One of the things that is exciting (or perhaps bewildering) about the property is that new opportunities are emerging in the property market all the time.
One of the newer developments in property is the acceleration in the availability and use of what is known as flexible workspace. Here we will look at what flexible workspace is, what it means for the market, and what opportunities it might present.
What exactly is a flexible workspace?
Flexible workspace represents quite a shift change in the way commercial occupiers acquire and use commercial office space. Instead of leasing a fixed quantity of space on a long term basis (or even buying it) as has been usual in the past, flexible workspace offers occupiers the opportunity to just rent space in ‘bite sized’ pieces, such as by the month.
Flexible workspace has been around for some time now. Regus was a very early entrant to the market, although the more recently established WeWork is one of the best-known brand names. At the moment, however, the flexible workspace trend seems to be accelerating very briskly.
In 2019, before Covid took hold, advisers Instant Offices reported that flexible space made up 35% of transactions in London over the previous 12 months, and that the number of flex space centres in the UK had increased by 7% in just six months.
Looking ahead, Instant forecast flexible workspace supply growth of over 21% in 2021.
Covid is most likely prompting the flexible workspace concept to grow faster than it would have in any case. During Covid, more companies have found that home or remote working can actually work and work well. It has prompted some to consider that a kind of hybrid situation, where employees work part of the time from home and part of the time from the office, could work on a permanent basis. Rather than leasing office space long term flexible workspace could have a big role to play here.
Consultants Cushman & Wakefield say that the flexible workspace sector will play a key role in the post pandemic recovery.
What are the pros and cons?
The advantage of flexible workspace, for occupiers, is that there is no long term commitment. This can especially appeal to start-up and growing businesses.
Occupiers can rent as much space as they need, usually for an inclusive price.
Also appealing to occupiers is that there is no liability for maintenance and repairs as is usually the case with long term leases.
Another big attraction for some occupiers is that flexible workspace is sometimes co-working space too, where workers share the same physical space. So it can open up scope to collaborate with other businesses under the same roof.
Disadvantages of flexible workspace include that there is no guarantee that the space can be occupied in the long term. Space may actually be more expensive than leasing, although a saving can be made because less space is required. There might also be an image or credibility problem for some in operating from flexible or co-working space.
The rise of flexible workspace presents a number of challenges for everyone in the property sector:
For occupiers, the question will be whether or not to consider operating from flexible space including the practical and financial aspects of it. This will likely impact on what the long term take-up trends will be.
For investors, whether directly in property or in funds, there is the issue of how commercial space will endure as an investment in the future.
Landlords might find there is less demand for their traditional commercial property, or demand for different types of space. Some types or sizes of commercial space could become hard to let or even unlettable.
For agents who work in commercial property there is a challenge to understand the flexible market, and perhaps adapt their business model accordingly.
Opportunities in flexible workspace
So what opportunities might there be for landlords and investors in the flexible workspace market?
So far, flexible workspace has tended to be a ‘big city’ thing and dominated by big players.
JLL have forecast that up to 30 percent of corporate real estate portfolios could be co-working or flexible space by 2030, representing a seismic change within the market.
But like many other trends in property chances are it will filter down to smaller cities and towns in time.
Research by The Instant Group shows a rise in demand within the smaller, regional markets, with some towns seeing demand growth of well over 100% in Q2-Q3 2020 compared to 2019.
So there could be opportunities for property owners, landlords and investors in secondary or tertiary locations to set up flexible workspace operations to serve these markets.
Flexible workspace might be an attractive investment for many since the capital costs are not necessarily greater than traditional commercial investment. There may be opportunities to utilise commercial space which is unlettable to a single occupier, or repurpose redundant retail space, and thereby add value to it.
Flexible workspace also opens up the possibility of a rent-to-rent type opportunity (as the WeWork model) rather than buying real estate. Flexible workspace also offers landlords the opportunity to become involved in serviced accommodation. That is to provide in-house services and amenities such as infrastructure, concierge and secretarial services, cafes, gyms and so on and generate an additional income from their property that way.
Flexible workspace is very much a shift change in the market. It is also a disruptor and is likely to impact the way commercial property has operated for decades. However, like many changes in the property market, it may not mean any reduction in opportunity and indeed should create many new ones.