The UK flexible workspace sector is facing its biggest challenge in COVID-19, but could play a key role in the recovery, according to Cushman & Wakefield’s new report: Coworking 2020: What’s Next on the Flexible Workspace Horizon?
The report reveals that flexible workspace could offer the answer for many UK occupiers facing an uncertain future by providing a multi-faceted, flexible solution to their safe return to the office in the short-medium term. It also predicts that demand for non-core city locations could increase as occupiers seek alternative locations in commuter towns or city suburbs.
Unsurprisingly, the COVID-19 pandemic has impacted both the number and volume of leasing transactions which are being signed by flexible workspace operators as they focus on the profitability of their existing portfolio and delay decisions relating to future growth.
Cushman & Wakefield also predicts significant growth in managed workspace which is more akin to taking a traditional lease but on flexible terms and offers a fully fitted space. Given the ease and autonomy for the occupier, coupled with low upfront capital, the report highlights this type of product as a key growth area in a post COVID-19 world.
Christopher Dunn, from Cushman & Wakefield’s UK Research & Insight team, said: “We see Managed Offices as an area of the market that will continue to grow in the medium to long-term, as occupiers are attracted by the opportunity to outsource their office requirements to specialist operators whilst spreading the cost of their office fit-out. New entrants to the market will range from “pure” managed solutions to landlord operators who want to add flexibility to their offering whilst maintaining some alignment with traditional leases.”
Central London
Flexible workspace accounted for 19% of take-up in Central London between January 2019 and June 2020. Take-up levels for H1 2020 reached just over 260,000 sq ft, compared to 1.2m sq ft the previous year, which was a record year for the sector.
This lack of take-up, combined with the delivery of newly built or comprehensively refurbished space, has led to an increase in supply levels across Central London, with 14.3 million sq ft available at the end of Q2 2020, equating to a vacancy rate of 5.12%.
At the end of H1 2020, flexible workspace accounted for 5.80% of total Central London office stock. Cushman & Wakefield forecasts that this could reach 6.13% by the end of 2020, depending on the opening of new centres where the building is still under construction or undergoing refurbishment.
Regional Outlook
The regional UK office markets saw continued growth from H1 2019 up until the first quarter of 2020 when the pandemic started to impact the UK real estate market.
In 2019, nearly 530,000 sq ft was acquired by flexible workspace operators, with Manchester and Birmingham cementing their status as the two most established markets outside London.
So far in 2020, activity has been significantly impacted by the ongoing pandemic, and take-up from flexible workspace operators has reached just under 30,000 sq ft, accounting for 4.2% of total take-up across the “Big Eight” regional cities.
The Future of Flex
The report also looks at how previous recessions have acted as a catalyst for growth in the flexible workspace sector and predicts that the current pandemic will drive further growth due to occupiers needs for increased flexibility, reduced capital investment and an enhanced customer experience.
Cushman & Wakefield’s recent Future of the Workplace report highlighted a possible shift to a Total Workplace Ecosystem balancing working from ‘the office, home and a network of third places’. As it stands, there are some challenges with the delivery of this model as historically, most operators have focused on major cities and urban hubs due to lower demand in suburban areas. However, Cushman & Wakefield predicts this could change as occupiers seek flexible workspace options in suburban locations, with an opportunity for landlords and operators to maximise latent value in non-core city assets.
The report predicts an increase in the number of landlords entering the sector and delivering their product, following the lead of the likes of British Land, Landsec, The Crown Estate and Bruntwood. It also anticipates a greater spectrum of products to be delivered under the flexible workspace umbrella, such as Managed and Cat A+ space.
Emma Swinnerton, EMEA Head of Flexible Leasing Solutions at Cushman & Wakefield, said: “Whilst we believe the long-term fundamentals of the flexible workspace sector are strong, COVID-19 is accelerating changes that we have been seeing in the last 12-18 months. In particular, we anticipate a move away from traditional lease arrangements between landlord’s and operators with these being replaced by partnership and/or self-delivery models more akin to the hospitality sector. As flexible workspace providers recover from a tough few months, we believe greater adoption of this risk sharing model together with increased occupier demand will continue to drive growth in the medium-long term.”