GREEN KINNEAR The Flexible Workspace Market Contents Contents 1. The flexible workspace market – p3 2. Types of flexible workspace – p5 3. Drivers of the flexible workspace market – p6 4. Operator income streams – p8 5. Opportunities for landlords – p9 6. Valuation – p11 7. The future of flexible workspace – p13 8. About GKRE – p16 The Collective Old Oak, NW10 2 The flexible workspace market The flexible The Space High Holborn, WC1 The flexible workspace market t is no exaggeration to say that there has been • Around two thirds of the flexible workspace Ia revolution in the workplace over the past run by the top operators is outside London, few years. Flexible workspace has moved from as shown in our table on page 7. the fringes of the market to centre stage with demand continuing to grow year on year. • The UK flexible workspace sector is UK flexible estimated to be worth £16bn using Britain is at the forefront of this revolution, traditional valuation methods, although workspace sector leading the way in offering a working taking into account additional income from environment that meets the needs of the services supplied by operators it has been estimated worth 21st century occupier. estimated it is worth close to £19bn. This could rise to £62bn by 2025.* Key flexible office market statistics: • With 52% of global office space either £16bn • The flexible workspace market in the UK vacant or unused, the expectation is that accounts for around 36% of the world the flexible workspace market will increase market. significantly– currently, it represents 8% of global office space.**JLL estimates that 30% • There are approximately 3,300 centres of office space will be co-working space by in the UK, with over 5m square feet in 2030. central London alone. “...the flexible workspace market in the UK * Report by Capital Economics Ltd **Report by Cushman & Wakefield accounts for around 36% of the world market” 3 The flexible workspace market The flexible CENTRE GROWTH AND WORKSTATION RATES UK CENTRE AND WORKSTATION GROWTH he sector’s explosive growth has seen the central TLondon market increase by 67% in the past 10 years. AVERAGE In the last year alone, the number of UK centres has grown NO. OF CENTRE WORKSTATION CITY WORKSTATION 11%, with rises of 16% in London and 17% in Newcastle CENTRES GROWTH RATE GROWTH (as shown in the table opposite). RATE Allied to this has been a strong increase in workstation rates, with prices rising on average by 11.4% over the past London 944 16% £613 9% 12 months across the UK. Leeds 61 2% £264 12% London is spearheading this, followed by key cities such Birmingham 59 13% £252 12% as Bristol, Leeds, Manchester, Birmingham, Edinburgh, Newcastle, Belfast, Milton Keynes, Brighton, Northampton, Edinburgh 53 13% £300 7% Oxford and Liverpool, all of which have shown double-digit growth since 2015 (with Liverpool showing an impressive Manchester 51 11% £271 9% 76%). Bristol 47 12% £266 -18% Research by the Business Centre Association (BCA) Glasgow 44 2% £238 -12% shows that nearly 40% of flexible workspace customers are classified as business service firms or those from the Nottingham 33 3% £218 6% creative industries. Sheffield 33 -3% £199 7% The strength of the sector has always been the diversity of Milton Keynes 26 4% £260 13% the occupier mix, ranging from financial and professional firms to the third sector. Belfast 22 0% £282 14% Aberdeen 21 5% £405 -15% Newcastle 21 17% £223 -21% Growth in Liverpool 20 11% £247 76% workstation rate Brighton 17 6% £432 16% in Liverpool Northampton 16 23% £251 11% Cardiff 13 0% £256 -1% 76% Oxford 12 0% £295 11% Table information supplied by The Instant Group as at 2016 4 Types of flexible workspace of flexible Types The Boutique Workplace Company Golden Square, W1 Types of flexible workspace SERVICED OFFICE VIRTUAL OFFICES CO-WORKING MANAGED SPACE WHAT’S IN A NAME? This is the original, traditional The customer is provided (INCLUDING CLUB offering. Occupiers take a with a telephone number MEMBERSHIPS) This offers occupiers fitted In reality, the lines are blurred out workspace complete between co-working and private office or fixed desk and business address in This is a more recent with furniture, fittings, IT serviced offices because with telephone and Wi-Fi order to give the impression variation and tends to be and facilities management. many operators offer an connection plus access to that they have a presence run on a membership basis. Occupiers get the best of element of both in the same facilities such as meeting in a particular area or city. Members pay a monthly fee both worlds: tailor made building. rooms and breakout areas. Services provided often for desk space (open plan Occupiers pay a fixed sum include access to meeting space