Top 3 Risks

Risk vs reward: converting a commercial property into a coworking space – 3 things to consider

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The coworking trend is being adopted by entrepreneurs and businesses around the world, as professionals look to benefit from a working environment that encourages collaboration and networking.

According to a recent research report from Cushman & Wakefield, London, Paris and Stockholm are the top three European hotspots for coworking (in that order), with an increasing number of commercial properties being turned into coworking spaces.

The latest coworking tenant is HSBC, which has signed up for 1,135 desks at the new WeWork building in London Waterloo, reports the Financial Times.

In doing so, the bank will be working alongside “young businesses that have ambitious growth plans ... [getting] involved in that journey with them,” explained Relationship Manager Stephen Mitchell in a 2018 video discussing HSBC’s move into the coworking environment.

HSBC’s decision to house teams in flexible offices will be music to the ears of WeWork. The coworking juggernaut, which recently became the largest private occupier of office space in London, has said that it wants to grow its base of “enterprise” clients, i.e. larger companies like Facebook, Microsoft and Barclays.

If you’re a commercial landlord who has had their head turned by WeWork’s (and others’) success, you might be considering turning a property or two of yours into a coworking space. It could be a lucrative opportunity – but it’s important that you’re aware of the risks that could accompany that potential reward.

1.  Material damage

Just as with any building, you are vulnerable to fire, flood, water leakage and other events which can cause considerable damage or destruction to your premises and its contents.

Generally speaking, the risk of these types of events occurring is no greater than if it were a standard office building. However, the difference is that few insurers cater for shared working spaces, which can complicate things somewhat.

It’s important to identify a specialist that can not only provide cover, but who also understands the risks associated with shared working spaces.

2. Business interruption

If the building or any part of the premises needs to be closed off for a period of time for repairs to take place, in a coworking space there are a number of different businesses that could find their operations affected; rather than just a single business if you were to rent the building out to one firm.

If tenants deem that you’re ultimately responsible for the interruption to their business, they could come looking at you for some sort of reimbursement for the loss of revenue. So, you’ll need to understand what you’re liable for in the event of your tenants being unable to conduct business as usual due to a problem with the premises.

3. Loss of rent

Loss of rent is something lots of commercial landlords have to manage at some point during their ownership of a building. Therefore, it’s crucial that when you’re insuring the property against damage, you check to see if it is also insured against the loss of rent.

While renting your building out as a coworking space could provide a greater income compared to leasing it to a single tenant, the flipside of that is that the loss of rent will be greater in the event of the premises having to be temporarily vacated.

During the break in tenancy, some of the businesses might find a new and permanent home, leaving you with more work to do to fill the empty desks.

From a risk point of view, converting a commercial property into a coworking space brings a unique set of challenges of the building owner, so it’s wise to seek specialist advice on the type of protection you need.

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