread adpotion in recent years. The 'Space-As-A-Service' (SAAS) model evolved from earlier concepts of the innovative office, such as the serviced office, and the co-working space. It is gaining in popularity as occupiers acknowledge the impact a workplace can have on productivity and well-being, and is the focus of a new study ‘Space-As-A-Service’: A Premium to Office Rents?
The SAAS model is becoming mainstream in tenant demand, as leasable space is sacrificed in order to increase flexibility for occupiers. This comes at a cost, however, and the question is whether tenants will pay a higher rent, and investors a higher price, for buildings with SAAS features?
In the study, the authors focus on five SAAS features: public "touch down" space, conference and event facilities, on-site fitness centre, rooftop/terrace, and tenant mobile applications, and assess their impact on office rents.
Using hedonic modelling techniques, the researchers are able to quantify the impact of these SAAS features on office rent using CoStar data. They control for the quality of the buildings by focusing on 5-star buildings, as rated by CoStar, as these buildings are more likely to incorporate SAAS features. Using data on 317 transactions on 37 City of London Office buildings over the period 1 November 2004 – 15 July 2020, the study finds that tenant exclusive mobile apps and a public terrace or rooftop command a rent premium of around £13 and £6.5 per sq. ft per annum, respectively.
The findings show that not all SAAS features have a statistically significant impact on office rents, however. SAAS features such as conferencing facilities, an on-site fitness centre, and "touch down" space have no significant impact on office rents.
The conclusion from this present investigation is that the two SAAS features having a positive impact on office (tenant exclusive mobile apps and a public terrace or rooftop), may form the basis of any future SAAS rating system. These two SAAS components should carry more weight in valuations and pricing.
To the best of the authors' knowledge, this study represents the first attempt to quantify the impact of SAAS features on office rents.
The accepted version of the study ‘Space-As-A-Service’: A Premium to Office Rents? is available for download at City Research Online.
The paper has been accepted for Journal of European Real Estate Research.
