Offices Are Selling Something That Isn’t Measured in Square Feet

An office has a physical limit; an address, apparently, does not. This paradox is becoming increasingly visible in the office market, where conventional occupancy—companies leasing space for their employees—operates alongside a model in which multiple companies can use the same address without physically occupying it.

For some, it is enough to establish their tax or business address there, receive correspondence and occasionally use a meeting room or private office. As a result, the number of companies associated with an address can grow without a proportional increase in the space they occupy, to the point that counting companies no longer necessarily indicates how many square feet of office space they demand.

Currently, no public measurement of the value or size of Mexico’s virtual office market has been identified. However, information from the operators themselves identifies at least 17 locations managed by companies such as OVA, Oficinas IBS and City Office across Mexico City, the State of Mexico, Querétaro and Jalisco, some of which can also be quantified using SiiLA data. At Corporativo Santa Fe 505, for example, Oficinas IBS occupies 9,311 square feet; at Corporativo 5 Estrellas in Querétaro, OVA registers 21,528 square feet.

The scale of that relationship becomes clearer when looking at clients. OVA says more than 4,200 companies rely on it for their tax address, compared with a network of just nine locations. That amounts to more than 466 companies per location, although the company does not disclose how they are distributed among them.

Thus, this ratio does not represent an equivalent density of tenants because a company’s registered address does not necessarily coincide with its physical occupancy. Nor does that separation necessarily mean the absence of an office, since some companies may need only an address, while others maintain physical space at a location different from where they are registered. That distinction changes what it means to locate a company, since its physical operations depend on conditions such as access to workers, markets, transportation or infrastructure, while the choice of registered address may respond more strongly to institutional factors such as regulation, taxes or subsidies.¹

This introduces a distortion in the geographic reading of corporate activity, because the concentration of companies attributed to an area based on registered addresses may differ from the physical presence it actually accommodates.² At the same time, a second real estate dimension emerges, in which some attributes traditionally incorporated into the space a company leases—beginning with the address—can be commercialized independently. As a result, a property no longer generates value solely by granting exclusive use of space.

The effect on aggregate office demand, however, cannot be determined from these data, since operators also require physical space and it is unclear how many clients would have leased a conventional office in the absence of the service. What can be observed is a different structure: the operator can become the real estate tenant while multiple companies retain only the services they need. The same office can therefore represent one tenant to the real estate market, multiple registered addresses in business records and a location used with varying intensity by each company. In this overlap of realities, space remains finite; what is no longer necessarily one-to-one is the relationship between company, address and space.

That effect can also operate in different directions. If virtual offices concentrate the needs of companies that would otherwise have leased their own spaces, their expansion could substitute for part of conventional demand. If, instead, they complement offices those companies maintain elsewhere, they would channel additional needs to operators beyond those already met by those spaces. And there is still a third possibility: that they serve companies that would never have leased their own office and turn needs that previously did not require leasing space into a real estate service.³

In this way, virtual offices are leading the market to distinguish between how many square feet companies demand and what they can demand from an office without needing those square feet, beginning with the address.

Does your company use a virtual office or maintain an address separate from its workspace? Please tell us how it works in your case at contacto@siila.com.mx.

***

¹ Hu Guojian, Lu Yuqi and Hu Shuyun, “Research on location theory taking into account the registered address of enterprises,” Geographical Research, vol. 41, no. 2, 2022. The study compiles evidence on the separation between companies’ physical locations and registered addresses. Among the cases cited, 53.28% of the startups analyzed in Shanghai had an office address different from their registered address; another study identified 3,368 companies virtually registered within the jurisdiction of an investment promotion company, equivalent to 75.55% of the total; and previous research by the authors found that 31.42% of 3,533 Chinese listed companies had their headquarters and registered addresses in different cities.

² Dong, Lei, Xiaohui Yuan, Meng Li, Carlo Ratti and Yu Liu, “A gridded establishment dataset as a proxy for economic activity in China,” Scientific Data, vol. 8, 2021. Based on approximately 25.5 million business registration records, the authors warn that a registered address may differ from where a company operates and note that policies tied to particular locations, such as tax subsidies, can lead companies to register in one place while operating elsewhere. The study also identifies geographic grid cells with more than 10,000 registered establishments and warns that these concentrations can affect small-scale economic analyses.

³ The possible effects are not necessarily mutually exclusive. In terms of their relationship with physical demand, the model can operate through substitution, when it replaces space that otherwise would have been leased directly; complementarity, when the service is added to existing occupancy; or demand creation, when it serves the needs of companies that would not have leased a conventional office. These effects can overlap with changes in market structure: segmentation, when a company distributes functions previously contracted together across different spaces or locations; and intermediation, when the operator concentrates the direct real estate relationship and provides services to multiple companies from the space it occupies. Determining the net effect, however, would require knowing clients’ counterfactual behavior—what space they would have leased in the absence of the service—information the available data do not provide.