Occupiers don’t sign a lease, they enter into a service agreement, whereby space, desks, IT, telephony and other services are provided for a monthly fee on an as needed basis – generally per person rather than per square metre or some other property-centric metric. Businesses are not locked into a long-term lease, don’t have to fund fitout and furniture up-front and can vary their needs as and when their business changes.
As an occupier of Generator’s foundation site in Customs Street East since 2012, TwentyTwo has first-hand experience of SaaS. When we re-established our Auckland presence in 2012 we took up residence in Generator’s relatively new Customs Street co-working space. This provided a professional basecamp for our team commuting backwards and forwards from Wellington, and a high-energy environment to help stimulate our business growth. Once we recruited staff we upgraded to a workpoint within a shared open office area and recently we’ve taken over a dedicated office area within Generator where we can have our own branding and create a team culture.
For us, this flexibility has been critical. We’ve been able to upsize our presence as our business has evolved. The other key benefit is the environment. As commercial property advisers, we could have easily leased some office space in the city and set up our own workplace. However, while our team is still small it is vital they are around other like-minded people rather than being isolated. I’m sure this is a key reason for many of the businesses who are based there.
The Commercial Real Estate Revolution and its effect on Commercial Investment
Over time real estate investment has evolved but the underlying principles of having an interest in land/buildings against which money is lent has remained at the heart. Land and buildings are security. Leases create a secure income stream. Over time income increases, debt reduces and capital value increases.
The models for property investment have responded to the demand for new investment products, not necessarily to the demand from businesses for a new solution or business model for office space (or any other space for that matter).
Private investors and developers buying land and buildings, taking long term view, building a portfolio and wealth over time remains the cornerstone model.
Institutional investment (using trust, insurance and superannuation funds) was driven by the introduction of superannuation and savings schemes. Insurance companies, banks, pension funds, and trusts took in money and needed to find a home for this money that would earn a return and provide a safe investment. Institutions like insurance companies and banks became long term investors and owners of significant portfolios.
More recently, institutional funding has focused on long term annuity investments giving rise to public private partnership funding and similar hybrid models.
The emergence of listed property companies signalled a move away from using superannuation and savings income to invest in property. While many of the current players have emerged from former structures, like major companies such as Precinct and Kiwi for example, these businesses are now property-specific entities investing in property. They are increasingly more sophisticated and appear to be able to weather the markets ups and downs. Their business model is based on buying stock, upgrading, managing and reinvesting. More recently some of the larger owners are moving from a pure investor mindset to becoming more of a developer/investor to create the appropriate quality of investment product/buildings sought by the market. A key example is Precinct developing Commercial Bay to maintain their market share as a landlord of premium space as their current portfolio ages and tenants looking for new offerings.
The disrupter effect