Published a month ago · Updated 19 days ago

New Business Model Opportunity in Real Estate

Coliving concept for executives

Real Estate players have all been scratching their heads over the past weeks to figure out what will be the long-lasting consequences of the Coronavirus for this industry. There are many papers and online conferences out there, with pundits giving their views on the matter but here is Mallorca Advisor’s take on where we believe some of the best opportunities lie.

Many agree that this Covid-19 crisis is acting as an accelerator and making it harder for many legacy business models to be sustained, even as the world is slowly getting back to work. According to Business Insider, many CEOs consider to rent up to 30% less space post Covid-19. Large inner city office space and floor plans without much privacy, which have been in decline before the crisis already, have become completely unappealing. This is making an even stronger case for the home office / co-working space combination trend to continue growing.

 

It is also foreseen that demand for residential housing in crowded inner cities will fall, as professionals with families consider living further away from the metropolis. Why not set up a comfortable fully functional home office and enjoy more outdoor space with the family? Executives don’t want anymore to be locked into small city apartments, struggling to carry on professional Zoom meetings in a kitchen corner while trying to keep the kids from interfering. On the other side of the spectrum, we see an increase demand for quality family houses and services in secondary cities and villages.

Limestone Capital recently wrote about their belief in the re-emergence of the hospitality industry in a new formation, with new winners and losers. Like them we foresee that large hotels, with long check in lines, impersonal disinfection-stations, and lots of personnel wearing PPE - will become ever less appealing to the modern traveller.

Boutique hotels that can offer a more personalised experience, away from the crowds, will be winning and taking share from large hotels that are dependent on tour operators and group travel. New lodging & experience concepts, that take into consideration the desires and concerns of tomorrow's traveller, will be taking market share from legacy players that will struggle with their re-opening positioning. All of the above were trends already underway for niche audiences, however they will become more and more mainstream moving forward.

At Mallorca we also believe that we will see the emergence of a new form of inner city serviced residential offering very much along the codes of the co-working space.

 

The co-working space commercial real estate model has established itself as a very valid alternative to typical office space for companies and workers wishing to gain flexbility in the way they structure their work and life. This new type of office was created because, even though office culture has been shifting towards home office over the last decade, it has not erased the need for professionals to gather and converge towards city centres. This where banks and institutions are located and they still need to meet with management, co-workers, clients and suppliers. Without hardly loosing any of the advantages provided by conventional office spaces, co-working office networks offer their users access to a vibrant professional community while saving on fixed professional costs.

 

But for those people now migrating to larger properties in the metropolitan periphery or even further, commuting back to the inner city at regular frequency remains cumbersome. Alternatively maintaining a city center home to use just a few days a month is costly and burdensome. We believe such pain points create a unique opportunity for city center hotels and residential complexes to transform their business model into fractional ownership schemes or membership programs with fixed monthly costs. Demand will be strong from professional living away from the city needing, a few days every month, to have access to a modern serviced residences offering that provides all the characteristics of normal residential living such as cooking facilities, laundry, TV, Internet, gym; yet without some time consuming constraints and annoyances like paying utility bills, cleaning or taking out the trash.

 

There are several business models that can be developed including or not an ownership element but the key success factor will reside in integrating some of the key features of the sharing economy models (simple pricing, peer review, easy booking, community, apps,…), with, for good measure, the additional cleanliness & health element.