Where next for the flexible office market?

Written By:

Lee Elliott, Knight Frank

12 Feb 2021

19 minutes to read

Categories: London Report The Future of the Office

• The pandemic has prompted every business to consider new ways of working
• For bigger businesses, agility will be key
• For flexible providers, longer-term concerns and behavioural changes such as physical distancing, term flexibility and product offering are front of mind

London’s flexible office market has accelerated in recent years and regularly accounts for a significant portion of annual take-up. In 2020, the sector accounted for 21% of take-up, second only to finance and banking (28%). Take-up in the flexible offices sector reached 0.31 million sq ft in 2020, 66% below the 10-year average. Over the last five years, flexible office providers have acquired over 8.2 million sq ft, with the City Core having the highest amount (30%).

The growing role of flexible, serviced space has been a central, if somewhat divisive, theme in the London office market for some time now. The pandemic has served to fuel polarised views on this segment of the market.

London serviced office market report

Advocates have highlighted the growing agility required by occupiers, their need to better align real estate to business planning horizons, or the desire to drive greater efficiency in the use of space as being key drivers of the flexible market.

Cynics, on the other hand, have argued that such flexible, serviced spaces are at the smaller end of the occupational market, fundamentally challenge the economics of real estate supply, or have yet to have their resilience or sustainability tested by a recessionary macro-environment. Just as with the wider office market, Covid-19 has emerged as an accelerant of the evolutionary path shaping the sector, which we mapped out in our recent white paper, Progress Through Partnership

“The flexible market has become a space that new operators and conventional landlords alike feel compelled to service”

What is undeniable is that the flexible market has become a space that new operators and conventional landlords alike feel compelled to service. As they do so, flexible products and portfolios start to take on new characteristics.  

The view from the ground

In order to understand the new dynamics potentially shaping the flexible market, we asked six providers of flexible space in the London market three simple questions about the recent past, the present and the future for the flexible sector. Here’s what they had to say:

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THE ARGYLL CLUB

The Argyll Club creates the finest workspace experience for members through prestigious locations, distinctive architecture, premium interior design and seamless customer service. More than 8,000 members use the offices, co-working spaces, meeting room and virtual office services of The Argyll Club’s 38 central London workspaces.

What impact has Covid-19 had on your operations during 2020?

It is clear that businesses, and the offices they use, have had to become even more agile to survive the pandemic, and have quickly adjusted to remote working in March and then a hybrid model after the first lockdown. For us, this has meant that businesses of all shapes and sizes have begun to realise the benefits of flexible workspaces.

With teams desperate to reconnect with colleagues after months of lone working, we saw demand for our day working products surge after the first lockdown. Since September, we have seen significant demand for our office products as well as a spike in demand for our business lounges, co-working spaces and day offices.

Meeting room packages are also a new trend. One member booked 40 days’ worth of meeting room usage for Q4 alone, as remote working had begun to take its toll on productivity and mental health and their team required some face-to-face time.

How will your product and portfolio offering change in 2021?

Real estate that offers more than just a space but a location for teams to come together and collaborate after months apart will redefine what it means to offer a flexible workspace product in 2021 and beyond. As such, our prime central London locations will continue to be an ever-important element of our portfolio, not only from a convenience perspective but also in providing a prime destination for users, close to clients, transport, shops, restaurants and colleagues.

The personalisation of space will also be key. 20% of our recent enquiries have asked about installing in-office kitchens, meeting rooms or showers as businesses seek to create private and safe space for their teams as they regroup. We expect this to continue in 2021.

What, in your view, will be the big trend shaping the flex sector in 2021?

As the vaccine rolls out and the hybrid working model sets in, workers will need to seamlessly transition between home and office. This will be the biggest catalyst for change in the sector. Ultimately flexible working solutions, such as day offices and co-working desks for the day, will be increasingly sought after by teams looking to meet a couple of times a week and maximise their time together.

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MYO

Myo was created by Landsec as a direct answer to a genuine business need.

We provide design-led flexible workspace, meeting rooms and breakout spaces supported by our dedicated on-site concierge teams. We work with our members to understand their business so that we can tailor their office and services to their individual needs.

We deliver private offices connected and ready to occupy, and can even help our members move in so all they have to do is choose their designs and furnishings.

Myo offices are located in vibrant business communities within Landsec-owned buildings providing high-quality, efficient and wellbeing- focused spaces to optimise individual and team performance.

What impact has Covid-19 had on your operations during 2020?

Our first Myo flexible office in Victoria reached 100% let in March with agreements of between one and five years. Since the initial Covid lockdown, the day-to-day use of Myo decreased significantly.

