The first half of 2019 saw the continued rise of flexible space, with some of the largest property firms plunging headfirst into the market to compete with operators such as WeWork. Nicola Byrne asked Justin Harley, regional director of software giant Yardi’s coworking team, for his views on the current market after 18 years in the sector.
I thought we could start off by talking a little bit about your background and how long you have been working in the flexible office space.
I started in 2001 by creating a software business. It was created out of a serviced office operator which needed software to run its space, called MWB Offices, which was subsequently acquired by Regus.
We recognised the need quite early on, there was no software out there for the growing sector and yet there were quite a lot of independent serviced office operators. When I sold the business back in 2016 to Essensys, we were providing software to nearly 1,500 operators around the world.
After I sold the business, I was approached by GCUC, Global Coworking Unconference Conference, which is a big events series that happens around the world about coworking and flexible workspace.
The company had run conferences in the US, Canada, Australia, and Singapore but never in Europe. The founder asked if I’d consider starting one up in the UK. I kicked that off last year and GCUC is now in its second year, taking place in September in London.
In doing that, as I was trying to sell sponsorship to Yardi, the firm told me it needed someone to head its coworking solutions and develop the business in Europe.
Yardi had seen a huge trend in real estate being disrupted, and the firm felt the quickest way to enter the market from a software point of view was to acquire. Yardi bought two companies, one called WUN Systems in 2017, which was based in the US. The other was an interesting Scotland-based company called Phoenix Broadband. Phoenix Broadband had established a niche in the flexible workspace by providing probably the most important asset within buildings, which is the ability to manage bandwidth and Internet across multiple tenants that are comfortably moving in and out and doing it the secure way.
Yardi has invested a lot of money in developing an infrastructure where they are all fully integrated on top of the existing Yardi platform.
Could you reflect on what you’ve seen over this time and especially what’s happened this year?
When I started, the majority of customers that I had would go to a landlord, or a real estate company, and they would lease the property. They would basically take a long-term lease, sub-let it out and create a serviced office, a bit like Regus.
Whilst the proposition hasn’t changed in terms of flexibility, they were offering a flexible licence as opposed to a lease. I haven’t seen one of those for years now and I think a couple of things changed along the way. The first was in 2008 with the financial crisis, we saw a massive rise in startups and freelancers needing a place to work.
Being young and entrepreneurial, they worked out that it would be better to find space, share the space and also make it communal. Then we saw the rise of more open spaces, we saw coworking start to come through as a model. The other thing that happened at that time, and from 2008 onwards, was we saw a massive rise in investments into tech and creative startups, which has fueled more and more businesses.
The next change that we saw was the large serviced office groups, as they grew, they realised that to make more money and profitable businesses out of this, they had to acquire the assets, the buildings. Increasingly now some of the larger operators around, certainly in the UK, either own all or a significant part of building, through a joint venture with a property company or with a property company as a holding business.
Flexible workspaces, coworking, whatever you want to call it, it’s only going to grow. Every commentator says that’s only going to grow, they just disagree by the extent that it’s going to grow, whether it’s going to grow 10%, or somebody like Antony Slumbers who says it’s going grow to 50% or even higher.
Whichever way you want to take it, I think the fact is that they’re all probably right. People want more from their work environment, but we can work anywhere now. I think the challenge with traditional office space is making it a place where people want to go to work. A lot of space operators haven’t got it right yet, but many of them have created environments where people go, “ooh, I like it here, I can work here”.
More corporates are coming into the space and there are a number of reasons for that, one of them is about talent acquisition and making sure they can retain talent. If talent is a younger generation the need to retain them is so competitive, especially in places like Manchester or London. It’s not just young people though, it’s everybody, we all want a better work experience now.
Who do you think has been successful in creating this so far?
If you take an operator like Techspace or Runway East, they have created an environment that is so geared at tech businesses. All the community events are around running tech companies, it’s not just a place to work, it’s a place to learn and grow and I think they have been tremendously successful in that.
You’ve got companies like Level 39, owned by Canary Wharf Property Group, which has focused heavily on FinTech. There’s a fantastic business which is called Third Door which is aimed at parents who have child-care issues.
I love Work.Life buildings, and also Fora Space in London which is owned by Brockton Capital. I think they’re great and I think they’ve created the right feel. Fora embrace technology extremely well because they spend a lot of time looking at what their customers do in the space, how they experience it, and as a result they are comfortably evolving the model and improving it for the next wave of customers.
I think so often in the media we talk about WeWork being a unicorn, and the Office Group because it was acquired by Blackstone, yes they’re success stories but I don’t think we focus enough on some of the operators that are out there doing extremely well at the moment and creating great products.
How does tech fit into all of this?
The two biggest reasons that people leave spaces is noise and a bad experience with the Internet. The first big issue is to get the basic infrastructure right, you have to know what you’re doing when you start to partition. It’s one thing putting a big fat pipe into a building, but how do you split that up, how do you manage it, how will your customer actually use it. In your building you could have people that are recruitment businesses, web developers, creative businesses and each will have a different profile for how they use the Internet.
The other aspect on that is understanding how people are using your space, not just from a bandwidth point of view but from a space point of view. How do you optimise it so that you give the best experience to your customers but also financially monetise that space correctly? How do you create the right environment for the right type of work activity? You need technology to understand and gain insights into how much is being used, without it, it’s guesswork.
What are Yardi’s plans for 2019, what are you overseeing?
Yardi’s plans are to build on the coworking suite of products that we’ve got, to develop, enhance and adapt them to make sure that they work in the UK marketplace.
There’s going to be a lot of apps to help users get the best experience within the spaces themselves, so the mobile is absolutely central to the product strategy within coworking spaces. I think for us, it’s about making people aware that Yardi is here and it’s in this space as an enterprise solution. We have over 1,400 people here in Europe, not all aimed at coworking, but we have a sizeable team to develop the products and move them forward and adapt them for the changing customer needs.