Are banks starting to embrace flex office space?

April 3, 2023

By Richard Holberton Billy Hodges

Are banks starting to embrace flex office space

Financial sector occupiers – particularly banks – have historically been reluctant about using dedicated flex office space. Security, resilience and quality of space have often been presented as reasons for remaining in traditional space. But while the relationship may have started slowly, are there more recent indications that banks are starting to embrace flex?

CBRE’s recent European Flex Office report highlighted the sector’s continuing growth: we saw the number of transactions by end-users rose by over a third last year. This is part of a general rise in the popularity of flex space. In our 2022 European Office Occupier Sentiment Survey, the proportion of large occupiers for whom flex space comprised 11-50% of their portfolio rose from 13% (at the time of the survey) to an intended 57% in two years’ time. Operator take-up of flex space was also over a third higher in 2022 than 2021, and overall stock rose by 10%.

For transactions we were a part of in 2022, financial firms accounted for 21% of the transactions and 27% of the seats. Although it fell short of the 52% and 66% respectively for the technology sector, it still represented a growing appetite that is more consistent with wider trends.

Figure 1: Sector composition of CBRE flex activity, 2022

Source: CBRE Research

We have observed a number of changes that have contributed to this growth. Firstly, the banks are taking larger amounts of space and seats per transaction when compared to the broader market. Secondly, while banks are still mostly reluctant to do portfolio deals – in which multiple flex offices are acquired in one agreement or a package of transactions – more of them are taking a strategic approach to flex, treating it as an integral part of the transaction decision process. Finally, it also seems that banks now regard flex space as a preferred alternative to people working solely from home, and have experimented with on-demand space as a partial remedy for workforce fragmentation.

Despite the signs of continued growth, the current economic backdrop remains a limiting factor. Banks were considering flex for elements of their portfolios and challenging associated prejudices even prior to 2019.  However, the onset of Covid and the subsequent downturn have forced banks to refocus on their core portfolios – under-utilised space and expensive legacy lease obligations – making them more reluctant to take additional flex space until they have been able to dispose of surplus core space.

Despite this refocusing, we believe many of the perceived challenges around the quality of the product specific to banking clients are being increasingly solved by a competitive operator landscape. While some core banking functions – such as private banking, highly data-sensitive operations and those requiring high levels of on-site resilience – are typically restricted, increasingly knowledgeable operators will continue to push the boundaries as to what can and cannot be accommodated in flex space.

Overall, a combination of successful forays into the sector, improvements in product quality and a dose of pragmatism have changed the picture. More than ever, we expect banks to be considering flex space in all key real estate decisions and continuing to challenge flex providers to evolve and refine their space offerings to better meet operational needs.

Get in touch with our Flex team to help incorporate flex space into your strategy.