The dramatic rise of WeWork over the last five years, and most recently much of the commentary around the company’s intended IPO, could lead one to believe that the Space as a Service model is built on sand and destined to fail.

However, I believe that much of the debate around this sector is rooted in a degree of schadenfreude as the 'traditional' real-estate sector runs to catch up with the inevitable democratisation of the office market.

WeWork and its peers are fulfilling a need which arguably has not been paid enough attention to in the office market in the past. The need for flexibility and customer care – both of which have been further down the priority list for some landlords in the past – are now top of the agenda for all.   

I am old enough to remember the regular use of terms such as 'institutional lease', which points to many developers' focus having been more on whom they might sell the building to, rather than the satisfaction of its tenants. The rise of the sharing economy, instant customer feedback and higher levels of service in other industries have all supported an increase in businesses wanting better service from their workplace. Whatever one’s stance on WeWork’s financials, it is hard to imagine this need changing in the future.

There are obviously issues that need to be addressed for this model to become more acceptable to landlords, investors and lenders. Most notably these include better industry data on performance, and a more income-focused valuation model. 

However, we are moving in the right direction on both fronts, with better data on occupancy and pricing from companies such as WorkThere and the Royal Institution of Chartered Surveyors looking closely at valuation techniques. As these initiatives move forward I expect to see a more sanguine attitude to Space as a Service evolve.

The rapid growth of any new model has its challenges and there are undoubtedly areas of oversupply in both the UK and USA at the moment. Operators who do not have a clear point of differentiation (other than price) will undoubtedly fail, but the large, well-funded players who understand branding and customer care will survive and evolve.

We have to be realistic about the challenges this sector poses and faces, and rethink some of our old metrics such as vacancy rates to take account of change. For example, in central London we estimate that the standard vacancy rate measures which we quote every month could be as much as 100bps out if we assume that typical occupancy in the Space as a Service sector is running at around 90 per cent, and that sector occupies around 20 million sq ft across central London.

It is absolutely natural to be sceptical and cautious about new ways of doing things, but a Canute-like resistance to change is seldom a wise strategy.

Further information

Read more: City Office Market Watch