COWORKING 2019 THE UK FLEXIBLE EVOLUTION CONTINUES
A RESEARCH & INSIGHT REPORT
CONTENTS
INTRODUCTION 01
CENTRAL LONDON COWORKING STATS 03
REGIONAL CITIES COWORKING STATS 11
COWORKING: LANDLORD REACTION 15
COWORKING: WHAT DO OCCUPIERS WANT? 19
MYTHBUSTERS 21
CONCLUSION & OUTLOOK 23
RESEARCH CONTACT DETAILS 25 1 | COWORKING 2019
INTRODUCTION
Our last report, ‘Coworking 2018: Today, we can look back on two generally positive years for the UK office market, despite Evolving the Flexible Workplace’, the political headwinds. This report aims to was released at a time when explore how the flexible workspace trend has confidence in the UK office market evolved since the end of 2017 and looks to the was wavering in the wake of the EU future for what we can expect from a sector that has continued to dominate headlines. referendum, with uncertainty expected to impact occupier and investor We look at Central London in detail, as well as exploring key regional cities to take stock of sentiment significantly. how the UK flexible space market is developing.
FIGURE 1: DEFINITIONS
Whilst the term ‘coworking’ might generate the most headlines, there is considerably more depth to the wider flexible workspace market. Below we have set out the basic characteristics of the three types of flexible workspace currently in the market.
COWORKING SERVICED OFFICES MANAGED OFFICES
Fixed monthly fee for Fixed price per desk/per office A hybrid offer for customers unlimited access on a first for an ‘all inclusive’ offer who want their own space but come, first served basis don’t want the commitment Includes reception services, associated with managing it More limited access on internet access, refreshments, a pay as you go basis meeting rooms (may The fit-out and other services be chargeable) can be offered by the landlord Includes internet access, or third party provider refreshments, meeting rooms Other services may (may be chargeable) and be provided for an a curated calendar of events additional charge
3 | COWORKING 2019
CENTRAL LONDON COWORKING
FIGURE 2: CENTRAL LONDON OFFICE TAKE-UP BY SECTOR JANUARY 2018 – JUNE 2019
Flexible Space 3% 3% Tech 4% 18% 5% Banking & Finance
5% Government, Public & Associations
Professional Services 8% 16% Media Retail & Leisure
11% Legal
Manufacturing & Energy 15% 12% Other
Insurance
Source: Cushman & Wakefield Research
Since the publication of our last report in 2018, flexible workspace operators have accounted for the largest proportion of take-up in Central London (18%). This shows 18% OF TAKE-UP how the flexible workspace industry has SINCE JANUARY 2018 WAS BY become a vitally important component of FLEXIBLE SPACE OPERATORS the Central London office market. Whilst 2017 remains the peak year for leasing activity from flexible workspace providers, there has been continued strong take-up including WeWork’s recent 290,000 sq ft acquisition at 30 Churchill Place in Canary Wharf. CUSHMANWAKEFIELD.COM | 4
FIGURE 3: FLEXIBLE WORKSPACE TAKE-UP IN CENTRAL LONDON 2009 - 2019 H1 S 3,000,000 L A E 63 D S L
2,500,000 A E 77 D 2,000,000 S L S L A A E S E L A S
1,500,000 41 D E L 40 D A E 51 D S L Take-up (sq ft) 31 D
1,000,000 A S E L A S S E L L S 32 D A A L E E A
500,000 20 D E 13 D 14 D D 8
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 H1 2019
Source: Cushman & Wakefield Research
