“Look at WeWork, and whether you agree with what they are doing or not, this is an operator that has deeper pockets than almost any institutional investor. Look at Devonshire Square. There is a £700m site that a serviced office leasee is taking and is going to develop. This is a fundamental shift from flexible office operators being a worst-case scenario if you can’t let a building to these guys competing with developers.”
That was Jonny Rosenblatt, fresh from selling his co-working business Headspace Group to BE Offices, at EG’s Offices & Workspace Summit (main picture).
Capacity for growth
There has been a seismic shift in the delivery of office space recently. For years there has been talk about the future of workspace being flexible, but now that chatter has turned into real action.
“I think developers have been extremely uninnovative,” said HB Reavis’s Radim Rimanek. “If you look at development for the past decade it has not fundamentally changed. We are now coming to the breaking point that if developers continue doing the same old stuff, there is a real chance they will become obsolete, marginalised, commoditised and cut out to some extent.”
That same old stuff is not building flexibility of space and of occupancy terms into buildings.
Occupiers just won’t take long, inflexible leases any more, said Steve Jude, chief executive of Citibase. He cited a quarterly survey that Citibase conducts involving 1,000 SMEs, which found that 72% would not take a commitment on space for more than three years.
And there is plenty of room for developers and operators alike to deliver the short-term, flexible space needed to meet the new demands of occupiers. According to Jon Gardiner, head of national office agency at Savills, co-working space currently accounts for just 4% of stock in central London meaning there is significant capacity for growth.
One of the key drivers for growth in the sector will be automation and the correlating requirement for office space to become increasingly humanised, according to transformation strategist Antony Slumbers.
He said: “All this business about ‘the robots are coming but they are not going to take our jobs’ is nonsense. They absolutely are going to take any work or task that is structured, repeated or predictable. The work we are going to do is going to be demonstrably human and because of that we will need different types of spaces. We will need spaces that catalyse human skills. No-one wants a boring row of grey desks because you won’t be sat at a desk doing your report – that is going to be automated – you will be there to do the creative things of design, empathy, social intelligence, so you will need much more creative space.
“The people that are going to win are the people that create great spaces that catalyse human skills.”
Are developers being cut out?
HB Reavis’s Rimanek said: “There is an increasing shift that is seeing occupiers driving developers out of the equation and it is now up to developers to keep up.”
He cited developments such as Derwent London’s White Collar Factor, EC1, Allied London’s XYZ building in Manchester and the Resolution-developed Alphabeta building, EC2, as well-considered buildings that had been developed from an occupier perspective.
Maxwell Shand, development director at Exemplar, said that while he thought that occupiers would look to cut out developers if they are not listening to them, he didn’t think it had to be a “them and us” culture.
“There is a role for developers and one of the big reasons for that is to do with time horizons. Creating real estate and bringing real estate forward is a very long term process and not all occupiers should, or can, work in that context,” he said
Rosenblatt countered that more developers were not producing the kind of space occupiers were now demanding because they did not have the expertise to create an opco-type environment. And that provided an opportunity for operators such at the Office Group, WeWork and others, which take more traditional leases, to be the bridge.
“If you are working closely with flexible operators then you can create a product that your tenant is going to enjoy and endure and you are future proofing it,” he said.
“To retain and get staff to come to your businesses you need to create flexible and engaging workplaces,” concluded Kier Property managing director Tom Gilman. “It is an absolute given. If we don’t do that we won’t be able to retain those people so the growth of flexible workspace is inevitable.”
COMMENT
Charlie Green, chief executive, the Office Group, said: “Serviced offices used to be a very expensive, short-term option for businesses. They would take them for satellite offices, short-term space, project space and then almost the day after they moved in they would be thinking about when they would be moving into their real office. But now, if you get the product and the pricing right, people will stay with you for the long term.
“People now understand that they can have that flexibility at an affordable price and they get a rich environment that is designed beautifully. This shift in user understanding that they can work in this way is a major part of the growth of flexible workspace. There has of course been some headline grabbing taking of space by operators, particularly WeWork. And there has been interest from traditional investors, that’s Blackstone with ourselves, Carlyle have invested £150m, British Land has launched Storey, and if you look at that trend of transactions you see that this asset class, which was never really understood, has started to become a bit more mature and less fragmented.
“When the funders start to understand that this has a solid platform and that they can lend against this asset class, then things start to change.”
To send feedback, e-mail Samantha.McClary@egi.co.uk or tweet @Samanthamcclary or @estatesgazette
