Opinion

Team work is vital for the future of the flexible office sector – an initial reaction to COVID-19 and the flex space sector

Share

25/03/2020

By Cal Lee, global head of Workthere

We have spoken many times before about how the relationship between landlord, operator and customer in the office sector has become increasingly more pivotal to the success of a building or scheme. However, during the current situation, the need for a team effort in the flexible office sector has never been more pertinent. With all sides facing challenges and pressure as the situation continues to evolve, and many UK workers now working from home where possible, we will see impacts across the whole market.

Almost all flexible office providers have pivoted quickly to focus on their renewal strategy, making sure they work with their existing customers to help them through this period of uncertainty and for them to retain a level of contract occupancy (if not building occupancy). Equally we will also need to see landlords working with their operators, be it on a lease or management agreement, to help them through this time as well. However, the longer this continues,  the harder it becomes for the serviced sector and inevitably, like other sectors affected, it will require government support to keep it going as best possible.

In terms of lease agreements, many clients in flexible space are on 12 month+ contracts (Workthere’s average contract is 11.9 months) and, similar to an office contract for conventional space, it is not easy to cancel contracts unless there is a material breach by one of the parties. In many cases it will therefore be a question of timing as to whether they can simply cancel and acquire space again as and when they are ready.  However, we are already seeing highly incentivised rates for longer licence terms, as well as many providers dropping their minimum contract terms and offering clients rolling contracts, so despite the current situation, there are competitive deals to be done for companies needing space or renewing.

A further positive area for the sector is a growing spike in demand for swing space from companies who have had their move into a conventional space delayed or have a critical move-date and therefore need to find some form of office space as a contingency, and this is where flexible space is able to fill the gap.

The flex market is clearly exposed in the short-term to any market impacts such as what we are witnessing with COVID-19. It is a risk from companies are cancelling contracts as they go into survival mode. However, given its flexible nature, it is also able to react relatively quickly and adapt to make sure it meets the needs not only of existing customers, but also new ones. We have already seen activity with regards to a rise in demand for swing space, contingency space and workplace recovery space and,  as the situation evolves, we may see some acceleration in the importance of flexible space within a business’s real estate portfolio in the long term. In the short term, a real focus on team-work between landlord, operator and customer is vital for survival.