‘FEELGOOD’ FACTOR AND FLEXIBILITY POWERING BUSINESS GROWTH

August 21, 2018
by Al Yong

“While political uncertainty persists, economic stability seems to be returning,” states Oliver Kolodseike, Senior Property Economist for Research and Forecasting at Colliers.

“Recent data suggests that the GDP weakness in the first quarter was just a temporary blip. Business surveys are indicating improvement, inflation is stable despite rising oil prices and consumer confidence is showing signs of a pick-up.”

The same “feelgood factor” applies to certain sectors of the commercial property market too. Kolodseike notes that monthly investment volumes have risen to a level “rarely seen in the history of the data series” and there was a particularly strong interest in offices, especially from overseas investors.

And of course, there is continuing high demand for flexible workspace – although for most of us, this trend is nothing new.

What is (relatively) new, however, is the surge in interest from commercial property companies and agents who are keen to maximise the countless opportunities that exist in the buoyant flexible workspace market.

Some of these firms have been active in the market for several years already, but over the last year or two there has been a noticeable urgency in developing a more dedicated service focused solely on flexible requirements. On the landlord side, in June 2017 British Land launched its own flexible workspace brand, Storey, and the Carlyle Group launched its own coworking brand, Uncommon. On the agency side, Savills launched Workthere and just last month, Colliers International entered the market by hiring Mark Bott from the Instant Group to head a new flexible office division.

CBRE have been actively reporting on the flexible workspace market for some time, and as we learned at BCA Conference 2018, traditional landlords and agencies may have been slow to step onto the bandwagon – but they are now making up for lost time.

Speaking at BCA Conference, CBRE’s Kevin McCauley and James Pearson referenced a new report (June 2018) that finds widespread acceptance from landlords that flexible space is here to stay. Furthermore 77% of participants are currently considering some form of flexible space provision and when asked in what time frame, 79% declared an intention to act within the next 12 months.

At the eOffice Conference in June 2018, the topic of property landlords entering the flexible workspace market was also high on the agenda.

Speaking at the conference, Elaine Rossall, Head of Office Research at Cushman & Wakefield, referred to commercial property landlords as the “sleeping giant” of flexible workspace, given their enormous potential to unleash hundreds of thousands of square feet onto the market, either by operating the space themselves or by partnering with established operators.

But they face a classic dilemma. “Demand for flexible space is challenging commercial property landlords,” Rossall noted. “Should they incorporate flexible space into their buildings or hold out for a corporate client?”

One way landlords are reacting to demand is by shortening lease lengths and offering more flexible terms, although she believes this is a short-term fix to test the market.

“There will be a rise in landlord operators,” she added. “We expect to see a huge increase in joint ventures or management agreements, but landlords are in a position where they can pick and choose the operator they want to work with.

“This will present itself as either an opportunity or a threat depending on your business model and your experience.”

Indeed, this represents enormous opportunities for flexible workspace operators and for those who are willing and able to enter into joint venture or management partnerships – and there is no time like the present to make your intentions known.

With Brexit looming and the ongoing debacle over EU negotiations, you might wonder ‘why now?’ – but with uncertainty in our economy, SMEs need our flexible services now more than ever.

Citibase’s new Business Confidence Index for Q2, which surveyed over 1,000 SMEs, reported a number of challenges posed by government. Amongst them, 49% reported difficulties raising funding or attracting investment since the Brexit vote as lenders delay investment decisions. Yet Citibase’s research also found “resilient revenues” and a stark rise in SMEs opting for short-term, flexible workspace solutions to help overcome current challenges.

Over three quarters (77%) of respondents are seeking office contract lengths of under three years, up from only 57% in Q1 2017. This is particularly pronounced in the North East and London, with almost 9 out of ten SMEs favouring shorter length office contracts.

Digging into the details, it’s unsurprising that the current workplace priorities for SMEs focus on functionality: flexible short-term contracts, high speed internet, and the ability to easily change the size of their space.

Steve Jude, Citibase CEO, noted that SMEs “don’t want to tie themselves into risky traditional long office leases” but instead, are choosing the “flexibility and freedom that comes with flexible work spaces, which don’t tie businesses down.”

Article courtesy of the Business Centre Association Ltd