The provision of flexible workspace goes hand in hand with the growth of SMEs and helps foster entrepreneurialism, writes John Duckworth, managing director UK & EMEA, The Instant Group.
At a time of significant economic uncertainty, and with the ongoing spectre of business rates threatening many firms and a dire need to encourage productivity in the market, co-working space offers firms agility and value.
The flexible workspace industry has seen annual double-digit growth for the past five years without overt political support.
In the recent Budget, chancellor Philip Hammond announced significant focus and funding to boost productivity through the targeting of worker efficiency.
This macro policy will act as a stimulus to more flexible working. But what about at the more targeted micro level?
Sadiq Khan’s draft London Plan, proposing the provision of this flexible workspace in commercial developments, is a very encouraging step.
It states: “Development proposals for new B1 business floor space greater than 2,500 sq m (gross external area) should consider the scope to provide a proportion of flexible workspace suitable for micro, small and medium sized enterprises.” This is a bold approach.
In some parts of the UK, we have already seen successful partnerships between co-working operators and the government – even moderate investment by local authorities has brought about significant return on income based on job creation and, ultimately, money invested back into the local economy.
We have also seen excellent work from some local councils, freeing up dormant local office space and releasing it to co-working operators from the surrounding community.
If central government was to encourage this behaviour, offering local authorities more opportunity to foster the SME community in their locality, then more space could become available.
The mayor of London’s new infrastructure vision is a nascent step towards this form of encouragement and innovation.
Landlords look to the future
However, while Khan’s proposal is designed to force the hand of developers of commercial space, it is clear that landlords are already looking at the provision of this type of space in their plans, moving away from standardisation and instead offering more agile short-term products for businesses.
This is driven by the way work is changing, which is driving a wider appetite for flexibility, agility and utilisation.
Landlords that don’t accommodate this will struggle, and businesses that can outsource this in a cost effective way will be the ultimate winners.
Offering space with shorter terms, and making it more bespoke, is probably going to cost less and make an asset more relevant, attractive and valuable in the future.
Even landlords with trophy assets are now enthusiastically eyeing the provision of flexible space on one floor or more.
The wider place-making effect of having a thriving, collaborative co-working space on site is obvious.
Such spaces bring a more diverse body of workers to the building, enliven the atmosphere and encourage cross-pollination of ideas, to say nothing of the robust short-term rental income from enthusiastic demand.
Growth in all areas
Across the UK, the number of flexible office centres tracked by Instant has risen to 5,320 over the last year, representing a growth of around 10%.
We also saw that new companies are entering the flexible office space industry.
Large players such as Regus, Bizspace, Maple and Orbit remain dominant, but strong demand has meant the number of small-scale and localised providers continue to grow, with over 2,500 providers now operating flexible office space as part of their portfolio.
The real growth is being driven by a newer area of the flexible office portfolio: co-working and hybrid-focused offices.
These cater to occupiers of all types and sizes, but are most often associated with either start-ups or freelancer occupiers, offering both co-working and private space. Supply has more than doubled in 2017 alone.
The majority of demand still comes from companies looking for flexible office space for one to four employees, though over 25% of demand now comes from occupiers looking for space for between five and 25 employees.
In terms of growth, head counts of between 50 and 99 are proving the big success story, seeing high levels of new interest, but overall figures do remain low in comparison.
Nowhere is this more prevalent than London, where enquires in this segment have grown by nearly 30% in 2017.
On the cusp of change
The mayor’s advisers have read the market well and recognise the potential to foster entrepreneurialism with the right blend of space and support.
This is already happening organically, but recognition from the policymakers at City Hall will do much to shake up the conventional real estate market as it slowly transitions towards new forms of customer demand.
Not all of this growth is going to come from co-working, but also from short-term leases with more flexible terms and other varieties of bespoke workspace that don’t come with a 10 year-lease.
This industry has taken giant steps in the last year alone and it feels like we are on the cusp of significant market change. In my years in the CRE market, having worked across the cities of Europe, I have never felt such a pervasive new sense of direction, and one that is consistently being discussed by landlords, clients, operators and investors.
The fact that London’s mayor has lent his voice to this discussion is compelling – it makes me think that Westminster will be next in recognising the potential behind a flexible approach to workspace and its power to drive innovation and productivity.
As the government casts around for new policies to support and accelerate these areas, the adoption of the mayor’s plans would seem to be a very positive step.
