The Future of Serviced Offices: Trends, Collaboration and Wellbeing

KF: Let's start by presenting the latest trends in serviced offices. What changes are we seeing in this segment and how are they affecting the commercial real estate market?

YB: In the last year we have seen a significant increase in the number of new serviced office brands. The biggest players in the market are also expanding intensively, opening more and more locations. Competition is fierce, and each service office is trying to introduce something unique that sets it apart from others.

The biggest current trend is 'employee wellbeing', which attracts employees to the office by offering them something more than just a place to work. This approach is turning serviced offices into spaces that employees want to visit, not just have to.

Standard offices with playrooms featuring PlayStations or foosball are evolving to include gyms or yoga rooms, for example. These new directions are aimed not only at attracting tenants, but also at increasing the value of offices by introducing interesting and innovative solutions.

Large corporations have long used wellbeing systems to encourage employees to return to the office. You can draw inspiration from their experience by watching how they put these systems into practice.

After the COVID-19 pandemic, there were significant changes in employees' attitudes toward the workplace. Today, it is often the employee who decides the choice of office, which is a change from the past, when CEOs chose locations close to their homes. Now employees have a greater say in where they want to work, which underscores the need to tailor offices to their preferences, not just to the demands of management.

Many office spaces designed less than five or 10 years ago now require new ideas and adaptations. Companies that don't think about this now will have to do so in the near future to attract clients interested in renting space designed with new trends in mind. You can't wait - we, too, are trying to follow current trends and gradually implement them in our offices.

We see that these changes have a big impact on the decision to choose our spaces, which confirms that following and adapting to new trends is crucial for success in the commercial real estate market.

KF. Do you notice any other trends besides Welbing?

YB:If we talk about trends, I can't leave out the value that our Customer Care team brings. Our customer care goes beyond the standards - we are not limited to basic reception service - we now offer a full range of services also concierge type services We want our clients to be able to focus on their business while we take care of the rest.

Our clients often don't hire office managers or receptionists because our services eliminate that need. We offer a one-stop service that allows them to operate without restrictions and without the need for additional resources.

K.F. Could you share your experience of working with property owners and point out the key elements of management contracts with LL?

YB: Of course, working with property owners has changed significantly, especially after the COVID-19 pandemic. Owners have become more flexible, which is a noticeable change compared to before the pandemic. In the past, we were seen only as tenants who rent space and pay rent. Now, property owners have begun to treat us as partners, which is mutually beneficial. A serviced office in a building helps attract new clients, including those who become key tenants over time. In practice, it has happened many times that clients who started with us have grown and moved directly under the wings of the building owner. This shows that our business can serve as an incubator for companies.

Our cooperation with property owners has evolved to a level where we are no longer just tenants, but partners involved in the development of the entire building. We share our insights and suggestions that can help improve the common spaces and make the property more attractive to potential tenants.

KF: What does such cooperation with property owners look like in practice?

YB: Our approach to working with owners is based on open dialogue and proposing innovative solutions that benefit both parties.

We aim to talk not only about the financial aspects, but also about ways to improve the standard of the entire property.

Building relationships often requires years of negotiation. We have cases where, after several years of discussions, the owner himself comes forward with a willingness to implement previously discussed initiatives, especially when he notices that competitors are already implementing similar projects and attracting customers. In such situations, we work together to raise the standard of the building.

We have decided to move away from traditional lease agreements to management type agreements This form allows us to more fully utilize our potential, knowledge and know-how.

The management model is based on cooperation - together we set business goals which results in much better results.

The key aspect that interests property owners in the context of business cooperation is undoubtedly transparency. The owner has access to a platform where he can track financial results on an ongoing basis. Another aspect is flexibility and individual approach to the property.

There are many management-type models on the market. These are templates that do not take into account the needs of specific properties. This is not a good direction.

In our case, we try to tailor contracts not only to the needs of clients, but also to the specifics of the owners' facility. We implement different concepts of serviced offices and coworking, adapting them to specific buildings and projects, instead of using a one-size-fits-all template.

We analyze the property as a whole, its surroundings, the potential of current tenants, and try to introduce innovations that will distinguish the building and raise its standard. In summary, we put transparency first, and innovation and uniqueness of the offer second. By doing so, we show that we care not only about the presence of a serviced office in the building, but also about generating additional revenue for the owner. This has already been proven - by having us as a partner, owners can earn much more than by treating us as a mere tenant. Our business model is not based on renting space in square meters, but on providing comprehensive services in the Space as a Service model, which translates into more revenue for the property owner.

This approach allows us to use the same square meters in a more efficient way, so we can generate higher revenues. We are also opening up to external clients who can use our spaces. We have extensive experience in organizing a wide variety of events, which allows us to flexibly adapt the space to meet many needs.

