London: Flexible office space moves mainstream as landlords look to capitalise on occupier shift

The majority of UK landlords (92%) believe that flexible office space is on the brink of becoming mainstream, according to a new study; UK Landlords & Investors Embrace the Flexible Revolution in which CBRE, the world's leading real estate adviser, surveyed a large cross section of UK office landlords.

The survey suggests landlords are keen to monitor, but also to respond to the growth of flexible office space. Over three quarters (77%) of survey participants stated that they are currently considering some form of flexible provision, with 79% declaring an intention to act within the next 12 months.

The single largest benefit of offering flexible office space solutions as perceived by 39% of landlords, is the increased ability to retain occupiers as they grow and contract. This is followed by the ability to attract occupiers (22%) and reducing void in buildings (21%). The overriding attraction points to landlord’s desire to maintain income streams as occupier behaviour evolves.

The biggest barriers to offering flexible office space are seen as the lack of experience to run flexible office space (30%) as well as disruption to existing cashflows, valuations and asset liquidity (28%). On balance, investors think that co-working tenants will reduce the value of a building if they occupy more than 40% of its space.

Stephen Whitworth, senior director CBRE valuation south commented: “It is too simplistic to say that incorporating flexible office space into a building that leads to shorter leases and a variable income stream will be detrimental to value. Landlords have to respond to the structural shift in occupational demand.  Value is created by deriving the optimum level of income and at present the market is trying to determine the best model to achieve this.”

When deciding on which model to adopt, survey opinion was fairly evenly split between landlords offering their own brand of flexible space into a portfolio (38% in favour) and letting space to a known brand of provider (30% in favour), whilst a significant number, 19% signalled they would be happy to work in partnership with a flexible office space provider.

Joshua Beer, head of flexible workspace and CBRE 360 commented: “The finding that 38% would offer their own brand of flexible office space is strong, given that the principal perceived barrier to implementing flexible solutions was identified as lack of experience. Nevertheless, nearly half, (49%) were citing entering some sort of relationship with known brand providers, either by letting space or through a more formal partnership arrangement.“

As part of the survey, landlords were asked where they would consider providing flexible office space. Perhaps unsurprisingly London and the bigger cities were the most popular locations. However, nowhere was considered off limits with 29% stating that they would offer flexible office space in any UK city or town.

Emma Jackson, associate director, CBRE research: “These views align with CBRE’s 2018 Global Intentions Survey. Investors surveyed were clearly of the opinion that co-working operators will be most successful in core locations in gateway cities. This is understandable, since the core areas of gateway cities tend to be occupied by the highest value-adding service sector firms, often the type of occupier drawn to co-working. Our findings make it clear that the landlord community regard flexible occupation as a trend that is here to stay. The survey also suggests that landlords are keen to respond to these developments and to do so relatively soon. Aspirations are high, with many looking to introduce more sophisticated forms of flexible office space, with by far the largest increase for co-working space.”