Flexible office operators remain optimistic

After the strongest demand ever recorded in the regional office market from the flexible office sector in 2019, demand has softened in 2020. This can be attributed to Covid-19 and the strong levels of expansion from the sector in recent years. There was 44,000 sq ft let by the sector in H1 2020 across three transactions. The largest deal being Hana leasing 27,000 sq ft at Windmill Green, Manchester. The sector has expanded exponentially in the regional market in the last three years with the highest recorded level of take-up from the sector being broken in consecutive years from 2017–2019. This culminated in 784,000 sq ft being let to the sector in 2019 resulting in 24 new centres opening in the regional market.

Since 2017, the majority of regional demand from flexible office operators has been concentrated in Birmingham and Manchester. Combined the markets account for 63% of take-up recorded across the regional market from the sector in this time period. This has been primarily driven by large lettings to operators; there have been nine lettings over 50,000 sq ft in this time period.

The initial impact of Covid-19 on the flexible office market has resulted in occupancy falling in centres while the lockdown restrictions were imposed. Workthere has reported that building occupancy is rising though and on average across the UK was 23% in July. Sentiment in the sector is positive, which was uncovered by Workthere’s July Flexible Office Sentiment Survey. The UK, in fact, had a hugely positive outlook for the sector on a global basis with 88% of respondents stating they were optimistic or very optimistic on the outlook of the sector in the next 12 months.

There has been much debate in the property press on whether there may be a rise in the adoption of a hub and spoke location model for corporate occupiers. This involves a large office (hub) and various smaller offices (spokes) in locations closer to employees' homes, which is further explained in the next section of the report. There has also been debate on whether this may impact the flexible office sector with there being a greater demand for flexible office space in suburban locations. This could potentially benefit both the regional office market and South East office market with flexible offices providing an opportunity for occupiers to adopt or trial this model without committing to a long-term lease.

Flex embraces innovation

The speed of response of serviced offices and coworking spaces to Covid-19 was testament to how flexible and adaptable they are. Flexible offices implemented safety features and new protocols in a matter of weeks. This had a clear positive effect, encouraging workers to return to the office in a safe manner. Now the emergency response has largely been dealt with, flexible offices can focus on innovating and adjusting to the new environment.

A number of flexible office operators revisited their business models and have started offering even more flexible membership packages to cater for the new environment. For example, WeWork is piloting a pay-as-you-go programme in New York where members can book workspaces by the hour. Convene has introduced a video meeting service that aims to recreate as much as possible the feel of attending a conference. This is only the start. There will be more innovation to come, and this will play to one of the key strengths of flexible offices: their ability to adapt and innovate.

Jess Alderson. Global Research, Workthere

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