Take-up by flexible workspace operators in 2018 reached over two million sq ft for the second consecutive year, although volumes were 20% below 2017 levels. Despite this 20% TAKE-UP decline in take-up, there was a greater number BY FLEXIBLE WORKSPACE of transactions by flexible workspace operators OPERATORS IN 2018 WAS 20% in 2018, meaning that the average transaction BELOW VOLUMES SEEN IN 2017 size fell from 39,560 sq ft in 2017 to 26,010 sq ft in 2018. 2019 has started strongly, with over 1.2 million sq ft let to flexible workspace operators in H1 across 40 transactions. If letting activity progresses at the same rate for the remainder of 2019, flexible workspace take-up could well exceed two million sq ft for a third successive year. 5 | COWORKING 2019
FIGURE 4: AVERAGE SIZE OF FLEXIBLE WORKSPACE TRANSACTIONS IN CENTRAL LONDON 2009 - 2019 H1
45,000
40,000
35,000
30,000
25,000
20,000
15,000
Average Deal Size (sq ft) 10,000
5,000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 H1
Source: Cushman & Wakefield Research
One reason that the average transaction entering the market with a different business size fell between 2017 and 2018 was that model, as can be seen in figure 5. Knotel, who WeWork, the most acquisitive operator, had not acquired space when we wrote our took an average of 54,374 sq ft per transaction previous report, took an average of 13,103 sq in the last eighteen months, compared to an ft per transaction in the last eighteen months. average of 68,894 sq ft in the last ten years. This is a significantly smaller space-take than Another reason for the overall decline in other more established operators but reflects a average transaction size was new entrants different approach to the flexible office market. CUSHMANWAKEFIELD.COM | 6
FIGURE 5: FLEXIBLE WORKSPACE OPERATORS AVERAGE DEAL SIZE 2009 - 2019 H1
80,000
70,000
60,000
50,000
40,000 Sq ft
30,000
20,000
10,000
0 WeWork TOG i2 O ce Spaces LEO Knotel
2009-2018 Average Space-Take 2018 & 2019 H1 Average Space-Take
Source: Cushman & Wakefield Research
30,227SQ FT AVERAGE TRANSACTION SIZE FOR FLEXIBLE WORKSPACE OPERATORS IN 2019 H1 7 | COWORKING 2019
FIGURE 6: FLEXIBLE WORKSPACE TAKE-UP IN CENTRAL LONDON BY SUBMARKET BETWEEN JANUARY 2018 - JUNE 2019
800,000
700,000
600,000
500,000
400,000 Sq ft
300,000
200,000
100,000
0 Soho Euston Mayfair Victoria Midtown Fitzrovia St James St City Core White City White Southbank Shoreditch Kensington Clerkenwell Paddington Bloomsbury King’s Cross King’s Canary Wharf Hammersmith Covent Garden Covent North Oxford St North Oxford Battersea & Nine Elms Battersea Aldgate & Whitechapel Aldgate
Source: Cushman & Wakefield Research
As can be seen in figure 6, the City Core has been the most active submarket since January 2018, with a total of 27 flexible workspace City Core has been the transactions totalling 691,570 sq ft taking most active submarket for place. Canary Wharf was boosted by WeWork’s flexible workspace take-up deal at 30 Churchill Place, which accounted for nearly 290,000 sq ft. Midtown was the since January 2018. next most active with 13 flexible workspace transactions totalling 394,508 sq ft. CUSHMANWAKEFIELD.COM | 8
FIGURE 7: FLEXIBLE WORKSPACE TAKE-UP IN CENTRAL LONDON BY SUBMARKET (AS A PERCENTAGE OF SUBMARKET STOCK) JANUARY 2018 - JUNE 2019
8
7
6
5
4
3
2
2018-2019 H1 FWS Take-up as % of Stock 1
0 Soho Euston Mayfair Victoria Midtown Fitzrovia St James St City Core White City White Shoreditch Kensington Clerkenwell South Bank Paddington Bloomsbury King’s Cross King’s Canary Wharf Hammersmith Covent Garden Covent North Oxford St North Oxford Battersea & Nine Elms Battersea Aldgate & Whitechapel Aldgate
Source: Cushman & Wakefield Research
Figure 7 shows the same take-up data but as a percentage of the total office stock for each submarket. This method shows very different Fitzrovia was the most trends, with Fitzrovia attracting significantly active submarket for flexible better activity than the other submarkets, workspace take-up when where flexible workspace take-up accounted for 7.3% of office stock since January 2018. weighted by total office stock. Figure 7 also shows the comparatively strong performance of certain fringe submarkets such as Paddington, Battersea & Nine Elms and White City. 9 | COWORKING 2019
