The master lease has been a favoured leasing model in the coworking sector for more than a decade. A coworking operator would rent a building for 10 to 15 years, fit out the space and sublicense desks and offices on short-term tenures. The landlord collected a steady, fixed rent, and the operator kept the margin.
The Structural Flaw of the Master Lease
It was a functional system during peaks in the sector, but the cracks have become clearer over time. Risks on operators between the high fixed costs of the lease and the instability of short-term memberships— margins are often negligible, leading to frequent space closures when the market dips.
During the pandemic, occupancy dropped and operators couldn’t cover the rent on overcommitted, expensive head leases. Some renegotiated, some defaulted, and some simply walked away stripping the fitout and returning bare floors to landlords, leaving them in a weaker market than when the lease was signed.
However, the issues started well before, continuing a pattern of collapsed local coworking providers. Corporate Government Institute notes aggressive expansion, long term leases, and over capitalised fit-outs as some of the many actions that fell against WeWork’s revenue streams, resulting in estimated outstanding rent commitments of $900 million. WeWork’s global parent company filed for bankruptcy in 2023 as industry landlords watched a supposedly mitigated income stream evaporate, re-acquiring vacant floors, degraded fitouts, and the job of starting over.
How the management agreement changes the dynamic
While Community Management Agreements (CMA) existed well before the pandemic, they haven’t seen widespread adoption, especially in markets like Australia. This model inverts the structure, integrating a revenue-share arrangement. Instead of leasing the space, the operator manages it on behalf of the landlord— funding the fitout and retaining 100% ownership of the space, bringing the team, systems, sales engine, and operational expertise to run it day-to-day.
This partnership offers a significant financial incentive where operators can achieve a 15–25% premium on gross rents in a flex model compared to traditional leasing, net of incentives. While the revenue is shared transparently, if the partnership ends, the landlord keeps a fully operational, revenue-generating asset, accepting exposure in the operating benefits without the operational burden or brand risk.
The primary barrier is how commercial assets are valued. Banks and investors rely heavily on WALE (Weighted Average Lease Expiry) to determine a building’s worth. WALE is a calculation used to measure the vacancy risk of a property, heavily weighting long-term leases with A-grade tenants to justify a high valuation.
Because bank valuations are secured to these formal leases, many landlords are unsettled by the prospect of a CMA. In many instances, landlords are contractually unable to move away from the master lease model because their loan covenants require the building to hit a specific valuation—a target they fear is compromised without the security of a traditional lease.
The international numbers confirm the shift is already happening:
- The UK currently holds the most mature flex market in the world, as Savills records the highest proportion, noting that 67% of flexible workspace deals were structured as management agreements in early 2025.
- BNP Paribas Real Estate states that 30% of all UK office take-up in 2024 was in flexible or managed space.
- The Instant Group’s “Future of Flex” report found that 36% of landlords plan to offer their own flexible spaces by 2025, with a further 17% looking to partner with an operator under a revenue-share structure.
- Half of all landlords surveyed expected 16–25% of their portfolios to be flex.
- JLL projects that approximately 30% of all office space could be flexible by 2030.
- CBRE’s 2025 outlook predicts flex will represent 15–20% of office portfolios in major US cities by 2030, with landlord-operator partnerships as the primary delivery mechanism.
Australia’s largest office owner, Dexus, followed this trend by restructuring its “Dexus Place” brand. In 2024, it launched a 50/50 joint venture with Singapore-based “The Work Project” to manage 14,000 sqm of flex space across Sydney, Melbourne, Brisbane, and Perth.
JLL now operates “white-label” flex sites for landlords like Canberra Airport, Melbourne Connect, and The Loft. Meanwhile, major owners like GPT, Charter Hall, and Lendlease are shifting toward running their own spaces or forming partnerships, rather than just leasing desks to third-party operators.
Rubberdesk’s Q3 2025 Report puts the national average desk rate at $667 per month while premium suites command $750+. Flexible Workspace Australia’s 2025 “Flex Futures” report shows optimism where 70% of operators anticipate revenue growth and 76% forecast improved profitability over the next 12 months.
Flexible Workspace Australia’s 2025 “Flex Futures” report found that 70% of operators expect revenue growth and 76% forecast better profits. While the sector may look like it is shrinking, it is actually maturing. The management agreement is now the primary deal structure doing the heavy lifting for this shift.
