Flexible Space Solutions

We’re on the flex journey and the destination is growth

Written by Holly Bailey, Director, UK Flex at CBRE

October 25, 2023 4 Minute Read

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Our UK Flex team recently hosted an event with 70 of the key decision-makers in London’s flex market and one thing that became clear was that we are firmly in a time of significant change for the sector.

To date, the spotlight has been on market activity and its growth as the sector matures. It sometimes feels hard to define what flex truly is, and it can be up for debate, but in the context of this event we classified it as fitted pace, sub-three-year term, and mostly managed space.

So, with figures clearing showing an upward trajectory for flex, we posed the question to our delegates in the room: Can the sector continue to grow?

In short, yes. And there are several reasons why it can. From the few hours of discussion that took place, we unpacked how the power of data and true partnerships between landlords, operators, occupiers, and agents can unlock future growth for the sector.

One occupier confirmed at the event that they are mandated to consider flexible solutions as part of their programme, and in fact, when comparing the utilisation of their office spaces across Europe – their best-in-class Flex space in Paris had the highest attendance and engagement.

Occupiers want flexible access to shared building services and amenities, such as meeting space, overflow space, daycare and fitness facilities. Nearly two-fifths want the ability to structure their lease and manage costs based on the actual utilisation of space. This is especially true of tech companies, which are generally one of the most receptive sectors to long-term hybrid working arrangements for their employees.

And not only are occupiers creating demand, but they are also prompting a change of approach and acting as the bellwether of growth. Operators have responded to the demand, with CBRE’s figures showing take-up of over 500,000 sq ft this year in London from this group. This is the highest level of take-up since 2019, and actually, it was noted this could be higher – given the current difficulties of tracking Landlord-led flex space. I’ll come to the need for better data soon.

In tandem, the landlord community has in recent years added significant scale and quality to the market, and there are key players who are incredibly sophisticated in their product offering. 

There is directional evidence that having a proportion of flex space within major office schemes can have a positive impact on an office asset’s value when compared with 100% traditional space. Landlords are realising the incremental value of their remaining office space by offering a flexible solution within their building stack.

There is a real opportunity to attract tenants to the building with the potential for them to later expand into traditional space over the long-term. Furthermore, providing amenities such as overflow/on-demand meeting spaces is an appealing consideration for occupiers when securing ‘traditional’ space. Flex can become a natural part of the building’s ecosystem.

Operators are shifting towards an asset-light model that involves partnership and management agreements with property owners. Furthermore, landlords are exploring ways to provide flexible-space options directly to their tenants.

CBRE predicts that management agreements (or profit share transactions) will soon surpass the number of conventional leasehold transactions. These agreements provide landlords with both more control around how the flex centre is operated and delivered, as well as providing more visibility on how the site is performing.

Beyond the asset-light strategy, this structure allows for shared exposure between the operator and the landlord around capital expenditure - the making of a true partnership. 

A partnership-driven approach calls for collaboration – including at a data level, and a resounding number of the delegates agreed that greater transparency of building performance is required in order for our sector to grow.

Operators, landlords and agents need to harness the data they are sitting on collectively to show not only how valuable flex can be in a portfolio, but also to heighten the employee experience. There’s extensive opportunity to use this knowledge to target what people want out of a building – whether it’s the flex space alone, or also from a building and its amenities.

When all of that comes together, occupier take-up of flex can only continue to expand.

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