plus the flexibility of or private space), meeting a serviced office but without The term co-working is per room or desk with rooms, post forwarding rooms, breakout areas, and additional services generally and message taking. This paying the extra costs of most usually applied to Wi-Fi, and have opportunities a building receptionist or space that offers a modern, charged separately. Contract suits start-ups and overseas to network with fellow terms tend to be from three businesses that require a add-on facilities. Managed shared working environment, co-workers. Co-working workspace can suit occupiers including collaboration to 12 months. Occupiers local presence. was initially popular with were initially entrepreneurs who have already been in between occupiers and freelancers and start-ups serviced offices or are looking networking opportunities and SMEs looking for an and is now also used by office away from home and for a flexible all inclusive between workers from corporates of all sizes. In alternative to traditional different organisations. now include larger corporates addition, companies such and established companies space. Size requirements for There are though some pure as Barclays, Vodafone and managed space vary but it co-working operators who that require flexibility and Deloitte have created their overflow or project space. tends to suit requirements of only offer open plan flexible own co-working space for 2,000 sq ft upwards. co-working space. staff and clients. 5 Drivers of the flexible workspace market of the flexible Drivers Office Space in Town Waterloo, SE1 Drivers of the flexible workspace market he industry sprang up as a result of operators challenging the traditional lease model offered to tenants. Tenants took to this new flexible model Tas it did not tie them into long-term conventional leases and the financial commitments these involved. The original serviced offices were, and continue to be, attractive to occupiers for several reasons, including: FINANCIAL RISKS LOW SET UP COSTS PLUG AND PLAY PAY-AS-YOU GO Occupiers are not required to make This makes serviced offices The legal process for taking space in Occupiers pay a fixed amount per a long-term financial commitment particularly attractive to start-ups. a serviced office is infinitely easier desk or room, with extras such as by entering into a lease for a fixed There is no requirement to spend and quicker than entering into a lease. meeting room hire, furniture and number of years. As a result, large amounts on rent deposits, legal Occupiers can move in within days or printing services paid for separately. occupiers can grow or contract as expenses, or fit out and infrastructure even hours. their business needs change. costs such as telephone systems, printers, etc. “The industry sprang up as a result of operators challenging the traditional lease model offered to tenants” 6 Drivers of the flexible workspace market of the flexible Drivers here are now new, more powerful drivers that makes flexible working UK’S LARGEST OPERATORS (BY SQ FT) Teven more attractive: LONDON/ DIGITAL REVOLUTION NO. OF SQ FT REGIONAL OPERATOR This has transformed the way people work. Millennials are now the largest CENTRES (’000s) CENTRE section of the workforce and Deloitte estimates that by 2025 they will make RATIO (%) up 75% of the global workforce. They demand to work in a different a way. They see their workplace as a destination, and more than a place to work. It Basepoint Business Centres 31 1,000 5/95 needs to be an enticing mixed-use environment, offering space to relax and BE Offices 17 850 70/30 collaborate, as well as work. Employers realise that a key to attracting and keeping staff is to give them the ‘club’ like atmosphere they expect. Bizspace 95 5,800 5/95 Bruntwood 13 170 0/100 NEW BUSINESS PRACTICES Businesses recognise that the flexibility offered by new technology means Beaumont Business Centres 6 180 100/0 they can look at property resources in a different way. With employees Citibase 36 630 20/80 spending more time working on the road or at home, there is no need for a fixed desk policy. Companies across a range of sectors, including professional Clarendon/Reflex 31 175 70/30 services firms, are abandoning the traditional office model in favour of space ECC 6 140 10/90 that offers more flexibility and a collaborative environment. Flexspace 58 2,530 2/98 SMALL BUSINESS EXPLOSION Halkin 4 200 75/25 One of the by-products of the technological revolution is the doors it i2 Office/Landmark Plc 36 995 70/30 has opened for start-ups. The internet offers a level playing field for entrepreneurs and has cut down barriers to entry in many sectors. As a Lenta Business Centres 12 200 80/20 result, the UK has become a country of SMEs.