Historically, the conventional landlord-tenant model has been the driver of London’s commercial market, with the only previous alternative a collection of uninspiring serviced offices, generally involving blue carpet and unfriendly lighting. But the explosion of SMEs in the creative and tech sectors requiring agility with their dynamic business plans, coupled with corporates implementing flexible working policies, has caused a shift in demand towards design-led flexible office space that is as disruptive as the enterprises that seek it.
To accommodate this demand, flexible workspace operators have grown exponentially, with an uptake in excess of 130% since 2009 that currently accounts for around 11 million sq ft of occupied space in central London. This accounts for a market share of roughly 5% that is predicted to double by the end of 2020, and potentially reach 30% occupancy by 2030.
This activity is both underpinning the London market and forcing a major rethink among landlords as demand from both SMEs and corporate occupiers hinges ever more on flexibility, simplicity and minimal capital outlay. A change of IFRS16 regulations from January 2019 will mean any property liability over 12 months will sit on the P&L of a business, affecting both its valuation and cash flow.
As a response, British Land, Grosvenor and LandSec are all developing their own flexible workspace initiatives, and landlords are delivering fitted offices on shorter form leases that lower the barrier to entry for occupiers, reduce void periods and achieve higher ERVs.
Workspace as a service is becoming more prevalent, with the likes of Knotel, Powered by We (WeWork) and BESpoke all providing outsourced and fully fitted property solutions that enable companies to focus on running and growing their core business. Co-working is now an alluring prospect and often enhanced with many workplace benefits including cafés, gyms and wellness rooms.
The rise of co-working and flexible workspace has also brought good news for occupiers taking longer leases, with more choice than ever before, increased flexibility and reductions in initial capital outlay.
What the future looks like remains to be seen, but one thing is certain: flexible workspace is here to stay!