LISTEN The integration of flexible workspace into commercial assets provides not only a financial premium for landlords, but additional value for other tenants and users of a building, according to a recent report from flexible workspace operator Spacemade.
For the latest EG Property Podcast, we sat down with Spacemade co-founder Jonny Rosenblatt to discuss the company’s report, The Flex Premium, together with Emma Swinnerton, international partner and head of flexible workspace for EMEA at Cushman & Wakefield, and Simon Rowley, director of office leasing and flexible leasing at GPE.
Based on responses from an array of different stakeholders – developers, asset managers, building owners and agents – the report’s key findings suggest that incorporating flexible office provision into a building can have a positive knock-on effect on the rents paid by other tenants.
Amenity value
“According to agents and building owners, more than three-quarters of tenants are willing to pay more for flex space in a building,” Rosenblatt says. “And what we are starting to see is that incorporating flex workspace into office assets increases the overall rental income on average by about 20 to 25%. Across our surveyed building owners, two-thirds started to see overall rental increases once their asset had adopted flex space. And two-thirds of agents said that a building incorporating flex space tended to let for a premium compared with a traditional leased building.”
Rosenblatt believes it is important to note that the report demonstrates that flexible office space delivers “not just a financial benefit, but a wider benefit” to building owners and users. “The amenity that flex space can deliver, the hospitality element that we are really fixated on, those pieces really start to drive the value of incorporating flex space,” he says.
“That also enhances the sense of community, and that desire to get to the office. All asset managers, owners and developers responded that the incorporation of flex space adds a non-financial benefit and offers more value to employees than traditional office space, with half also responding that letting the non-flex element of the building becomes easier after flex space is incorporated. This is the real value, as we see it, to the office market.”
Growing demand
That fits with Swinnerton’s experiences of the flexible workspace sector, where occupiers are looking for “more than just bricks and mortar”, and are driven by the availability of additional services and the importance of networking and community.
“At Cushman & Wakefield, we advise a lot of landlords and investors on their flexible workspace strategies,” Swinnerton says. “We are sitting alongside a number of clients at the moment who are looking at bringing flex into their buildings. I think there will come a stage where it almost becomes a necessity to have that amenity in these buildings, and a number of occupier clients are actually demanding that. So, when they are touring the traditional space, one of the questions they are asking the landlord is: what flex are you having in the building? What operator are you bringing in? And how does that play into the wider amenity space?”
According to Rowley, GPE’s ambition is to grow its flexible workspace to 1m sq ft in the next five years, “about 40% of our overall portfolio”. He adds: “We are really leaning into this swathe of demand. But without question there is a bifurcation in London between the best and the rest. You’ve got to earn the commute. It’s got to be worth coming in to. And that means customers are looking for terraces and the highest ESG credentials, but they also want this flexibility and amenity, which is why the flexible workspace provision is such an interesting and burgeoning part of the market.”
Crest of a wave
Rosenblatt reports “record enquiry levels” at Spacemade month-on-month for the past six months, and feels that the flexible office sector is currently riding the “crest of a wave” – although economic uncertainty and changing ways of working are having an impact.
“In my view, and in the view of our team, the only currency that really matters now in commercial real estate is flexibility,” he says. “One thing we have noticed in 2023 in comparison to 2022, although there is a much higher number of enquiries, the average enquiry size is slightly smaller.
“People are being more cautious with their approach, and the patterns of working behaviour have become pretty ensconced in most businesses now. Increasingly, we are seeing bigger companies taking access to our space but a smaller footprint for their office. And then, as and when they need to bring people in, they are renting space on demand.
“To us, that makes perfect sense, because why would you pay for a commodity that, fundamentally, you are not going to use 40% of the time? It’s about using the space when you need it. So we have seen big spikes in demand, but a slightly smaller ticket size, which has been a net positive for us – but it means you have to work harder for some of these deals.”
To send feedback, e-mail jess.harrold@eg.co.uk or tweet @jessharrold or @EGPropertyNews
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