Fractional Office Space

10-07-2021 | by Neal Lerner

On an enterprise basis, larger firms are beginning to react to the increasing call for adopting remote-first policies and giving their employees a workplace or meeting space, when they decide they want it.  I don't think the backlash against permanent offices has more to do with the space than the commute.  As we see it, getting back and forth between the workplace and home is the key issue - and exactly the point that Covid-19 allowed the rebellion against full time offices to form around.

The precursor of this trend was the "virtual company", where there was no traditional office space lease and employees worked 100% remotely.  New phone technology and the internet made this easy and for firms that were wide spread over a large geographic area, this was a very effective model (particularly for sales organizations but also for attorneys Of Counsel).

Now, Flex-space can be leveraged to include standalone offices in diverse locations with timing specific to each employee's requirement.  There is now an unprecedented opportunity for organizations to downsize their commercial real estate portfolios while maintaining permanent executive headquarter space and diverse satellite locations that can be accommodated by the flex office trend.

We have heard that almost 75% of all enterprise companies are exploring ways in which the hybrid work model can be approached so employees have the choice of working from home or from the office.  The truth is that about half of all workers cannot work just from anywhere - that they have place specific occupations that require their "real world" presence on a full time basis.  (Factories, health care, grocery, retail etc.)  Many tech companies and others that involve a lot of brainstorming, have found that face to face is much more effective than virtual.  That is another large cohort of employees that will not fit the new flex space mold.

This relates to the shared professional office space market because we predict that the same trend will emerge for shared legal office space.  If it is a given that daily presence isn't an absolute requirement, we should soon start seeing a demand for fractional rentals where an office is required only a few days a week...and if it were on a regular schedule a sublessor could rent a single office, in parts, to more that one sublessee or licensee.

The best example is a recent "pairing" that we made with 2 attorneys - one needed an office for only 2 days a week and the other needed one for 3 days a week.  Both required shared conference room use as well as phone answering.

We found an ideal, fully furnished office that was asking $2900 per month for full time use to include up to 30 hours of conference room use, telephone answering and of course, coffee included!

Our client was able to structure a safe transaction with 2 licensees as follows:

Rent:  $160 per day

Tenant 1:  $1280 per month for occupancy every Wednesday and Friday

Tenant 2:  $1920 per month for occupancy every Monday, Tuesday and Thursday

Total:  $3200 per month

In a shared rental situation a landlord would normally demand joint and several tenancy - but part time occupants would not accept that type of structure.  Rather, the "host" maintains the option to cancel on 30 days notice.  If, for example, the 3-day tenant were to bail out, the host could try to replace them by advertising in LookingForSpace.com - and if this were not successful in a reasonable period of time the host could eject the part time tenant in favor of a full time tenancy.  

Here, the licensor can generate a marginal amount of additional monthly rent income and 2 tenants get the flexible arrangement they need.

The rules were pretty simple:

1)  Each tenant had access to 1 locking 2-drawer file cabinet.  No personal items were to be left out of the cabinet on days the tenant was not present in the office. If personal items had to be moved because one tenant did not clean the office properly before departing that day, there would be a $25 per incident charge.  The tenants had to be responsible for keeping the office clear for each other.

2)  Conference room hours were allocated 12 hours to the 2-day client and 18 hours to the 3-day client.  Beyond that a $25 per hour charge would apply.

3)  Telephone messages were  to be obtained through voice mail, or calls would be re-routed to another number

4)  The office would function as a legal mailing address for each tenant, and both of them would appear in the building directory.  (Note, that this will not always be possible and is subject to the building rules in the master lease.)

There was a slightly longer time for the host firm to adjust to the dual occupancy, but as soon as everyone got to know each other there were no more problems that with single occupant offices.

The majority of our clients are senior attorneys  with their own firms.  Attorneys need private offices, and in a world where a large percentage of the workforce only wants to commute a few days a week, the fractional office license becomes a viable alternative to the full time sublease.

 

 

 

 

 

 

 

 

 

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