In this series of articles we explore the complex dynamic between providers of coworking space and the intermediary companies that supply them with client enquiries, to understand: what is a serviced office broker and what do they do?

Understanding how this landscape is evolving and how it impacts the customer journey in search of their perfect flexible office will provide important insight to make the relationships involved more transparent and easy to navigate.

In the previous segment of this series we covered:

• Defining the concept of a coworking brokerage
• Explaining the history of how it started interacting with the flex space sector

This segment focuses on:

• Understanding how coworking brokerages are paid for their services
• How this concept changed as a result of increased competition
• How the relationship between brokerages and coworking operators is supposed to work optimally

What is a serviced office broker: Foundations, Changes

The principle rule that defines the flex space brokerage/coworking operator relationship is the concept of “fee position”.

Fees:

It is important to remember (or know in the first place) as the tenant / consumer, that a brokerage is paid by the coworking operators for the successful placement of tenants within their buildings. This is how they make money, and conversely how they are able to provide their services free of charge to the tenant seeking coworking space.

This is notably different to how conventional commercial real estate agents operate – when looking for a traditional lease, a customer will need to retain an agent to represent their interests. This representation takes the form of an agreed fee payable by the tenant to their agent at a specific point in the transaction and is underpinned by a contract and supporting terms and conditions.

Various models have been tried over time but almost exclusively the model which prevails is that the coworking operator will pay the fee-position-holding brokerage a fee once the client has entered into a contract to occupy space and paid a deposit to reserve that space.

The other important factor to keep in mind is that the broker’s fee almost always takes the form of a percentage of the contract value entered into.

A broker’s fee position in the early stages of the market model was based on a very simple principle: being the first to introduce the client.

As long as the broker was the first to make a coworking operator aware of a customer that they didn’t know about already, their introduction would be “accepted” and a fee position secured. If the customer in question was already introduced through another source, or already in direct dialogue with the coworking operator, the introduction would be “rejected” and no fee would be due.

Market Share:

This dynamic created a fiercely competitive approach from brokerages when it came to PPC (pay-per-click) advertising in particular, especially for geographical locations that generated the highest fee positions – high-end central London locations were (and continue to be) particularly targeted. If they could acquire the client’s enquiry first, they would secure a nailed-down fee position from the serviced office operator.

It worked. Brokers had an advantage over most coworking operators in paid digital advertising because they were able to push online exposure for a single website which contains 1000’s of buildings containing all coworking operators versus coworking operators that could only push a website with a few locations of their own. They crystallized online keyword strategy down to a science.

The more successful brokerages became at acquiring customer enquiries, the less sense it made for coworking operators to compete for direct enquiries against the brokers. Why compete to pay for a click when the broker would pay Google more for the same click and the lead would get to you anyway?

So brokerages carved out a unique ownership of market share when it came to controlling inbound lead flow of clients looking for coworking space. Many coworking operators engaged in little-to-no direct digital or traditional marketing approaches, relying exclusively on lead volume generated through intermediaries.

But with the growth in broker market share came forced evolution – remember, the fee position was automatically granted to the first broker to introduce a new client, a very simple concept but also a double-edged sword.

Even in the early 2000’s, customers were already very much in a “comparethemarket” mindset, in that they would register their interest with multiple intermediaries. This is driven in part by the assumption that different brokerages will have access to different buildings and coworking operators, even though they tend to cover all the same properties and brands.

What is a serviced office broker – inneficiency:

It is inefficient for a coworking operator to only register with a single broker – the more platforms they list with, the more chance they have of new customers being introduced. Unfortunately, this also creates a lot of duplication and associated issues.

In order to get to the first-past-the-post fee position, the brokerages were forced to send their leads through as quickly as possible. A reduction in the length of time spent on lead qualification was the inevitable result – remember, this is not an automated process, it’s a human-led transaction for a piece of property with complex dynamics and lots of dialogue and negotiation – but the longer a broker spent on qualifying a lead, the more scope there was for them to lose their fee position because someone else sent the lead through in the interim. A ‘speed’ race to the bottom.

Coworking operators didn’t like this – they were receiving a body of leads and giving fee positions based on a very simple principle (first past the post) but increasingly encountering situations where a broker who didn’t have the fee position had a greater level of understanding of a client’s needs and a better relationship with that prospect to boot. On the other side of this equation, leads sometimes didn’t have any qualifying information at all.

The depth of information provided by brokerages at the point of introduction became less and less detailed because less and less time was spent on qualification so that the introduction itself could secure the fee position.

In unkind layman’s terms, the early online brokerage model was “introduce it then qualify it” as opposed to “qualify it then introduce it”.

So in the late 2000’s the market started to undertake an important shift in how fee positions were secured by brokerages: the focus moved from who sent the introduction through first to who got the client to view first.

The concept survives to this day and is straightforward: even if you were not the first brokerage to make an introduction (and by definition your introduction was initially “rejected”), you can “overturn” this fee position in your favour if you arrange a viewing for the prospective customer and they attend this viewing. Once this happens, the original introducer will no longer qualify for the original fee position and you will.

This is called the “overturn rule” in the trade.

The “first past the post” concept still remained in place – if none of the brokerages involved in the introduction get the client to complete a viewing then the one who introduced the lead first will get the fee when the client took space. This usually happens when coworking operators engage with the client directly using contact information provided during the introduction and secure the viewing themselves.

In the next segment in this series we will look at…

• How changes in fee position arrangements changed interaction with customers
• The complexities this introduced into the relationship between brokers and office operators
• The impact on customer experience