How are serviced office brokers paid? The role of a flex space broker is to act as an impartial intermediary.

Customers approach brokers in the coworking sector to get the widest possible exposure to the marketplace in an effort to achieve several aims:

1. To see as wide a variety of matching options to allow for informed choice
2. To get the best value possible, either in terms of cost or added benefits
3. To get advice and support in navigating a complex and often saturated market

The serviced office sector was growing at an unprecedented rate prior to the pandemic, to the extent that growth in supply was outpacing the most robust of demand.

Whilst Covid put the breaks on things for a spell, it also ushered in an era where flexibility and inclusivity are prized ever higher by clients. A real estate environment within which flex space was ideally placed to benefit. The sector is growing once more and will only accelerate.

How can office providers differentiate?

But this growth presented a challenge for operators – how do you differentiate your product well enough to stand out from the ever-increasing crowd?

This is a double challenge to boot.

You need to differentiate both in the minds of the customer, but also in the mind of the intermediaries that supply you with a stream of client enquiries.

One way is to ensure your offering is as unique as possible. But this proves difficult when high-end amenities are prevalent in almost every flex space. Phone booths, break-out spaces, roof terraces, pool tables, free snacks, libraries, gyms, quiet rooms, all of these things are to be found across the board in the coworking landscape.

Skating ramps? Running tracks? Trademarked scents? Also present – but now we’re moving into things which have less and less tangible impact beyond being unusual. Differentiation through quirk, if you like.

Basically, the flex space landscape is great already.

As long as clients come through the door, coworking operators can use a combination of aesthetic/functional appeal and the strength of their sales teams to win the business. So the goal becomes to get the greatest number of leads through the door.

Outside of direct, brand-driven business, the intermediary marketplace is where the leads come from. If you get on the good side of brokers and build strong relationships at an individual level, you increase your chances of being in the list of properties they introduce to customers.

This is why the serviced office sector is so famous for the social scene. Operators are forever throwing events and competitions for brokerages. Drinks nights, casino nights, tropical party nights… you name it, it’s been done. Get on the good side of the brokers, give away a Michelin star dinner or a weekend away and you’ll be at the forefront of their minds: they’ll send you more leads.

But sometimes that’s not enough. If everyone is doing the same stuff then the impact of each individual gathering is less. Back to differentiation through quirk.

How are serviced office brokers paid differently?

Enter enhanced fees.

The idea of an increased fee position is nothing new. Instead of rewarding broker companies with the standard accepted fee of 10%, the serviced office operator will boost this to 12.5%, 15% and sometimes beyond.

This may be for specific suites within a building, or specific buildings within a larger portfolio – usually linked to occupancy decreasing below a comfortable level for the operator. It makes sense too – a short-term hit to the margin built into the property P&L for broker fees in exchange for guaranteed long-term income through a fuller building.

But here is the thing.

The fee dynamic between the broker and operator affects the impartiality dynamic between the broker and the client. Your experience might be dependant on how serviced office brokers are paid.

Greed is good?

And the brokers are human.

More often than not, they are money-motivated, commission-based, young and hungry. Serviced office brokerage requires no major formal qualifications or accreditations, is largely unregulated externally and there is a lot of scope to make good money.

So if we go back to the three core aims for the customer and square them against a landscape skewed by increased financial gains for individual brokers at specific properties, things start to get a little bit grey.

There is the possibility that the widest possible variety of options becomes constrained to those that benefit the brokerage the most.

Maybe getting the best value possible and seeking added benefits now begs the question: benefits and best value for whom?

Advice and support expected by the customer (and advertised by the brokerage) is now subject to a certain degree of bias.

Post-Covid enquiry volumes are overall still flat when compared to the pre-Covid glory days. So as a result the market has seen a significant rise in enhanced fees and incentives being offered as coworking operators strive to carve out market share over lead flow by using a mechanism that seems to pack a punch.

How are serviced office brokers paid? The client doesn’t know…

But in all of this, the client is none the wiser.

And that’s a problem.

No intermediary website lists, or even mentions increased fees. An initial list of properties sent by a broker to a customer won’t allude to it. A viewing schedule won’t itemise it. It won’t be mentioned during negotiations.

Never mind the common practice of brokers proactively pushing coworking operators to grant increased fees for clients (that might take space) if an enhanced fee is not already associated with the building in question.

The softer the market conditions and the larger the impact of the client’s contract, the more it makes sense for the flex operator to concede and pay more.

Enhanced fees are a bit like crack… quite difficult to kick once you start.

And they cause problems.

Getting paid more for doing your job?

If you go high enough up the corporate ladder within coworking operators, there are plenty of decision makers that already feel the broker’s standard 10% is excessive. Their reasoning usually boils down to the level of involvement / influence (or perceived lack thereof) the broker niche as a whole has on the business transaction between the client and the building. Beyond driving down price.

Additionally, greater levels of enhanced fees just squeeze margins.

It also feels like paying someone extra to do the job they were supposed to do in the first place. Unless you really need the business. But then we’re back to the crack analogy.

It’s difficult to say who came up with the first enhanced fee positions in flex space, but it is fair to say that over the years they have become pervasive and normalised, and that they are currently very common.

The issue with something being normalised is that it can become an expectation.

So a well-placed coworking offering wondering why they’re not getting as many leads as they think they deserve might be told that since they don’t offer any increased fees, they shouldn’t be surprised (recent true story).

Flex space operators that win one week through the implementation of enhanced fees, might be on the opposite end of the seesaw when their offer ends and another brand takes a whiff from the increased fee pipe.

If it has the desired effect and the spaces fill up, then the operator is happy. Until more occupancy gaps appear down the track and the same tactic needs to be employed again.

But the ongoing practice, coupled with the normalised feedback loop, is continually pushing the average intermediary fee in the sector higher than a lot of financial models planned for. That’s unsustainable.

All the while the impartiality of brokerages is constantly being prodded this way and that.

And the client remains oblivious to the real impact these machinations could have on their search for flexible offices.

If you were the customer, wouldn’t you like to know?

You can use our unique directory of serviced office brokers to find an individual that you can connect with both professionally and personally to discuss these issues and get a transparent experience.