FIGURE 8: FLEXIBLE WORKSPACE AS A PERCENTAGE OF CENTRAL LONDON STOCK
14,000,000 6
4.80% 12,000,000 k
5 c o t s
l
10,000,000 a t o
4 t
f o 8,000,000
3 (%) Sq ft g e
2.24% a
6,000,000 t n e c
2 r 1.51% e
4,000,000 P
1 2,000,000
0 0 2007 2012 2019 H1
Total flexible workplace stock Flexible workplaces as a percentage of total stock
Source: Cushman & Wakefield Research
The continued leasing activity from flexible Our previous report, Coworking 2018: The workspace operators has increased the overall Flexible Workplace Evolves, suggested that stock of flexible workspace by 16%, with 12.95 flexible workspace would account for 5.5% million sq ft in operation at the end of H1 2019. of the Central London office market by 2022, This meant that the proportion of flexible space but it would appear that this threshold will be compared to the total Central London office reached much earlier. market increased to 4.80%. This only includes flexible workspace that is currently operating, meaning that operators who have a future pipeline of spaces will increase this proportion further. At the time of writing, the proportion of total stock would increase to at least 5.5% by the end of 2019. THE FLEXIBLE WORKSPACE SECTOR WILL ACCOUNT FOR AT LEAST
OF TOTAL 5.5% OFFICE STOCK IN CENTRAL LONDON BY THE END OF 2019 11 | COWORKING 2019
REGIONAL CITIES COWORKING STATS
FIGURE 9: ANNUAL FLEXIBLE WORKSPACE TAKE-UP IN THE REGIONS
450,000 8
400,000 7 e-up
350,000 k 6 a T
f o
300,000 %
5 s 250,000 a 4 200,000
Take-up (sq ft) 3 150,000
2 100,000 Flexible Workspace 50,000 1
0 0 2013 2014 2015 2016 2017 2018
Birmingham Bristol Cardi Edinburgh Glasgow
Flexible Workspace Leeds Manchester Newcastle as % of total take-up
Source: Cushman & Wakefield Research
As the flexible workspace market In the last five years, high-skilled outsourcing becomes more crowded, where do the has been the main source of jobs and business opportunities lie? growth in the UK regions: Take-up of traditional office space by flexible • Back office functions are being workspace providers has grown significantly outsourced to small, highly skilled in the last few years. Almost 800,000 sq ft of and tech-orientated specialists new space across the major regional markets • Demand for consultants is growing as was acquired by flexible operators in 2017 and companies look externally for help to 2018, compared to just 100,000 sq ft in 2016. transform their business in a digital world This trend is set to continue, driven by an evolution in both working practices and growth sectors across the UK. CUSHMANWAKEFIELD.COM | 12
FIGURE 10: MICRO AND SMALL BUSINESS COUNTS IN THE UK
Micro (0 to 9) Small (10 to 49) Business Support Services Consultancy Computer Consultancy
Engineering General Scientific Activites Accountancy
Real Estates Computer Programming Legal
0 1,000 2,000 0 50 100 No. of Businesses
First Second Third The Rest
Source: NOMIS/Cushman & Wakefield Research
