COMMENT When it comes to flex space, the balance of power has slowly been shifting. The market is seeing record amounts of sub-let space, vacancy rates have already crept up in established developments, and there are more flex workspace options in the market than ever before. In-house CRE teams have never had as much choice. But what requirement does workspace need to fulfil now to match business strategy?
Agility is the key quality cited by every head of real estate Instant has surveyed over the past 12 months. To deliver true agility and therefore be responsive to change, portfolios will need to consist of multiple locations with exit dates balanced across the portfolio. This appetite for inbuilt agility will drive occupiers to ask for more choice from a wider supplier base.
Those suppliers that can’t or don’t want to deliver against more agile criteria will be left behind. A sector that has been predicated on long-term certainty needs to adapt to the business need for short-term adaptability.
These options are only going to increase, and 2021 could be a record-breaking year for expansion within the flexible workspace industry. Our forecasts point to potential growth of flexible workspace supply of over 21% in 2021, compared with 4% during the Covid-impacted 2020. So far only 14% of providers have indicated they have cancelled expansion plans, with a number already looking at new overseas markets to drive their continued growth.
Pharma goes flex
The past 12 months have seen a significant increase in demand for suburban and regional office space. The reality is that for many people, working from home simply isn’t working at all, and they have been taking large amounts of flex space in areas of the country which haven’t seen such demand before.
From a sectoral point of view, we have already seen demand coming from pharma companies, quite unsurprisingly, but also the vast number of businesses that exist symbiotically alongside them. But there has also been growth from what might be termed more traditional sectors for the office markets. Legal, for example, where the office is firmly embedded in the working culture and ethos of law firms, are now looking at flex.
The need to find office space of some kind during the pandemic has meant that many workers from these sectors have been acquiring space outside of existing CRE procurement channels. The bigger challenge now exists for the in-house CRE teams to better understand and quantify this additional demand for flex within their portfolio strategy.
Traditionally, the procurement process for self-delivery of space – from requirement to occupancy – is at least 12 to 18 months, a drawn-out approach that fails to meet the need for speed that the market requires. Flex operators and other third parties in the sector are offering clients complete workspace solutions, from procurement through to management. This offers clients agility and speed where the traditional dis-aggregated model is cumbersome and expensive by comparison.
Guiding light
The data is already pointing to a re-balance in the market, from city centre to a more diverse number of locations. We are seeing more business sectors occupying space in different ways. But for workspace market supply to really match this need for agility from clients, it will require a more fundamental shift from landlords and their advisers too.
Space will need to be provided on highly flexible terms, quality improved in secondary and tertiary markets, and landlords becoming accustomed to providing more services – or working with third parties that can. We are seeing clients asking for more options, and it is those that can respond rapidly by offering more and better choice that may actually benefit from an office market reborn.
In this newly “consumerised” market, the client becomes the star, the guiding light by which services and products need to be shaped. The CRE market is still some way from giving the customer the options they need to move their businesses forward. But with more choice out there, shaped by shifting demand and real competition, its reformation will be rapid and point the way to an exciting future over the next decade.
John Duckworth is managing director, UK and EMEA at The Instant Group
