The New Risk in Office Is the Landlord

Why ‘de-risking’ your building is now the riskiest move.

Many landlords believe they have “de-risked” their office assets with flex.

After investing £XXM+ on the refurbishment of their prestigious office building, they sign a fixed lease with a mid market flex operator.

✔️ Flex office amenity tick box accomplished.

Internally, that gets reported as stability:

1. Lower capex exposure

2. Guaranteed income

3. No operating obligations

#Winning

It looks safe.
But is that actually the point where the building starts losing pricing power?

Has the attempt to de-risk become the risk?

Here is how it usually plays out.

1. Bland aesthetics after headline capex
   Landlords deploys capex to CAT A, upgrading services, lifts, air quality, ESG credentials, circulation. They solve the base build.
   Then they stop just before the part that actually makes people want to be there. You end up with strong technical performance and average experience.
   The market sees the gap immediately.

2. Brand Mismatch
   When a Grade A or high quality character asset is given to a mid market brand, will the market still treat the building as prime, or does it drift into a generic bucket? We we resetting our own comp. Are we telling valuers, lenders, and buyers that this building should now trade like a commodity?

3. No hospitality layer
   Customers are not looking for another generic coworking product. They are looking for places where they feel they belong, where they are known by name, where there is food, drink, service, and a reason to bring clients in. Without that hospitality layer, and without active community, does the building become a destination, or is it the same as the one next door.

4. The risk of transferring risk to the operator
   If the operator finances full fitout, signs a lease, guarantees rent, and is still expected to deliver premium hospitality from its own balance sheet, do fiscally disciplined operators accept those terms?
   If not, do the ones who do risk failure, putting the building back into vacancy risk later in the hold period?

Is it time to stop asking operators to save assets with their balance sheet?

De-risked or de-valued?

This tick box model is still sold to investment committees as prudent.

Yet what signal is being sent?

If the landlord will not finance the experience and hospitality, does that imply the building does not deserve that level of investment?

What kind of customers will the building attract?

Will capital markets treat that income as weak because the product signals “generic” and the yield looks less defensible.

The Elephant in the Room

There is a capital structure problem that is being ignored.

The landlord often has access to the cheapest cost of capital, secured against the asset. If the highest cost balance sheet in the equation is asked to fund the layer that protects the lowest cost balance sheet, is that risk transfer, or value leakage?

Here is the point:

• If we cut back on experience, the income is not sticky.

• If the operator and the asset do not match, every other floor in that building gets repriced down.

• If we do not invest in hospitality and F&B, we remove what people will still leave home for, the experience and feeling taken care of.

• If we don’t finance the experience layer at the asset level, we will not attract the calibre of brand needed to defend long term value.

Buildings that lean into service, hospitality, curated community, and brand can hold relevance and pricing; buildings that do not may trade at deeper discounts, even when the base build is technically strong and recently refurbished.

Alignment, not tenant

There is a another structure that many investment committees should accept:

The Hybrid Lease

• Landlord finances the experience layer, fitout, F&B infrastructure, front of house, meeting and social zones, brand delivery, landlord owns the improvements.

• Operator runs and proves the business, service, hospitality, F&B, membership, programming, transparent KPIs.

• Contract once stable, convert proven cashflow into a lease with a floor and turnover ratchets, or a lease-backed revenue share, set against trading in this building. Performance reporting structured to lender standards, and once the contract converts at stability, the income should be treated as lease income for valuation and debt purposes.

• KPI alignment and pivot right, KPIs tied to achieving agreed market rent by an agreed date, benchmarked to an agreed comp set or third-party dataset, incentive-normalised, with step-in rights that permit the landlord to pivot to an alternative operator if targets are not met.

This is about protecting the value of the address.

The questions for investment committees

If a hybrid lease lets us capitalise proven cashflow later, why lock the building into mid market positioning on day one?

By avoiding alignment, are we training the market to price our building as weak income, effectively writing it down?

I believe it’s time for a different landlord strategy:
One that finances the new standard,
capitalises the proof,
and protects your building’s value.

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Caleb Parker is the CEO of Brave Corporation, an operational real estate platform repositioning underutilized office assets through hospitality-led strategies.