By Jack Williamson, head of Workthere UK
Workthere’s latest Flexmark report asked operators that exact question and found that for the UK, the largest change to flexible office space in the next five years will be a growth in suburban hubs. This not only reflects the expectation of the growth in a more decentralised world of work, giving staff more choice and flexibility, but also underlines a growing focus from providers to diversify their portfolios. and break into areas away from city centres where they have not traditionally offered space. It is in these more suburban areas that operators expect enquiry levels to grow as more employers and employees embrace a culture of working near to home (WNH) for part of the week. Interestingly, we also saw a growth in suburban hubs rank top from operators on a global scale.
Ranked in second position, alongside a growth in regional hubs and the repurposing of retail assets to provide flexible offices, was online booking of space through a platform and management agreement lease structures. The latter, we have recently seen grow in popularity and, over the next couple of years, we expect that they could become the major model adopted by operators as they expand. In the UK, we have seen some providers such as Orega, Mindspace and X + Y, use management agreements long before Covid and this allowed them to better manage cashflow with fewer fixed costs such as rent and therefore better weather the challenges caused by the pandemic.
However, it is important to note that there is currently a wealth of supply and landlords are therefore more willing to entertain a management agreement, but at some point the vacancy rate will drop across key markets and, if demand remains strong, we could see a return to more traditional lease agreements where supply is tighter as operators compete with traditional occupiers. There is also the question of to what extent do management agreements impact valuations of office space? More transaction data will be required to underwrite this, which is currently the missing piece.
In terms of repurposing redundant or underutilised retail space into flexible offices, the opportunities are huge and it is therefore not surprising to see it in the dominant trends expected in the next five years. Co-working is now seen as a viable means to bring people back to the high street, as workers seek somewhere they can work locally, yet still benefit from the perks of an office; a social scene, good transport connections and an abundance of amenities.
What is surprising however, is that for UK operators, sustainability ranks in just fourth place. Given the increasing value and importance being placed on this area, we would have expected it to be higher. This lower position could be explained by the fact that much of the climate agenda is centred around 2030 as a target for Zero Carbon so it could be that operators thought that this was more of a long-term trend that would impact the market rather than something that would be more prominent in the next five years. We also have to remember that occupiers may take a different view regarding each of the changes listed, and we expect sustainability will be much higher on their list in the next five years.
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