What is the subscription economy?
This is a new model that sees customers not as one-off purchasers of products or services, but as users who pay a recurring fee in return for a subscription to a product or service bundle. It promises customers an ongoing relationship with up-to-date, smart, flexible solutions tailored to their specific needs.
Additionally, it promises the seller a reliable income stream and a more personal and meaningful interaction with customers, which is becoming as much about delivering an overall user experience as the underlying product or service. The telecoms and media sectors have led the charge, operating on a subscription basis for many years, with Netflix and Spotify now household names.
What’s it got to do with real estate?
Traditionally, a tenant pays rent, service charges, insurance costs, rates, dilapidations and other outgoings, with the investment producing steady income (rent, equivalent to a dividend or coupon) for the landlord. While the Irish market now offers more flexible lease terms, we are also seeing a recent move to more flexible office solutions and coworking space. Tenants want to get exactly what they need, when they need it and they prize flexibility. They are eschewing the relative straitjacket of traditional lease arrangements, seeking instead to avoid long-term commitment – and perhaps paying a premium for that important element.
This trend is expected to continue. A subscription model of serviced offices and coworking spaces is classic disruption and could have profound effects. It has the potential to change the nature of the commercial property investment product and the profile of investors, to affect how buildings are designed and fitted-out, and how new space requirements can be satisfied.
Start-up firms in the tech sector are particularly suited to the model. Young entrepreneurs, attracted by informal working environments, can draw like-minded companies together under one roof. The bundle of services can include shared reception, meeting facilities, coffee docks, yoga classes, networking events and, crucially, a sense of community.