Figure 10 shows the change in the number However, other cities have failed to attract of micro and small businesses in the UK; those significant commitments from flexible functions which would traditionally have been office providers. paid for and housed as ancillary operations are no longer being resourced in-house. So why have some cities attracted a higher proportion of flexible providers than others? However, it is important to note that the growth of flexible working has not been Our research shows that take-up by flexible uniform across the UK. Some areas have workspace providers is focused on those proved more successful at attracting flexible areas providing the highest volume of quality workspace providers than others. grade A space; those areas with a tight pipeline of new space will struggle to attract flexible Birmingham is leading the pack and is likely workspace providers. to see an increase in 2019 as a number of particularly large lettings to WeWork enter The relationship between flexible workspace the figures. take-up and supply is shown in Figure 11. 13 | COWORKING 2019
FIGURE 11: FLEXIBLE WORKSPACE MARKET SHARE VS NEW GRADE A VACANCY RATE
18 3.0 8 1
16 0 8 2 1
0 2.5 4 2 Q 14 (%) ,
12 2.0 e t a r
y
10 c n
1.5 a c a
8 v
d e h
6 1.0 s i b r u f
4 e R
0.5 / w Share of total take-up (%) 2017 to 2 e N
0 0.0 l r s e h w l o m e i d g t t t o a d e r s s s r i h g u e a e r s g c L b h B a C a n l n i c w i n G e d m a r N E i M B
Flexible market share New/Refurbished vacancy rate
Source: Cushman & Wakefield Research
In the short-term, there is likely to be little In those markets with very limited space change to these trends. The development in the pipeline, there are opportunities for pipeline of speculative office space in the commercial developers to lead the market majority of the UK’s cities remains in delivering speculative schemes to address particularly thin. both an undersupply of traditional space, but also a lack of opportunity for the Acquiring suitable stock will be a challenge, growth of the flexible sector. particularly at a time when off-plan pre-lets are removing space from future supply at a growing pace. However, in those markets where large, quality buildings can be brought to market, the flexible offering is likely to flourish. CUSHMANWAKEFIELD.COM | 14
800,OOOSQ FT NEW FLEXIBLE WORKSPACE ACQUIRED IN REGIONAL CITIES BETWEEN 2017 AND 2018 15 | COWORKING 2019
COWORKING: LANDLORD REACTION
In our last report in 2018, we identified landlords reacting to the changes in the flexible workspace landscape; with a shift away from the traditional dynamic of landlords simply leasing space to flexible workspace operators on long leases. At the time, many of these new ventures were still in their relative infancy, but there have been a number of developments since. Landlords have several options if they want to enter the flexible workspace market.
THEY CAN BUILD THEIR OWN FLEXIBLE BUILD 1 WORKSPACE PRODUCT FROM SCRATCH
THEY CAN BUY A FLEXIBLE WORKSPACE BUY 2 OPERATOR AND INCORPORATE THE PRODUCT INTO THEIR PORTFOLIO
THEY CAN PARTNER WITH A FLEXIBLE PARTNER 3 WORKSPACE OPERATOR OR THIRD PARTY UNDER A MANAGEMENT AGREEMENT
THEY CAN LEASE SPACE TO A FLEXIBLE LEASE 4 WORKSPACE PROVIDER WITHIN A BUILDING OR THEIR WIDER PORTFOLIO CUSHMANWAKEFIELD.COM | 16
Landlord quotes on coworking:
We are trying to create a balance LANDLORD FLEX OPERATION between flexible space and traditional space on our estate.
We have let space to a flexible provider in the past, but our focus is on our own brand now. 17 | COWORKING 2019
GREAT PORTLAND ESTATES BRITISH LAND
Great Portland Estates are now operating over British Land have continued to expand their 100,000 sq ft of coworking or flexible space, Storey product across Central London, which accounting for nearly 5% of their portfolio. originally launched in 2017. By the end of 2019, With over 130,000 sq ft of additional flexible Storey should be operating across 316,000 sq ft. space being appraised, this proportion could British Land have also launched Storey Club, rise to over 10%. which will provide additional space for existing Storey members on a completely flexible basis.
