Building a flexible office property business in the wake of a pandemic is not for the faint of heart. Four years ago, Alex Passler did exactly that when the former global head of franchising and vice-president of real estate for the Americas at WeWork left the company to start his own flex office advisory business. Last week, that business launched its operational flex office platform and CoStar News caught up with the co-working giant alumnus to discuss all things operating models, the future of flex and lessons learned.
Singapore-based Vallist chose London as the first location for the operational arm of its business when it signed a 10-year management agreement with an undisclosed high-net-worth individual for Finlaison House in Holborn, as revealed by CoStar News last week.
Plans to launch the company’s operational arm had been in the works for months before coming to fruition when it took the entire 31,000-square-foot site, which is located at 15–17 Furnival Street and when it came to picking an inaugural location choosing London was a no brainer.
“London is also one of the most mature and established markets globally for flexible workspace and when you're trying to launch a premium product and are aiming at the top of the end in terms of quality, London is the best place to do that,” says Passler, who spent almost four years based in the capital from 2009 to 2013 during his time as development director, EMEA & Central Asia at Regus.
So, when Vallist had a capital raise two years ago and was invested into by a UK venture capital company based in London following a seed funding round, it “made sense for the company to focus on this market initially and grow from there".
The business is targeting between five and eight sites in the capital, all around 30,000 square feet where it can operate the entire building and have scope to provide high level hospitality features.
“We're making our task exceptionally difficult in that we really go for standalone buildings… it just helps you, when you're creating that hospitality environment to control the front door and the entrance and have slightly smaller floor plates to give it that exclusivity. Obviously, that limits your target market a little bit in terms of options, but we're focused on that type of building,” says Passler.
But not all options are on the table when it comes to site selection. To create premium workspaces that can attract top rents and enable landlords to maximise income, a prime location remains a key determining factor in attracting the right mix of occupiers. This includes an equally cautious and ambitious approach to scaling the business in future, drawing on experience from Passler’s over 30-year commercial real estate career.
“In a lot of these larger operators where I was working, we were scaling too quickly in too many markets at the same time. So that's something that we are very conscious about not repeating,” says Passler. “Keeping the same concept of standalone buildings in that size, the next logical market for us would be Paris. It is also a market where the premium flexible workspace sector is gaining traction and there seems to be a lot of demand for it…we're growing very cautiously, not casting too wide a net at the moment.”
For now, the focus remains squarely on London. Situated in Holborn, Finlaison House sits in an area that is synonymous with the law firms, financial and professional services sectors but the future pipeline is set to spread West.
The business is in talks for locations in Mayfair and St James's where it will maintain focus on “an elevated experience” and “premium product” according to Passler. “We are focusing on those submarkets versus early-stage start-up areas,” but are refusing to out older stock under the right conditions, he tells CoStar News.
To realise the opportunity present in the capital’s office market, particularly- in its sub-par office stock, capex investment in refurbishment and fit-out can be vast but taking a long-term view of value creation, both by the landlord and the operator, is vital for futureproofing assets.
“Here in London at the moment a lot of buildings don't meet the energy efficiency ratings which are coming into effect soon. When a landlord wants to spend significant capital to upgrade the building so that it meets his requirement, to add a layer of capex required for this type of product is not significant, but the return on investment is far greater, so it makes sense,” he says.
As flexible office demand across the industry reaches lofty heights, landlords are looking to retain value instead of surrendering it to third-party operators, with many launching their own flex brands such as Landsec’s Myo, British Land’s Story and Great Portland Estate’s fully managed service. This shows little sign of slowing down and is forcing greater consideration and collaboration among operators to stay competitive as more landlords and occupiers pivot toward flex.
“While a revenue share might be more beneficial to an operator in terms of mitigating risk, that's not first and foremost our aim here,” Passler adds. “It's a lot about looking after landlords’ investment, which you can do at this stage of your company.”
When it comes to operating models there is no one-size-fits-all but experience has proved pivotal in determining the direction of the business to focus on management agreements.
“The types of deals or the deal structure that we have with the landlords have got to be a lot more aligned than what we've seen out there before in terms of sharing the risk…We need to come up with something that gives them the best returns and almost look at it like an investment manager, rather than an operator getting a de-risk deal,” he says.
His number one piece of advice: pick a model and stay true to it rather than trying to be everything to everyone. Building a niche with a steady operating practice can help ensure long-term stability over rapid success and if operators can avoid spreading themselves too thin, he believes there is still potential for substantial growth.
“You'll see an opportunity for a fantastic building, great location, great landlord but they will only do a traditional lease and sometimes it's very tempting to go down that route,” with little regard for any future conflict of interest, Passler warns. “We are very keen on staying true to our model. Even if it’s a little bit harder to grow or to scale, just takes a bit longer - that's probably one of the biggest lessons I've learned.”