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Interior of a modern co-working office space
Germany's flex office industry is abandoning traditional leases in favour of radical new contract models that share both risk and reward with landlords. As inflation-driven rent increases push operators toward insolvency, a fundamental transformation is reshaping how flexible workspace providers do business - offering landlords potentially higher returns while operators escape the fixed-cost trap that has claimed several major players.
The shift comes as the sector faces a perfect storm. Office demand has fallen 30% since 2019, flex operators are fighting intense competition from subletters offering steep discounts, yet rent increases tied to inflation indices have pushed some providers past breaking point. Unicorn Workspaces' recent insolvency filing demonstrates the crisis clearly: despite 80% occupancy and €8.7 million revenue in 2024, the Berlin-based operator couldn't survive 15% rent increases over three years.
"The financing round from September last year was used up more quickly than planned because occupancy was lower than expected," explains Florian Kosak, Unicorn's CEO, with disillusionment. "Our revenue is higher every month than ever before, and yet we are still losing money." Unicorn generates €740,000 monthly revenue across thirteen German locations but posts negative €130,000 EBITDA. Kosak's conclusion: "We are no longer competitive with these costs."
The problem extends far beyond one operator. Joachim Gripp, CEO of market leader Design Offices, reports similar pressure across the industry's 50 locations spanning 260,000 sqm. "On average, our rents have risen by just over 20% in the last three years due to inflation," Gripp told trade journal Immobilien Zeitung. "Space costs—rent and ancillary costs—account for approximately 75% of total costs. And such a dynamic is difficult to cushion, especially in the current office rental market."
Contract revolution gains momentum
The industry's response is revolutionary: abandoning fixed rents entirely. Sebastian Blecke, COO of Berlin property company GSG, observes operators "hardly talking about fixed rents anymore, but mostly about a share of the operator's profits, i.e. management contracts similar to those used in hotels. At best, hybrid models are being offered with a small fixed fee and a share of the profits."
These new models come in two main forms. Management contracts eliminate rent entirely—operators run workspaces for building owners and receive management fees from revenue. Hybrid contracts combine reduced base rents (typically 50% of market rate) with occupancy-linked variable payments. "At 90% occupancy, the owner has a total rent that will be above the market rent," explains Kosak.
WeWork exemplifies this transformation. After shedding $12 billion in future worldwide rental costs through bankruptcy restructuring, the company is expanding again using new contract structures. "There are now several types of expansion for us," explains Rebecca Nachanakian, WeWork's Regional General Manager for Continental Europe. "These can be pure management contracts without a fixed rent, but with a service fee for us. The income then goes directly to the property owner after deduction of our costs and our management fee."
Landlords embrace upside potential
The new models offer landlords significant upside potential. Blecke calculates management contracts can generate "15% to 20% above market rent" for building owners, with conference and events business potentially pushing returns "25% to 30% more than with a normal rental." But landlords must accept greater risk. "The landlord pays out of pocket in the worst case if occupancy is so low that the management fee and the usually seven-figure investment in furnishing the office space are not covered," Blecke notes.
Some landlords are embracing this trade-off enthusiastically. The first major management agreement with "flagship character" is being signed for Leipzig's Neo project, where Scaling Spaces will operate 4,800 sqm in a converted department store. "The landlord thought: I'm not stupid enough to limit myself to the market rent. I believe in the product," reports a competitor.
American operator Industrious demonstrates hybrid model appeal with its German market entry. The company has signed a "lease agreement structure with revenue sharing" for former WeWork space in Frankfurt’s Atrium Tower, owned by Brookfield. "We work exclusively through partnerships," states Yvan Maillard, Industrious's European Managing Director.
Market dynamics driving change
The contract transformation reflects harsh market realities. Diana Heumüller, owner of real estate agency My Office, identifies two key drivers: "Times are tough for office landlords. Corporates are no longer renting large spaces. Flex office operators naturally want to avoid taking big risks by signing a lease for several thousand square metres." Simultaneously, weak demand gives operators leverage: "Landlords are increasingly open to incentive-based solutions. That's still better than leaving offices empty for a long time."
For operators, these models provide crucial breathing room during market downturns. Design Offices' Gripp advocates for "a combination of a lower fixed base rent and a component that is dependent on turnover or occupancy. That would give us staying power in tough times. And when things pick up again, landlords will also benefit and earn back the money they previously foregone."
The transformation extends beyond contracts to operational strategy. WeWork is following large corporate clients into new markets, such as Warner Brothers' move into a Hamburg location. This client-led expansion reduces market risk while providing predictable revenue streams.
Industry-wide adoption accelerates
The contract revolution is gaining momentum across all operator categories. IWG, parent of the Regus brand, reportedly "no longer wants to conclude rental agreements at all, but only work with management contracts," according to landlord sources. Dutch operator Infinitspace has signed management contracts for its Berlin expansion, while established players like Betahaus predict "the future of coworking lies in management contracts."
Even smaller operators are embracing new models. 1,000 Satellites, a BASF spin-off, is raising €8 million through participation certificates to fund expansion based on expectations that office tenants will reduce space by 20-50% while accepting satellite offices for employees.
The stakes for landlords are significant. Successful partnerships can generate substantial premiums over traditional rents, but revenue-sharing requires active participation in space performance. As Blecke warns, owners must "absolutely check the tax consequences of operating a space for which there is no formal lease agreement" to avoid substantial additional payments.
The contract transformation represents more than survival strategy—it's fundamental industry evolution. As Gripp concludes: "We are in a critical phase: now is the time to decide whether it is better to invest in strengthening the medium-term lettability of the entire office portfolio or to simply extract the maximum from flex office tenants in the short term." For Germany's flex office sector, the answer increasingly lies in shared risk, shared reward, and abandoning the fixed-rent model that no longer works.