HB REAVIS THE CROWN ESTATE
HB Reavis have now opened their first The Crown Estate have also entered the HubHub location at 20 Farringdon Street, market with their first fully flexible space at with 34,000 sq ft of flexible space located One Heddon Street. The new space offers across four floors. The space targets 350 desks with a range of membership freelancers, start-up, scale-ups or established options. There is access to shared amenities companies, and members can take fixed such as meeting rooms, concierge services desks or private offices. HubHub offer and a private roof terrace. One Heddon Street networking events, business support and also has a strong focus on the wellbeing of access to collaborators, in what they call its members, with features like adjustable sit/ a ‘grow-working’ approach. stand desks and extensive natural light.
LANDSEC BLACKSTONE
Landsec have launched their flexible offering Blackstone acquired the majority stake in ‘Myo’, which has opened at 123 Victoria Street The Office Group, with a view tofunding the in Victoria. Myo offersflexible office space European expansion. The Office Group has with customisable fit-out for companies of continued to expand within the Central London 10-100 people. So far, Landsec have secured market and has now also acquired two sites two tenants to Myo; MedAccess and The outside of London; in Bristol and Leeds. Communication Group. CUSHMANWAKEFIELD.COM | 18
Landlord quotes on coworking:
It is increasingly important to get BROCKTON EVERLAST growth companies Brockton Everlast made a significant into our portfolio. investment into Fora, who describe themselves as ‘pro-working.’ Fora are now operating 11 workspaces in Central London.
These developments represent the continued change in the UK office market, where Landlords are desperate to offer the same level of flexibility as flexible workspace providers; something that occupiers have We believe that now come to expect. One flexible providers challenge is that traditional shouldn’t be the landlords will struggle to compete on scale with the dominant occupier established flexible operators, in a scheme as it’s however we anticipate the about balance. growth of landlord operations to continue. 19 | COWORKING 2019
COWORKING: WHAT DO OCCUPIERS WANT?
In this section, we speak to Is there sufficient choice Amy Taylor from our Serviced for occupiers in the flexible Office Advisory team, who sheds space market? some light on the evolving needs of flexible workspace occupiers… Yes, there is lots of variety in terms of choice of offering. The availability is there but occupiers need support finding it. There Do you think the needs of a is now an increasing diversity of offering from flexible workspace operators. flexible workspace occupier have moved on since our last report at the end of 2017? Do you think that the flexible market shares similarities with The scale of the market has increased. the hospitality market? The flexible space market is now competing equally with traditional space. The flexible market IS the hospitality market. The flexible operator provides everything, much like a hotel – the operator Are operators able to provide can provide everything the occupier wants. the level of amenity that If the occupiers aren’t treated like VIPs, occupiers want? they will go elsewhere.
More so compared to a typical traditional lease. In a serviced office environment, How important is the idea of the operator maintains the amenities, community within a flexible space? whereas in traditional office space the responsibility lies with the tenant. It is becoming less important as the size of occupier using flexible workspace increases. However, for smaller occupiers What is the most important the benefits of community within a factor for occupiers looking to flexible workspace can be invaluable. take flexible space?
This is different for every occupier! What services or amenities do occupiers want that they can’t get at the moment in London or the UK?
None – there is always a solution! CUSHMANWAKEFIELD.COM | 20 21 | COWORKING 2019
MYTHBUSTERS
There are a number of misconceptions about flexible workspace that have persisted over the last few years. We would like to take this opportunity to dispel some of them.
Whilst start-ups and small businesses clearly play a significant role in many flexible workspaces, larger more established corporates have been attracted to take flexible workspace in recent years to take advantage of the direct and indirect benefits. Tech giants such as Facebook, Apple and Amazon have all acquired flexible workspace, but it is not just tech occupiers who Flexible are looking to add some flexibility to their portfolio. Banks such workspace is just as Santander and HSBC, as well as professional services firms like for start-ups/ Grant Thornton, have opted to acquire some flexible workspace in small businesses addition to their traditional offices. Established companies moving into flexible workspace don’t just get the inherent flexibility of occupation, but also access to a network of freelancers and innovative businesses that create a potentially more dynamic environment for their employees.
