Introduction
Undercurrents are deep-dives into trends that are bubbling up just beneath the surface, but that we feel have the potential to cause tidal waves of change across the industry.
They’re released first to Patron Brands, then to ThisWeekInCoworking.com email subscribers, and then made publicly available.
Foreword
Each edition of Undercurrents has one presenting sponsor, or an “underwriter”. These sponsors cover the research, interviews, content creation, and distribution of their edition – but generally have no input or say in what gets into the edition.
Other than this section.
Here’s why this edition’s sponsor supported this study:
At Syncaroo we believe in unblocking flex space teams and businesses, so they can leverage more opportunities like new technologies, product types, revenue sources and business models.
We wanted to know more about what results innovative brands were having with Fractional Offices, and so sponsoring this deep-dive study was a no-brainer.
By shining a light on the benefits and challenges of this new flex product type, we’re hoping it continues to inspire others to explore new shared office offerings.
Enjoy!
Synopsis
TLDR – Fractional Offices may mean more than one thing to different operators, but the universal truth is that they are here to stay. For many, they are quickly becoming a vital tool in the fight against under-used office inventory and are a way to rapidly maximize revenue, with the right approach.
We? Meet your experts.
In order to share a perspective into this trend that is not only steeped in actionable insights, I quizzed a number of experts who I know have experience in Fractional Offices.
Here’s the full list of experts featured in the piece:
Antonette Benting
🇿🇦 Workshop 17
Business Development Manager
Antonette is an advocate of shared resources and facilities, and creating spaces which are fit for purpose so as to benefit all stakeholders.
Her vision is to see properties within underserved communities flourish in ways that propels the economy, thus decreasing the spatial and digital divide.
Kane Willmott
🇨🇦 iQ Offices
CEO
Kane Willmott is a visionary entrepreneur and a recognized authority on the future of work.
As the co-founder and CEO of the largest independent Canadian-based coworking operator, Kane has skillfully managed more than 350 private offices across Toronto, Vancouver, Ottawa, and Montreal.
Chris Edwards
🇭🇰 The Flexi Group
CEO
Chris Edwards has served as Chief Executive Officer at Flexi since June 2022 and was the Chief Operating Officer at Hive Worldwide previously.
Prior to joining Hive Worldwide, he led growth and operations as General Manager, Hong Kong and Vietnam at the Next Story Group, a leading Asian and Australian hospitality provider with flexible buildings incorporating hotel, food and beverage, event, and coworking spaces
Danielle Schindler
Born and raised in New York City, Danielle developed a passion for the world of real estate at an early age.
In 2014, Danielle relocated overseas to lead an international team spread across multiple countries. She found herself looking for a flexible office solution. Danielle joined a coworking space, and the entirely new way of working inspired her.
Jerome Chang
🇺🇸 BLANKSPACES
CEO
Jerome is the founder of BLANKSPACES an LA coworking chain and a still-practicing licensed architect.
As an early pioneer of coworking, Jerome co-founded LExC, the League of Extraordinary Coworking, a 501c(3) non-profit, and the first national network of coworking spaces.
Jocelyn Vincent
🇬🇧 Landmark
Director of Meetings & Memberships
Jocelyn’s has worked in the flex-space industry in the UK nearly a decade with two flex-space brands.
Early in this flex-space career, her focus was on sales of meeting rooms and events, and now her role has grown to include all on-demand services such as meeting rooms, day offices, coworking and virtual office services.
Justin Raymond
🇨🇦 Flexday
CEO
Justin is an entrepreneur focused on building businesses with a lasting and net-positive impact on people, cities and our planet.
His passion is applying marketplace frameworks and technology to unlock value stuck inside legacy business models.
Amina Moreau
🇺🇸 Radious
CEO
A “chronic” entrepreneur, Amina’s companies are merely symptoms of her obsession with putting something meaningful out into the world.
Radious is her next big thing, an online booking platform that outfits residential properties with workplace amenities, and offers them up for company workdays and team meetings — rented by the day.
Henry Burn
🇬🇧 Hubble
VP Commercial
Henry has led the commercial teams at Hubble for the past 7 years, both customer and flex operator/landlord-facing.
