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Catching the sharing economy wave: Office space

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Feb 7, 2017

This is the first post in a three-part series examining nonconsumption as a strategy for maximizing the sharing economy. The series addresses three areas of opportunity: rooms, rides, and recreation.

Today the sharing economy is a mainstream phenomenon. The sharing of assets, skills and time by individuals has enabled the emergence of countless new enterprises, oftentimes without the need to invest in new assets or infrastructure. A classic example of course, is AirBnB, which provides customers with an alternative to pricey hotels as well as accommodations in places that don’t have sufficient tourist traffic to justify the construction of new hotels. From the perspective of consumers, sharing has facilitated the creation of useful alternatives to existing products and services.

Historically, sharing implied joint use. In its present form, the sharing economy is enabling people to generate value from what they own. A family with a spare room can now share it to earn extra income; someone who uses their car infrequently can do the same. In this blog series, we examine how businesses can also benefit in the sharing economy by applying one of its principles—finding new uses for idle assets—to build products and services that address nonconsumption.

What is nonconsumption?

Nonconsumption denotes situations where people lack adequate solutions (products or services) and are thereby forced to consume nothing at all. High cost is a common cause of nonconsumption—when existing solutions are too expensive for many people.

For instance, rewind a few decades and only a portion of the population could afford a television. With vacuum tubes as the principal component, these were large, expensive appliances beyond the reach of most consumers. When transistors were invented, the leading vacuum tube makers spent millions of dollars working feverishly to create new products for their existing market. Sony, however, had other ideas. Sony used the transistor to create a less sophisticated, 12-inch black and white portable television, targeted towards people who could not afford other models. Sony’s alternative represented progress for this segment of the population as they gained access to a form of entertainment they had previously been denied.

Especially in the developed world, years of progress in improving access to products and services may convey a sense that nonconsumption has largely been eliminated. It has indeed been reduced—most people have some form of recourse for the majority of their problems. However, we are far from resolving all of them.

Finding nonconsumption

Let’s consider the challenge of finding offices for small businesses and startups. According to the Small Business Administration, office space is one of the largest expenses incurred by new businesses. While space can certainly be found if one is willing to pay the price, a sufficient number of reasonably priced options are not available in many areas. In New York City, for instance, it’s forecasted that by 2018, Class-B and Class-C office spaces—which are designed with smaller organizations in mind—will be totally occupied, with a potential shortage of at least 6.3 million square feet by 2025. This type of situation leaves many unable to access affordable office space. Cue nonconsumption.

The case for sharing

One solution to the space dilemma would of course be to build more offices. But would new construction reduce prices enough to make it a feasible option for small businesses and startups? Unlike many established organizations, startups have fewer employees and are less likely to require an entire floor or building. Some may not even need permanent offices. Building more offices, it seems, may not be the answer.

Sharing the existing space, however, is a much more viable option, especially in cases where cost has already been priced in. Such an office could be rented to different entities for a specific duration of time, depending on their needs. While this type of workspace would be inferior to that used by a large firm, it would certainly be better than having no office space at all.

The hotel industry, with an average occupancy of around 65%, appears to be doing well when you consider metrics such as Average Daily Rate (ADR) and Revenue per Available Room. Yet, 35% of capacity is still available for use. Within the current business model, this available capacity is already priced in and does not appear to be a threat to the industry. However, the wasted capacity could be put to better use if it were offered to small businesses and startups as temporary workspace.

There are a handful of firms making efforts in this direction. Marriott, for example, offers its conference rooms for shared use through LiquidSpace, which aggregates spare space from a variety of sources and provisions them as offices. Depending on their specific context, hotels that are struggling to reach full capacity have the opportunity to explore how their rooms can provide solutions other than lodging.

It’s clear the sharing economy has made rigid industry boundaries more porous—and addressing nonconsumption can help businesses navigate across boundaries.  As we’ve just explored, on one side there are people who suffer due to a shortage of adequate solutions, and on the other, assets and resources that are not being utilized by existing enterprises. Finding the means of putting them together will not only create growth opportunities for firms, but will also make a positive impact on society by helping those who do not have the right solutions for their problems make progress in their lives.

Subhajit Das