Some coworking spaces can indeed be noisy, as can any open plan office for that matter. However, the majority of flexible Coworking workspaces provide a mixture of spaces for different activities spaces are too i.e. soundproofed meeting rooms, breakout areas and ‘pods’ disruptive where individuals or small groups can make calls or conduct and noisy collaborative work without disturbing those around them.
It’s unlikely that we will see every company opt to locate in a coworking space. Almost inevitably, we will see continued Isn’t everyone growth in the flexible workspace market, both in London and in just going to regional cities, but there will still be a role for ‘traditional’ offices be working to play. What is more likely, however, is that traditional landlords in a flexible will incorporate even greater flexibility into their portfolios, providing some (or hopefully most) of the benefits of flexible workspace in workspace to their tenants. 10 years’ time? CUSHMANWAKEFIELD.COM | 22
This couldn’t be further from the truth. There will often be some shared characteristics such as the availability of meeting rooms, a community programme or even a user mobile phone app, but the reality is that there is an increasing variety in the All flexible flexible options being marketed. Some of the larger operators, workspaces are such as WeWork or Spaces, may well adopt a certain blueprint pretty much for their locations, but each building will have its own unique the same characteristics. The flexible workspace market has relatively low barriers to entry (particularly in the case of pure coworking) so flex providers must differentiate themselves to remain competitive.
It is true that cities are often the most mature flexible workspace markets; this is very much the case with London in the UK. However, we are starting to see flexible operators set up further Flexible away from city centres. One example is Accrue Workplaces, workspaces who have recently launched a coworking space near Cobham in Surrey, with the simple aim of providing ‘coworking, without only work in the commute.’ By providing the coworking space in a popular big cities commuter hub, they aim to give start-ups, SMEs and professionals the ability to stop travelling into Central London.
This might be the case in small single site coworking spaces, It’s easy to but for the larger operators such as WeWork, the flexibility on offer includes the ability to grow. WeWork’s website says ‘One of outgrow a the benefits of month-to-month flexibility is that members can add coworking space space at any time. Members have priority to mover internally and as a business to new WeWork locations as they open.’ expands 23 | COWORKING 2019
CONCLUSION AND OUTLOOK
The flexible workspace market Our main conclusions from the report are: has continued to grow and diversify Flexible workspaces will account over the last eighteen months, with for at least 5.5% of Central London office stock by the end of 2019, further commitment from operators, which is three years sooner than occupiers and traditional landlords. our previous report had predicted. It is worth considering that whilst we The sector looks set to continue have witnessed accelerated growth to grow and diversify, with in the last few years, the flexible WeWork’s IPO an obvious ‘one to watch.’ workspace market in its current guise is still in its relative infancy. Outside Central London, Birmingham and Manchester are anticipated to mature as flexible workspace hotspots, whilst Bristol remains an opportunity for operators.
The general lack of new supply in both the Central London and Regional office markets could prove to be a barrier to continued growth at the rate we have seen in recent years.
The flexible workspace sector will continue to drive change in the UK office sector as the lines between office and hospitality blur further. CUSHMANWAKEFIELD.COM | 24 RESEARCH CONTACT DETAILS
CHRISTOPHER DUNN PATRICK SCANLON ASSOCIATE DIRECTOR HEAD OF UK OFFICES INSIGHT T +44 (0) 20 3296 4119 T +44 (0) 20 3296 4994 E [email protected] E [email protected]
HAYLEY ARMSTRONG JESSICA TSANG SENIOR INSIGHT ANALYST DATA ANALYST T +44 (0) 20 3296 2069 T +44 (0) 20 3296 4135 E [email protected] E [email protected]
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