Henry has worked closely with our flex office partners in bringing both the Hubble On-demand and Part-time offices to market. He’s very passionate about delivering innovative solutions, with the client in mind, to the property industry and would be very happy to speak to anyone considering fractional offices in their building.
Hector Kolonas
🇺🇸 Syncaroo
Geek
Hector is a flex space geek.
Day-to-day he helps growing coworking businesses bring their tech and data together at Syncaroo, so that their best people can get unstuck and focus on the tasks they’re best at.
He also curates this tiny newsletter called This Week In Coworking.
Now, what the fudge are "Fractional Offices"?
I use the term to cover a few different types of flex space products I’ve been tracking, but my one-liner is:
A Fractional Office is where 2+ groups use the same office at different times, usually on some kind of rotation or repeated schedule.
I first mentioned the term back in the Week 17, 2023 newsletter, but it has come up over a dozen times since then across summaries from the US, UK, Germany, and Canada.
Given we’re essentially coining the term, I asked your featured experts for their own definitions:
- “Office space that’s either offered on a more flexible basis than a traditional lease or rented for just a portion of each week”
– Amina Moreau, CEO at Radious - “One space, two businesses, different days. ie A flexible workspace set up so that multiple businesses can enjoy their own dedicated space on the days they need it.”
– Jon Dweck, CEO at Space32 - Products that allow two or more businesses to have access to the same private office space on their own “2-3 day(s) each week, on a monthly-rolling contract.”
– Jocelyn Vincent, Director of Meetings and Memberships at Landmark - Private offices shared by space, not time. “Although we are working on a transient business model, where the same space is contracted to more than one organisation, but used at different times”.
– Antonette Benting, Business Development Manager at Workshop 17 - “Typically, fractional offices are defined as sharing office space across the work week with a co-tenant. But we see another approach, which converts under-utilized or unused office spaces into attractive workplaces, which can be shared.”
– Danielle Schindler, CEO at Engel & Völkers Work Edition - “A fractional office is a space where more than one company overlap in some way without traditional subdivisions”, like new walls or windows.
– Rafi Sands, CEO at Tandem - We break the term into two sub products. The first being Day Offices and the latter being Part-time offices where “space is rented out for less than 4 days a week.”
– Henry Burns, VP Commercial at Hubble - “Fractional Offices are fully-furnished, traditional offices available on demand by the day” but unlike traditional coworking products they “can be hosted by landlords directly or by existing tenants looking to share their leased office space.”
– Justin Raymond, CEO at Flexday
Of course we’re digging into this product as if it’s something completely new, but Jerome Chang from BLANKSPACES reminds us that he’s actually seen a few different types of Fractional Offices over their 16 years of operating.
He actually shared with me that the first office he ever sold (in 2008) “was to a fractional user”, who only needed the space for a few days a week. They then found a match for the remaining days, before sharing that this match “did last some 6-9 months. Both were tidy, and would leave their piles of docs on different back counters”.
In the flex space markets of South Asia, even though operators like The Flexi Group tried a whole range of fractional office products since the pandemic, Chris Edwards notes that results led them to focus on building two very different products, with one billed by the minute, and the other designed to help businesses oversubscribe to smaller offices.
So I believe the consensus of the group is that Fractional Offices could cover a few different kinds of part-time office products that could fit within, or adjacent to, traditional coworking and flex space offerings.
Opportunity or threat to coworking businesses?
We’re at a very interesting inflection point where coworking, serviced offices, flex space and most of our products still need to be explained to many, but demand for (or at least an earnest and professional desire to experiment with) flex space is growing rapidly.
From this point, does this new way of further splitting up office space create an opportunity or threat to your current models, products and revenue?
Rafi starts us off by reminding us that as flex space continues to grow its share of the wider office market, “traditional” coworking may only make up a small portion of that. Justin agrees, sharing that it’s a new product category in the office space industry where “similar to Coworking, Fractional Offices were born out of necessity.”
Justin does elaborate that coworking operators can also offer fractional offices outside of their traditional products.
Such is the case over at Engel & Völkers, where Danielle shares that their fractional office product called Shared Office Solutions they have the opportunity to cater to more clients, leveraging their position as trusted “experts on shared and flexible offices”.
Jocelyn agrees. “Part-time offices fill a gap in the market and ensure providers don’t have space left available. Landmark views part-time contracts as a rising trend and are invested in providing clients with flexible workspace options, which now include part-time offices.”
