Co-working has been part of the UK property landscape for some time. However, demand for this kind of flexible office space has accelerated sharply in recent years. In 2017 it had jumped to 18% of overall take up in Central London, from an 8% share in 2016. It’s a trend that is now expanding beyond London and the South East to regional cities like Manchester and Birmingham.
Some landlords have been late to the party, seeing it as competition. Others are embracing the model themselves by creating their own distinctive, flexible workplace brands. CBRE’s recent research, ‘UK Landlords and Investors Embrace the Flexible Revolution’ highlights the growing acknowledgment amongst this group (92% of respondents) that flexible office space is on the brink of becoming mainstream in the UK office market. For investors this means addressing the barriers which previously held them out of this market; variable and uncertain revenue, difficulties of reconciling this cashflow risk with traditional valuation methodology, concern about asset liquidity and a paucity of experience in running flexible office space.
Now, the argument for providing flexible office space is becoming more compelling. The model opens a new part of the market for investors, it offers the kind of space that appeals to an additional category of occupiers; the flexible tenure model creates a better case to retain occupiers as they grow or contract, and it provides the opportunity to diversify office portfolios and at the same time reduce voids.
CBRE’s research highlights this shift in sentiment; 77% of survey participants confirmed they are considering some form of flexible office provision within the next 12 months. What remains to be determined is what form this participation will take. The market shorthand characterises the choices as own brand, known brand or a partnership model. Beyond this, investors are reflecting on whether a flexible office offer can work successfully in an existing asset or whether this new sub category demands buildings of specific character that can’t be found in the portfolio.
British Land launched its own flexible space brand ‘Storey’ in 2017. This operates inside the London portfolio. Regional developer, Bruntwoods offer a range of flexible options in various buildings including serviced offices and co working space. Many others are getting involved at various levels.
Now CBRE has launched Hana which, through Hana Team, provides private office suites to meet the needs of large corporate occupiers. This offers flexible space with the amenities, technology, design, and control over branding and culture that modern corporations need.
Each Hana facility will also feature two other integral offerings, Hana Meet and Hana Share. Hana Meet provides conference room and event space that can be rented on an hourly, daily or weekly basis. Hana Share provides traditional co-working space in which users share services, amenities and technology in a communal setting.
Hana can partner with institutional property investors who want to differentiate and enhance their assets by meeting the growing demand for flexible office space. Hana will design, build and operate the facilities and services, and will participate in the financial success of each Hana facility.
The industry rule of thumb for mixed office portfolios has been an allocation of between 10%-20% to flexible working. Office take up trends point towards continued expansion so that a greater proportion of space is likely to be devoted to these uses in the future. It’s likely flexible accommodation of some form will be included in all major developments in the future.
For occupiers, flexibility, efficiency and user experience lie at the heart of the real estate decision making. The supply side is responding by creating an experience based workplace. It’s a trend that the retail and hotel industries adopted several years ago. Conceptually experience can be achieved through a rich menu of integrated services and amenities, flexible lease terms, enhanced customer experience, placemaking, concierge services, shared collaborative spaces, improved technology provision and the integration and investment in the latest property technology.
In this field CBRE 360, an industry leading digital offering is already available. It aims to better connect occupiers to their buildings is one way that property managers and landlords are working to improve the customer experience.
Whichever course of action landlords decide is right for their buildings and portfolios, it is clear that flexible workspace is here to stay and that the traditional landlord and tenant relationship changing for good.