Flexible Workspace has contributed to 35 per cent of commercial property transactions over the past 12 months in London, despite only making up six per cent of total office supply.
The data appears in the latest UK market report from The Instant Group, the flexible workplace specialists who hold the largest data set in the industry.
There are now 6,075 flex space centres across the UK, having grown seven per cent over the last six months alone. Flex space consists of coworking, serviced offices, and hybrid centres that offer both private offices and shared working – in total it amounts to more than 85 million square feet of the UK office market.
“It has been a remarkable year for flex space as we start to see a proliferation of choice, with client demand forcing operators and landlords to aggressively evolve their models to differentiate and specialise,” explained John Duckworth, Managing Director for the Instant Group, UK and EMEA.
“We have also seen how the sub-5000 sq ft lease market is being eroded by the flex sector. Vacancy rates in this critical element of the conventional leased office market are on the rise as clients seek flex alternatives. The outcome is an inexorable rise of hybrid flex / lease solutions, with landlords now having to move to cater for additional flex demand that has been impacting the high-volume, transactional element of their market.”
According to The Instant Group analysis, there is now more sub-5000 sq ft of leased space available on the market than at any time since 2009 as client requirements look to flexible workspace alternatives. At the same time, demand for 25+ desk requirements for flex space has increased by 25 per cent in the Capital and 35 per cent throughout the rest of the UK.
“Demand for flex solutions for larger teams is coming from corporate clients and is eating into the traditional sub-10,000 square foot markets of conventional leased space for landlords,” explained John Duckworth.
“This demand from larger organisations is outpacing market supply across parts of the UK, particularly the secondary cities and the market will have to re-adjust to cater for this. We will see an evolution of the operator model and perhaps greater acceptance from landlords in the regions to work with suppliers of flex space on a management agreement basis.”
Despite the additional demand over the past 12 months and the greater market activity from both flex operators and landlords to increase supply, the market penetration of flexible workspace centres vs conventional space is still relatively small at just four per cent of total office supply.
This figure is slightly higher in London at six per cent but is much lower in the larger regional cities, with just four per cent in Manchester, three per cent in Leeds, three per cent in Cambridge and two per cent in Oxford. This is particularly surprising considering the strength of the start-up markets in these cities and general economic growth statistics.
“While we have seen strong growth and appetite for flex space for a number of years, the penetration or share of office stock operated in a flexible way is well below 5% across the UK,” explained John Duckworth. “In fact, even in some of the most mature markets, such as London, the penetration rate is just 6%.”
While supply growth could slow in the short term,client demand for flex space shows no signs ofslowing. With this strong client sentiment, the market will see a resurgence in new supply from 2021 onwards.
Duckworth adds: “We expect to see growth in secondary cities where supply is already tight but is dependent on new stock becoming available or providers of flexible space being willing to invest in locations outside of city centres.
“Of course, this would require an evolution of many operator business models. Over the next four years, our lowest outcome prediction sees the number of flex centres grow to more than 9,000. If the market can overcome the inevitable bumps in the road that we face over the next two years then we may see that number at close to 12,000.”
