John Duckworth, Managing Director UK & EMEA at The Instant Group comments:
Office space is rapidly shifting to flex
In London we saw that nearly 35% of office deals involved operators of flex workspace this year – a further sign that our market is really driving the dynamics of the conventional office market. There is now more sub-5000 sq ft of leased space available than at any time since 2009 as demand switches to more agile models within the flex workspace sector.
By 2023, we expect that 12.5 percent of commercial real estate will be in flexible workspace. This is dependent on the ability of the flex workspace market to produce enough supply to match demand – this is going to take some more agreement and better understanding between landlords and operators. But client demand remains, and flex still only makes up just six per cent of total market share of the London office market and less than four per cent of total UK supply.
Corporates taking bigger bite out of flex
For the last five years, the size of flex requirements has increased as 25+ and 50+ desk deals have grown faster than the coworking membership element of the market with 45% of the FTSE 100 procuring space via InstantOffices.com over that time. These larger deals now make up a greater proportion of flex space demand than at any time previously and have increased significantly since the BREXIT vote of 2016 and the long period of uncertainty that has prevailed since.
The market is diversifying, not consolidating
Many commentators are envisaging consolidation in the market – after the rapid expansion of the last five years, but our data would suggest that this isn’t going to happen over the next 12 months.
As a further sign in the market that traditional landlords are realising the need to diversify, 83% of flex spaces in the UK are owned by smaller, niche operators, compared to just 17% which are operated by the bigger brand names
Are desk rates on the slide?
According to Instant’s Global Cities report, desk rates in London now sit at £844 pcm, that’s a 6% decrease YoY which has largely been caused by a supply increase of 17%. After a period of expansion, operators in the central office markets of London, NYC, LA, Hong Kong and Sydney are under intense competition having seen a rapid expansion in a very short period of time.
More franchising in the sector
The biggest statement in this area comes from Mark Dixon of IWG, who under the auspices of a franchise model, has sold off his Japanese business and will launch 30 new centres in the UK with partner companies. Industry sage, Dixon, recognises that the franchise model is a rapid way to scale his business but also make the most use of IWG’s vast back office operations.
Flex space is now a fast, agile route to market for companies of all sizes, and adoption of flex space will only increase as larger organisations work flex options into their processes. Commercial real estate has been procured with a conventional lease for more than a century and it is a large oil tanker to turn around. But with large, blue-chip clients such as GSK and EY predicting that 35 to 40 per cent of their portfolios will consist of flex options in the future, then there should be enough enterprise-level demand to drive future growth.