How socially orientated property management companies can help unlock workspace

Our regular collaborator at REDO, Harry Owen-Jones, makes the case that affordable workspace policy isn’t working. Here, we discuss one way to fix it, whereby councils directly intervene in bold and innovative ways to make the right spaces available on the right terms. This could include creating socially orientated Property Management Companies that are structured in ways that incubate good growth whilst protecting local community priorities.

Before we get into “how” councils can do this, we should first re-cap on the “why”.

We know that re-building the economy in the aftermath of COVID-19 will require new and bold approaches at both the national and local levels. In order to deliver a fair and inclusive economic recovery, we must create affordable spaces and places across our towns and cities for businesses to re-boot; for entrepreneurialism to flourish; and for communities to design and develop new service models that better meet their needs. These are outcomes that matter to councils as they have far-reaching impacts on the wider health, prosperity and well-being of our communities.

The case to act pre-dates COVID-19:

The sustained decline of the traditional retail-led models for our high streets and town centres is well documented and it is widely accepted that greater diversity must be supported within the mix of economic, civic and social uses in order to make successful places that are destinations of choice
Cities and neighbourhoods across the country have benefitted from the activity and vibrancy that start-ups, arts and social enterprise tenants have brought into areas that were once dilapidated and un-loved. However, these are often the first to be pushed out by increasing rents, as developers, investors and the markets they target become attracted by the very vibrancy that these tenants have helped to build
As identified previously, whilst there are many fantastic workspace providers across the for-profit to social enterprise spectrum, the affordable-end of the market is generally not well-supported by the current policy and market-drivers.

Responding to the immediate and near-term traumas within communities, neighbourhoods and property markets is essential, but we must aim for ‘more than meanwhile’ by fostering a long-lasting transformation in how we define and develop successful communities and town centres.

Now onto the ‘how’…

We believe that councils can and should play an important market-making role, which means using their own assets where possible as well as securing third party assets in key locations to create the right conditions (i.e. affordable and flexible terms offered to end-users) that enable local businesses, entrepreneurs and community organisations to occupy these assets. There are a number of ways that this could happen. Here are some examples:

Assets within a council’s own portfolio may be let on affordable terms to an operator or end user and an ‘undervalue’ is permissible. Wider performance measures can be designed into this arrangement to quantify the social and economic impact and rationale for the lease price.
For assets in third party ownership, a council can take on the role of head lessee with a strong covenant in order to deliver the same arrangement via a sub-lease, thereby creating an important bridge between assets in private ownership and the businesses and community groups that will bring assets and neighbourhoods back to life.
Councils may choose to strategically acquire and directly invest in properties that are in third-party ownership in order to secure and develop assets that work harder at the heart of their communities. This could be supported through new policy that directs Section 106 contributions for affordable workspace to the assets and neighbourhoods where the greatest impact can be achieved in lieu of tethering affordable workspace to new development that presents sub-optimal financial or geographic accessibility for target end users.
Alongside this approach, which can be adopted by a council on a piecemeal basis, there is also an opportunity to establish a Socially Orientated Property Management Company (Soc-PMC). This would enable a council to take a portfolio approach to managing local assets against a suite of clearly defined, social and commercial aims, objectives and deliverables that address affordability and target local sectors and groups.

With this approach, a council would agree a basket of leases with the Soc-PMC, alongside a Service Level Agreement, which would guarantee a required level of income to the Council and define the expectations regarding the social and economic impacts to be achieved and reported, through tenant management and by end user tenants.

The objectives of the Soc-PMC, together with the evidenced social impacts, would also make the venture attractive to charitable funding and impact investors.

Having multiple assets under one ownership structure would allow the operation to benefit from economies of scale. The portfolio could be a mix of purely social and more commercial activity similar to 3Space’s BuyGiveWork model: by taking on multiple sites, or sites with mixed tenants (e.g. for-profits and not-for-profits) a cross-subsidy model is enabled, whereby surpluses from commercially-oriented assets and activities could be reinvested to subsidise not-for-profit activities and support other affordable workspace within the borough or to secure further buildings. The socially-orientated objectives of the Soc-PMC may also give access to sources of grant funding and depending on its corporate structure attract a level of business rates relief.

Opportunities for stakeholder and community representation within the stewardship and governance arrangements for the Soc-PMC could also be developed, with the venture sitting alongside other models such as Community Land Trusts and community-led building that seek to deliver inclusive economic benefits and improved, long-term community stewardship within our cities, towns and neighbourhoods.

We believe that affordable workspace has a critical role to play in re-booting and re-building an inclusive economy and the time is now for councils to be ambitious and bold because they are in a unique position to act.