The Flexible Workspace Series
Flexible workspace: here for a long time, not just a good time …
Expected to reach 3.0 million square feet by the end of 2020 1 and to pump £12bn into the UK over the next decade2, flexible workspace has evolved to become a fundamental part of the real estate market in its own right and is here to stay.
A simple but effective concept that captured the zeitgeist of shifting corporate attitudes, the new wave of flexible workspace has created a working environment that promotes collaboration, innovation and a real sense of community where people can work hard and also relax, socialise and network all under the same roof.
Despite receiving some bad press recently, there is no denying that the increase in the supply of and demand for flexible workspace has driven real and tangible change in the way landlords let office space, how investors invest in the office market and, perhaps most significantly, around occupiers’ expectations about how their office real estate is consumed. Its growing popularity has meant that we are now seeing similar concepts make their way into the retail, leisure and hospitality industries as seen by the Selfridges Group management deal with operator Fora3 and emergence of co-working spaces in private members’ clubs such as Soho House and hotels such as The Hoxton.
However, like any newcomer into the real estate market, flexible workspace still has its challenges. This four part series looks at how the conventional office market is reacting to and what it can learn from the increasing demand for flexible workspace and what still gives it a competitive edge.
The on-demand economy continues to reshape occupier expectations, who are now no longer so willing to sign a lease without first ensuring a degree of flexibility4. By design, flexible workspace can cater for and accommodate an occupier’s changing needs and leasing requirements as companies grow, downsize or require flexible expansion space for short term projects. It is therefore no surprise that the elasticity of occupancy tenure and scale and the ease of entry and exit ‘the turn-key solution’ is what sets flexible workspace apart from the more conventional leasing models.
Flexibility and mobility remain a challenge for the conventional office market which has for so long relied upon certainty. We have already seen how the increasing demand for flexibility has led to a reduction in lease length5 and an increase in break options and group sharing provisions and we are now starting to see a push for shorter periods between the negotiation and completion of leases to rival the ‘plug and play’ models offered by flexible workspace operators and the emergence of hybrid flexible leasing models.
One example of this is the flex and core leasing model6, whereby an occupier takes space on a long-term lease with a traditional landlord for their core operations together with an agreement with a flexible workspace operator to accommodate volatility in headcount. Cost savings can be achieved through leveraging a discounted rent through the operator taking space, in addition to the occupier’s core space, and economies of scale on fit-out.
It is clear to see how this compromise model could work well in an economic down turn and something that landlords should seriously consider, as real estate agents Colliers predict that we are going to start seeing landlords and flexible workspace operators enter into deeper partnerships and the lines between what an operator offers and what a landlord will deliver as part of the building or portfolio amenities blur7.
The tide has changed and lease negotiations are for the present very much a two way process. A push for greater flexibility from occupiers at heads of terms stage therefore needs to be more warmly received by landlords in the conventional office market. Offering occupiers greater flexibility allows landlords not only to demonstrate a contemporary, if not forward thinking, attitude, but also supports what should be a shared ambition to nurture existing landlord and tenant relationships as well as create the opportunity to ignite new ones in what is increasingly becoming an occupiers market.
Watch this space … next week, the second part of The Flexible Workspace Series will look at the impact flexible workspace has had on the end user experience and discusses whether the customer experience model suits all landlords and occupiers.
1 Cecilia Amador, ‘Coworking is the new normal, and these stats prove it’, 10 May 2019
2 David Parsley, Property Week, ‘Flexible workspace to pump £12bn into UK over next decade’, 13 November 2019
3 Emma Stone, Property Week, ‘Selfridges bet on flexible workspace with Fora partnership’, 7 November 2019
4 Strutt & Parker, The Rising Tide of Flexibility in Commercial Property Q4 2017, https://www.struttandparker.com/knowledge-and-research/the-rising-tide-of-flexibility-in-commercial-property
5 (n 4)
6 Colliers International, The Flexible Workspace Outlook Report, APAC, June 2019, http://flexiblespace.colliers.com/
7 (n 6)