“I don’t think it is a threat because it is a solution that targets a different customer base” added Jon, who noted that while coworking solutions are popular for businesses and individuals who want “community as well as office space”, fractional or part-time offices are increasingly popular with teams who want space, but may not want or need “the rest”.
Amina takes another view, arguing that coworking products could fall under the umbrella of Fractional Office offerings, and that the “rapid expansion of this category only raises the tides for everyone in this space”.
It is definitely worth noting that Radious offers a different type of fractional office – equipping residential properties with workplace amenities, converting them into suburban work/meeting spaces. These spaces are available to rent either by the day, via monthly team subscription, or through fractional leases. This fractional lease offering allows companies to guarantee availability of a specific space for, say, every Wednesday for the rest of the year, as an example, allowing companies to only pay for the days they use and have added agility to flex up or down depending on changing needs.
Empty offices are a problem, especially as each day they sit empty is lost potential revenue that can never be recovered – much like a train ticket, or seat on an airline. Henry notes that this is where the opportunity of fractional offices lie for operators, “driving higher occupancy and yield, especially from offices that are sitting empty waiting for a long-term client”. This also creates the opportunity for potentially “higher markets and revenue per square foot” given that a premium can be charged for offering the flexibility of fractional offices.
The ability to monetize the vacancy they’d be carrying anyways is a benefit to workspace operators, with “the only real cost on them being variable costs” adds Kane. By dabbling with more fractional office products, iQ Offices was able to attract, and support, large companies like Shopify to their spaces – who are now one of their customers. The fact that often fractional-interested customers are looking for shorter cycles, they also don’t need to keep the inventory off the market.
Who is using Fractional Offices, and why?
Justin notes that Fractional Offices are increasingly popular with firms that may be looking for “a more dynamic, multi-dimensional space than a standard meeting room or coworking offices” elaborating that they value benefits like added privacy, a greater assortment of rooms and extended hours.
“CFOs are finding it difficult to make sense of paying for office space seven days per week when employees only use it once or twice” adds Amina, who highlights the benefits of fractional pay for fractional use by asking “Why pay on a fixed basis when you only utilize the asset variably?”
Jon agrees, sharing “I used to think this was a cost reduction play. But it’s not”. Instead businesses are shifting their mindset to think of fractional offices from a budget-stretching perspective, swapping an average traditional office for a top-tier part-time office 2 or 3 days a week, “at the same or slightly reduced price when compared to a full time office”.
“Companies gain access to attractive locations and high-quality offices that might have otherwise been out of their budgets, while also maintaining flexibility on terms,” adds Danielle.
Rafi highlights the companies who graduate from coworking spaces, who may love the flexibility, but want “something a little more private feeling, a little more their own”. He also notes that “according to CBRE, 24% of companies under 100 employees, and 13% of all companies, are open to the idea of sharing an office with someone else. Even with coworking’s strong growth these last few years, what about the rest of those companies wanting to share? They’re looking for an alternative, and fractional offices are the answer.”
When it comes to other benefits, Justin reports that businesses see that there’s no capital outlay or tie up, have led to a 70% improvement in employee utilization, and the ability to use digital booking and payment systems compared to many traditional office solutions.
Highlighting the hosting side, Danielle also shares that “fractional or shared offices give incumbent tenants an option to make it through the end of a long-term lease commitment that might not have otherwise been possible”. Thinking more socioeconomically, they elaborate that this is a “benefit which can be just as meaningful is that it builds new communities and revives spaces and neighborhoods”.
For Jocelyn, client-demand led the drive towards fractional offerings, noting that “Our clients wanted private space for their teams to come together regularly, without the challenges of having to find a new space every week, and providing part-time office space suited us both. This agreement allows us to serve another client’s needs, when otherwise it would have been costly wasted space for the first client”.
Jerome shares that there’s another use-case and lead variation: parents. Recalling a lead who made the following request for a quote for part-time office usage’: “I will only come in from 8:38 [drop off kid at school then commute over] until 1:23 [leave office to pick up kid at school]…not a minute earlier or later….I would like a rate to reflect this recurring use”.