For example, a space that serves as a coworking space during the day can be transformed into an event venue in the evening. We strive to ensure that our square meters are used continuously, 24 hours a day. It is this flexibility and multifunctionality that sets us apart from the competition and brings satisfaction to our business partners, who appreciate the results of such cooperation.

K.F. In the current market realities, many property owners are opting for self-managed serviced offices. Could you share your thoughts on the benefits and challenges of owning your own serviced offices?

Y.B.: Observing the market, we notice that more and more property owners are choosing to open their own serviced offices. Some of them have been in the business for a long time, while others are just starting out, wondering why they couldn't manage such an office themselves. Some of them decide to create new brands and open offices under a different name. However, this is not always a simple and successful process. This is due to the fact that owners often focus on square meters and not on the

not on the quality of the services provided. If a serviced office is managed by a property owner who lacks relevant experience in the industry, this can lead to lower profitability and a lack of flexibility compared to specialized companies. For example, New Work, which has been in business for more than a decade, knows its clients and their needs, which translates into success in the market. Unlike us, some serviced offices managed by property owners remain empty or do not generate the expected profits. In my opinion, the biggest advantage of serviced offices is their flexibility. For property owners, it can be more beneficial to cooperate with an experienced operator of serviced offices, who knows the rules of the market and the specifics of this industry. I believe that everyone should focus on what they do best, and in the case of property owners, this may mean building a portfolio of office buildings rather than managing serviced offices.

Managing serviced offices requires not only the right knowledge and experience, but also the ability to adapt to changing market conditions. For investors, such as investment funds that acquire office buildings, the key is to commercialize the space and generate recurring revenue. Brands with many years of experience in the market, who consistently manage their offices, are a guarantee of stability and maturity in running this kind of business.

In conclusion, not every owner is able to effectively manage a service bureau. Often this requires the support of an external partner or the hiring of qualified teams that have experience in the field. Success in this area depends on the ability to utilize available resources, whether through collaboration or by building a competent team.

KF. Do you notice any common mistakes in the market that can serve as lessons for others in the industry?

YB: Of course! First of all, many companies do not give due importance to the creation of a business plan or do not include all the necessary aspects in their plan. It also often happens that the business plan is designed only for a short period of time, for example, three years, which is insufficient. I believe that a business plan, especially for service bureaus, should be designed for at least five years and include projections for investment costs at different stages of development, in order to be able to respond flexibly to rapidly changing trends.

Scaling the business is crucial, but also difficult to manage when the company has an appetite for rapid growth. Every entrepreneur seeks to rapidly expand their office network, which may seem impressive, boasting of opening ten locations in a year. However, such expansion can lead to a domino effect - if new locations are not leased quickly, the entire structure can be shaken.

In the case of leases, the end of rent-free periods can be a problem, as unrented offices generate costs rather than profits.

And so it is. On average, two to three times a month we receive inquiries to take over space from other operators.

Unfortunately, many companies have not adjusted their business plan, which results in the inability to maintain the location long term. On the other hand, we are dealing with big players in the market who have been operating for many years. We're talking about companies with an established position, a well-known history and an extensive network of locations. However, we are also talking to customers who are moving away from the big global service office brands. I am interested in why they are abandoning these services or looking for other operators. What I hear from them confirms my earlier observations and makes me notice another mistake: companies often fail to understand that people are looking for flexibility, not so much square meters, but a space where they feel someone will take care of them. The 'wow' effect on first entry and an aesthetically decorated office are impressive, but only for the first two weeks. Later, when the client starts in the office, the atmosphere, flexibility and approach to the client become most important. We often hear that they were restricted in various aspects - they couldn't even hang something on the wall in the office. For us, this is absurd, as we understand the client's needs. They choose a serviced office instead of a traditional one because they don't want to worry about day-to-day matters, hoping that someone else will take care of it for them, and they themselves can focus solely on running their business.

I would like to emphasize that the approach to the customer should be based on partnership. If a company doesn't treat customers as partners, it can't expect them to stay with it for the long term. We attach great importance to this.

The average time of cooperation with customers exceeds three years. This proves our approach and success in building long-term relationships. Every six months, we conduct a detailed analysis of our clients' needs to better tailor our services to their expectations, rather than requiring them to adapt to us. This is what sets us apart from the big players and gives us an advantage to boutique offices that rely on personalized service.

KF: Thank you Yuriy for granting us this interview. Your knowledge and perspective on the future of serviced offices, employee wellbeing and the impact of the pandemic on the labor market have brought new light to many aspects of our industry.

YB: Thank you as well.