Running flexible office space is around 50% more profitable than leasing it out in the traditional way, analysts at research and advisory firm Green Street have estimated — but they argued real estate companies should not try to get into this business.

A research note called The Coworking Impact for the first time attempts to quantify the pros and cons of running co-working or flexible office space as opposed to leasing it out in the traditional manner to a single tenant on a longer lease.

It used data on the EBITDA margins of co-working firms, much of it gleaned from London and Europe.

It found that an occupancy rate of around 80% was required to achieve greater profitability versus a traditional lease in most cities, though break-even occupancy is likely closer to 60% in the highest-rent markets like London where co-working operators can garner larger rent spreads.

Flexible office space was cash flow positive once it hit 75% occupancy, and the flexible space companies Green Street spoke to reported they were usually 90% full within a year.

On the downside, the study found property buyers required higher cap rates for offices run purely as co-working or flexible workspace, sometimes 50% above those of traditionally leased offices.

Green Street cited a study from Eastdil Secured looking specifically at investor attitudes to buildings leased by flexible space giant WeWork. The study suggested leasing to WeWork has little to no cap rate impact for the landlord, provided WeWork leases less than 25% of the total building. When WeWork leases 50% to 100% of the building, a cap rate premium of 50 to 75 basis points or more is common if WeWork does not offer a parent guarantee, as it often does not.

It said that although co-working could be more profitable, traditional landlords should avoid the temptation to dive in to the sector themselves.

“Significant scale, know-how and brand awareness would be required to operate profitably, and providers like WeWork are already miles ahead on all of the above,” it said, also pointing to the lower value placed on the space by investors.

It said the best way to take advantage of the sector was to look to lease 5% to 10% of building space to co-working companies with a good credit rating.

On a global scale it estimated the shift from traditional leases to flexible workspace could reduce global office space demand by 2% to 3%.