Around 15% of recent take-up can be attributed to the new wave of flexible space/co-working providers which immediately seek to re-let space on the open market. Accordingly, the headline take-up figures are misleading. In fact, our analysis of the active flexible space providers in London indicates that there may be as much as 4.6m sq ft of ‘let’ space which is actually vacant and being re-marketed.
Bearing this in mind, it is even more remarkable that the underlying ‘real’ market is performing so well. Even if you add back the flexible availability, the overall vacancy rate remains below the 15-year average and has done since 2011. A continued dearth of supply of new and refurbished space has contributed to these relatively low levels of vacancy, and we should get a better feel for the market’s direction of travel this year as a further 2m sq ft of flexible space is set to come on stream.
Overall, the London office market appears in remarkably good shape considering the strong headwinds the UK economy is experiencing. However, despite new supply issues, it remains delicately balanced with any contraction in demand likely to have progressive ramifications for re-letting of conventional office space and the occupancy levels across London’s operational flex office centres. The latter has benefitted from the climate of uncertainty and occupier caution about signing up for longer commitments and reluctance to commit extra capital to real estate functions.
The gap between co-working and a flexible, managed office offering is narrowing steadily, with REITS and funds alike not just waking up to competition from flex, but actively seeking to counter, be it with vehicles of their own or a quantum shift in attitudes to ‘flexible leasing’ strategies. ‘Sticky tenants’ are invaluable to landlords seeking to minimise voids and recycle space successfully. 2019 may not be a year of reckoning for the sector but it is likely to have an irreversible impact upon leasing strategies for years to come.