Antonette hit the opportunity home, noting that what pulled them into exploring new ways to split offices was demand, sharing that all their small offices were full, but had some larger offices available. Matching those to growing demand from “small business, entrepreneurs and digital nomads in need of permanency” was a no-brainer.
Looking at the flex market in South Asia, Chris shares that although flexible work is still an option in places like Singapore and Hong Kong, “almost everyone went back to the office pretty much full time”. Responding to that shift, they found that it actually became easier to sell workspace access “by the hour” – and shifted to that, and then dived into utilization based billing even further. They’re seeing a lot of demand, and success, connecting corporates to space billed by the minute through their Corporate Flex plans and shifting the management of oversubscribed space to the tenant’s own team through their Shared Access plans.
Henry shares that in the UK, the benefits for businesses are huge. These include cost savings (some are saving up to 75% of the cost of full-time offices, without deposits), culture building (bringing teams together on a regular cadence), access to premium spaces (cost savings mean they can upgrade to better spaces), being hassle-free (guaranteed access to same space, without needing to have someone book every time) and the benefit of being able to “rotate larger teams” who use smaller offices much like Chris mentioned – ie rotating their own teams to manage who in their org uses the available inventory and when.
Kane rounds out this chapter noting that their approach to fractional offices is also slightly different, instead providing Sprint Spaces led and sold by their events team, as opposed to their workspace sales leads.These are run more like on-sites, sometimes spanning a week, with “everything efficiently planned in advance, from F&B to tech, amenities, scheduling and security”.
They’re seeing success with this, as premium and curated experiences, with a premium price tag.
How can coworking and other flex space businesses benefit?
Rafi immediately highlights the major upsell opportunity. “What happens when a company gets too large for coworking and wants a space that feels like their own? How can you capture that opportunity?”, noting that Fractional Offices may be the perfect product to avoid losing revenue from graduating members.
Kane reminds us that if not for offering creative new ways to use the space, they may not have secured customers like Shopify, noting that at iQ “innovation is one of our core principles”.
Henry notes that as 70% of fractional office customers booking via Hubble are coming from being fully remote, “this is fresh demand rather than cannibalisation”. In case you were wondering, of the other 30% – half were previously booking day offices, shifting on-demand revenue into more dependable subscription revenue.
He also makes a great point that fractional offices can be used to reduce churn, allowing operators with cost-cutting customers “to bring in someone else to rent 1-3 days off their existing tenant”.
Jon adds that for operators the potential is for fewer vacancies, “higher achieved desk rates, and increased incremental sales due to higher footfall”, before noting that having more people in the space on more days of the week improves the vibe for all members.
On the landlord side, Amina notes how it’s increasingly difficult to “rent out corporate office space on traditional terms,” summing up what we all know by reminding property holders that “in a highly competitive space, flexible terms win out.”
Jocelyn shares that their space is already benefiting, having landed 30 contracts in just a year, without any real advertising, highlighting that these products actually create a three-way benefit, noting with a “fractional office contract, both clients save money, and we maximize usage – it’s a triple-win!”
Down in South Africa, Antonette is also seeing success. Their pilot split two 4-person for use by 8 different members, and currently has 7 spaces reserved, with just 1 still available. Those 7 individuals became members, where the two offices would have been too big or expensive for any of them individually.
They’re also now working on a “transient business model” based on splitting access to the same office over different times, so we’ll definitely check in with them to see how that roll out goes.
It can't be that easy, what about the challenges?
Just like when coworking and flex space products were introduced into traditional office buildings, there are some challenges to overcome for Fractional Offices to see further adoption.
Operators are quick to highlight that the multi-tenancy version of Fractional Offices are possible (and a great way to monetize vacancy) but require a depth of market demand that honestly… isn’t deep enough. Kane compares sharing offices to sharing cars, noting that “it makes sense if there’s 1000 cars being shared in a city of around 1 million people – but sharing 1000 cars in a town of 2000 won’t really work”.
Jerome agrees, also noting that outside of the challenge of demand, there can sometimes be logistical issues of ensuring fractional members tidy up before the next members come. Which makes sense given that there’s more than 4 conversations a week between coworking space operators about how to make transitions between meeting room bookings easier, timely and neater.
Antonette also agrees, sharing that you “run the risk of getting a fraction of the revenue, if it is not fully occupied”, but also added that if occupancy is low “then one can take the glass half full approach” in that some revenue is often better than none at all.