What landlords actually gain
The management agreement model offers landlords four concrete advantages over a traditional head lease:
1. Capturing the profit upside and eliminating tenant default risk. In a traditional head lease, a landlord’s return is capped at the fixed rent, yet they still bear the risk of the tenant going bankrupt. Under a management agreement, the landlord captures the full financial upside and gross revenue of the operating business. Furthermore, because no lease exists, the operator avoids carrying a large AASB 16 / IFRS 16 right-of-use asset and lease liability on their balance sheet. This means institutional owners can attract and partner with top-tier, agile operators who would otherwise refuse to sign a restrictive, balance-sheet-heavy traditional lease.
2. Full financial transparency. The landlord has complete visibility into how the space is performing through monthly financial reporting. In Queensland, licensed commercial real estate agents like CoSpaces operate regulated trust accounts under the Agents Financial Administration Act 2014. Every dollar of member revenue is held in an audited trust and distributed on defined terms, rather than sitting opaque on the operator’s balance sheet as working capital.
3. Brand flexibility. The landlord can operate under their own brand (e.g., Dexus Place), the operator’s brand (e.g., CoSpaces), or a bespoke identity built specifically for the asset. The choice belongs entirely to the landlord, not the operator.
4. A fundamentally different exit. If the partnership ends, the landlord keeps the fit-out, the member base, the operating systems, and the ongoing cash flow. In a head lease failure, the landlord inherits an empty shell and zero income. Under a management agreement, the landlord retains a fully operational, revenue-generating business.
Why institutional capital prefers it
The shift is accelerating for a reason that goes beyond risk transfer. Management agreements allow landlords and institutional investors to capture more of the revenue upside in strong markets, rather than ceding it to an operator who pays fixed rent and pockets the margin.
A well-managed flex workspace typically generates $600–$800 per square metre in gross revenue at stabilised occupancy— this is well above the net face rents available on traditional A and B grade office leases in most secondary markets. At 85% stabilised occupancy, the economics compare favourably to conventional leasing even after accounting for operating costs and the operator’s share. Under a management agreement, the benefit flows back into the asset.
It’s not right for every building
- The management agreement model works best in spaces over 1,500 square metres, where the revenue base can support a dedicated on-site team, full operational infrastructure, and the technology stack required to run flex at scale— along with an optimised operator.
- For smaller floor plates—lighter-touch models, platform licensing, consulting-led setups, or “flex amenity” are usually a better fit, rather than a standalone operation.
- Not every market or building is suited to flex. Honest feasibility analysis upfront is essential. This includes assessment, competitive positioning, and unit economics under realistic occupancy assumptions. An operator who pitches the same model to every landlord regardless of building and location is an operator to walk away from.
The bottom line
The master lease made sense in an era when landlords wanted certainty and were prepared to cede the upside to get it. That era is over. Occupiers have shortened their time horizons, and operators have learned that long fixed liabilities don’t survive a cycle. Institutional capital has seen enough operator failures to understand where the risk actually ends up.
For the right asset, in the right location, with the right operator, the management agreement is a better deal for landlords than the master lease ever was, and the data from the UK, the US, and increasingly, Australia shows the market has already decided.
Sources and further reading:
– Savills, UK flexible workspace deal activity, Q1 2025 (cited in Pont.work, November 2025)
– BNP Paribas Real Estate, UK office take-up data 2024
– JLL Australia, Space as a Service: Flexible Office Space in 2024
– CBRE, Why Australia’s flexible office market is seeing a growth resurgence
– Rubberdesk, Australian Flexible Office Market Report Q3 2025
– Flexible Workspace Australia, Flex Futures Report 2025
– The Instant Group, Future of Flex report
– Dexus Group media release, Dexus partners with TWP to grow premium flexible space offering, February 2024
– Allwork.Space analysis of WeWork Australia lease exposure, 2023
– Mordor Intelligence, Australia Co-working Office Spaces Market 2025–2030
CoSpaces operates under Queensland commercial real estate agent licence REBS 3891308 and has managed flexible workspace assets for landlords across South East Queensland since 2012. For a feasibility assessment on your building, contact us at cospaces.com
