Landlords embrace flexible working 4th July 2018

In most cases we live by the rule of ‘quality over quantity’. But at the fifth annual eOffice Coworking Conference last week, which incorporated a packed programme of speakers and Q&A sessions across multiple London venues, eOffice managed to accomplish both.

Allwork.Space attended Day One, during which 11 speakers were invited to talk for 15-20 minutes each, across three main subjects:

Flexible workspace and real estate The growth and proliferation of coworking Specialisation of the sector and niche spaces 

A large proportion of the afternoon focused on real estate and the relationships between property landlords and flexible workspace operators.With huge growth and ongoing demand for flexible space, it’s inevitable that property landlords are now seeking to negotiate more favourable relationships with flexible space operators, while also staking their own claim to the sector. Unsurprisingly, this trend dominated the first part of the conference and a number of important considerations were raised for discussion during the afternoon. 

The highlights are as follows:

“Sea change” in flexible space attitudes, Simon D. Brown, Associate Director of CBRE, launched proceedings by discussing the “sea change” in attitudes towards flexible space in recent years. In Central London, take-up for office leases of less than 5,000 sq ft have halved since 2011 and flexible space has flourished in its place.Referring to a CBRE survey of corporate occupier clients, Brown noted that most are planning to add or increase their allocation of flexible space over the next 3 years and the majority feel it’s here to stay (only 8% think flexible space is a fad). 

“This is just the beginning — the flexible revolution is happening and it’s here to stay.”This is great news for the flexible space industry, but operators can’t afford to be complacent.“Both established landlords and existing operators are reacting,” warned Brown, citing growth in competition and new market entrants in particular from commercial property landlords.

Elaine Rossall, Head of Office Research at Cushman & Wakefield, continued this theme with a short yet powerful presentation on the growth of flexible space in the UK. 

“In the first five months of 2018 we’ve already seen half a million sq ft let [for flexible space] in Central London,” she said. Last year WeWork made headlines by becoming the second largest office operator in London, behind the government; yet in 2018 Rossall noted that so far WeWork has been “conspicuous by their absence”. In their place, IWG’s Spaces has made up for lost time in decisive fashion by “taking more space this year compared to the last 5 years put together.”Less than 4% of London office market And yet, despite the phenomenal growth of flexible space and WeWork’s impressive claim as one of London’s largest single office occupiers, in 2017.

Rossall’s research shows that flexible space still only accounts for 3.9% of Central London office stock.This poses a vast opportunity for flexible workspace operators — particularly as JLL recently made the eye-opening claim that flexible workspace could take over as much of 30% of corporate office portfolios by 2030 (although this claim was refuted as over-ambitious more than once during the conference Q&A sessions)

But there is also a significant threat to flexible space operators.Given that flexible workspace in London makes up less than 4% of the entire office market, that leaves 96% of potential competition in the form of commercial property landlords.

Dubbed the “sleeping giant” of flexible workspace, Rossall noted that landlords are awake to the opportunities and the demand, and they are now seriously considering their options. “Demand for flexible space is challenging commercial property landlords. Should they incorporate flexible space into their buildings or hold out for a corporate client?”Rossall noted that one way landlords are reacting to demand is to shorten lease lengths and offer more flexible terms, as it’s “an easier win to change lease lengths than to try and compete directly.” 

However, this is most likely a short-term fix that will soon evolve into a much wider flexible offering.“There will be a rise in landlord operators,” she added, noting that landlords are actively seeking solutions that works for everyone.“We expect to see a huge increase in joint ventures or management agreements, but landlords are in a position where they can pick and choose the operator they work with. This will present itself as either an opportunity or a threat depending on your business model and your experience.”