Amina points out the big red elephant in the room, noting that “there may be some red tape surrounding subleases” which need to be addressed and negotiated with folks who are only now grasping how coworking spaces work.
Leaning towards a concept similar to The Innovator’s Dilemma, Jon shares that the fear of “a cannibalisation of their current offerings” keeps many away from adding fractional offices into their offerings. “As long as the space is being paid for, they consider it full, even if it’s empty most of the time. So why rock the status quo?”
Danielle flags some of the more architectural challenges, sharing that “some spaces do not have a suitable layout”, even if you can convince a landlord to try out the new concept.
Talking about space, we have to also look at the ops and infrastructure. Henry notes that often rigid access control setups, and more complicated operational overheads are preventing more operators from offering Fractional Offices.
Rafi highlights the very real logistical challenges around who will sign the master lease, or invest the time and effort to coordinate a special arrangement with a landlord. That’s alongside operational things like “who’s going to take the trash out?”. The good thing about these challenges is that they’re ‘easily’ solved by making fractional offices available via an existing coworking or flex space provider.
Zooming out, Justin hits home that “awareness is the biggest challenge at this point. This is a new product for customers and landlords alike. As adoption accelerates, more supply and demand will want to be a part of the marketplace.”
Jocelyn echoes some of the previous remarks around awareness and potential confusion or cannibalisation, sharing that “curious full-time private office clients ask about part-time offerings”, to whom they take the opportunity to share advice on both the similarities and differences.
Pricing fractional usage is also an interesting challenge. Chris notes that in some markets, where desk rates are already very affordable on monthly terms, pricing for fractional or even day-use makes things messy. “In markets where full-time desks are around $300 per month, what could you charge per day to make fractional usage worth it?” Interestingly, this also highlights why day offices may not be popular across the region.
Side-note: From a building valuation perspective, Fractional Offices face the same challenge that coworking and flex spaces. Somehow, with today’s capital market rules, a vacant office with zero rental income is valued higher than a shared (coworking, fractional office or other flex product) space that does generate revenue. Many brilliant people are digging into solving this piece of the puzzle though, so I wouldn’t be surprised if we saw an Undercurrents on this area of the market.
Any pro-tips or deeper insights?
When addressing the growing popularity and potential member confusion, Jocelyn shares that “with part-time contracts gaining traction, it’s important to share the correct information to prevent any ill-informed decisions or disappointments.”
Antonette shares that for them “the biggest challenge is finding a good fit, so that there is harmony within the space”, recommending that you ensure that any of the team abuse their usage of the space. Two tips from Workshop 17‘s experience is that this could cause extra work if you’re doing great with occupancy (and waitlists), and that “things such as portable white boards (on wheels), strategically placed cabinets and plants, serve as good space dividers”.
Chris notes that if they could get a premium on the 2 day plan, there may be enough incentive to dive back in and explore. So maybe it’s worth exploring if there’s any subset of your local markets who would like a 3 day plan that spans over one of the weekend days, or who ONLY want a Monday and Friday team working or workspace session, and are willing to commit to a longer term plan that having to book day office by day office.
When it comes to figuring out how to split the week, Jon shares a nugget in that “TWTs don’t share”. It’s really hard to find companies who want just Monday and Tuesday, so try to avoid giving a company the office for Tuesdays, Wednesdays and Thursdays. But.. when you do find the right matches, and “fill an office with two occupiers over different days, the total average desk rate is around 15% higher.”
Henry notes that although many assume fractional offices “will be operationally difficult/problematic”, when “in practice things have gone very smoothly with >1,000 Part-time offices brought onto Hubble so far”.
Dropping some stats, he notes that over 25% of office enquiries on their platform are now for part-time offices, with operators typically making 25-75% of the office full list price per part-time membership. Another interesting number is that conversion from viewing to deal is 50% higher than for full-time offices.
Following up with some numbers from Canada, Justin shares that the average team size is 20, with Tuesday through Thursday being the most common days booked for Flexday Suites. What is surprising though is that the most popular cadence is two days a week.
Not to sound too discouraging of multi-tenancy, Kane does note that Fraction Offices could work better for operators with a lot of similar size units, where it’s faster and operationally easier to try fill gaps between fractional bookings and memberships.