We continued to support our customers with the space remaining open and adapted to ensure safe, Covid-secure environments with enhanced cleaning regimes and social distancing measures in place. We implemented operational efficiencies due to low occupancy and passed savings directly back to customers. Our occupancy in Victoria has since reduced to around 80% due to expiries.

We also recognised the need for additional flexibility during the pandemic. There are times when people want to meet, collaborate, workshop or simply get together but may not have access to their office, so we created the Myo Day Office. Office spaces that are socially distanced and covid-secure that guests can hire on a daily or weekly basis.

We have continued our scale-up plans and are currently on-site building out Myo Liverpool Street totalling 35,000 sq ft over four floors at Dashwood, Old Broad Street, and due for completion in April.

How will your product and portfolio offering change in 2021?

Myo forms part of the Landsec office product offering, which also includes traditional Blank Canvas (Cat A/shell and core) and Customised (turnkey fit-out and managed spaces).

This range of products is designed to deliver a choice of physical condition and service level for each customer depending on scale, flexibility required and their level of expertise. This office product range is available at Dashwood in the City of London this year, the first time in a single asset, with plans to roll out the product mix at further locations across central London. In a period of such significant change we continue to review and test new product and service offerings to meet changing customer demand.

With the increased focus on health and wellbeing coming out of Covid-19 Dashwood has been designed in accordance with the WELL Building standard and we are on track to deliver a WELL Building Gold accreditation for Myo Liverpool Street, the first for a flexible office offering in the City market.

What, in your view, will be the big trend shaping the flex sector in 2021?

Increased demand but also more supply – a number of businesses have made cost savings as a result of Covid with a resulting increase in choice and supply in the short term. However, the increased flexibility required by businesses in times of economic uncertainty will lead to greater demand for flexible and serviced offerings once business confidence returns from Q2 2021.

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STOREY

Established in 2017 by British Land, Storey provides private, flexible and design-led workspaces in central London locations.

Storey has created a nimble and innovative alternative to the conventional lease for businesses that need personalised workspace with built-in flexibility, working with its customers’ growth plans and business strategy. Furthermore, as British Land own the real estate and service layer of each Storey building, customers benefit from a fully integrated approach to workspace management.

Storey currently has offices in ten locations, and is launching its 11th location at 100 Liverpool Street in April this year.

What impact has Covid-19 had on your operations during 2020?

Storey has proven resilient over the last 12 months and has come through its first big test since being established four years ago. Despite the obvious headwinds, we have seen 100% of customers paying their rent and we also completed a 40,000 sq ft deal during the lockdown.

The pandemic has served to strengthen customer bonds with a clear “in it together” mentality shining through amid strong client engagement. Our fundamentals have also supported our resilience – we tend to focus on the larger end of the market with companies who cannot easily move to running their businesses entirely from home. Our average customer size is over 50 people and around 60% of those customers use Storey as their UK or global HQ.

How will your product and portfolio offering change in 2021?

We believe that Covid-19 will bring further evolution rather than revolution to the office market and is serving to accelerate many of the trends that Storey was established to address.

We will be continuing with our sustainable growth plan. Testament to this is our commitment, during the middle of lock-down, to a new Storey location at 100 Liverpool Street, which is due to open in April.

We continue to improve the ability for our customers to configure and personalise their spaces. This will be even more important as customers look to adapt their offices to reflect a hybrid working pattern and strengthen company culture.

Finally, we will be complementing our physical spaces with a stronger digital offering both in terms of integrated application to support a more seamless customer experience across British Land campuses, but also in the use of smart technology to support well-being (e.g. air quality sensors) and the curation of the workplace experience (e.g. utilisation and occupation sensors).

What, in your view, will be the big trend shaping the flex sector in 2021?

A further blending of the conventional and flexible workspace sectors. With continued economic uncertainty and increased complexity of operating an office, flexibility, service and amenity will become more important than ever. Our campus based partnership model positions British Land/Storey well to meet these evolving needs, for example, the ability to offer both long and short leases, onsite meeting and event spaces, and lifestyle amenities, all delivered through a single tech enabled service layer.

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TOG

Founded in 2003, TOG is the leading, design-led provider of flexible work space, with over 40 buildings across the UK and Germany. We are focused on reimagining, shaping and improving the way people work – offering maximum flexibility. We create workspaces that are distinctive by design and as individual as the people within them. Our 20,000 members can make use of our entire platform, meaning they can work from any of our easily accessible locations and make use of our wide range of amenities and services, from on-site gyms and meditation facilities, to podcast recording studios, to rooftop terraces.

What impact has Covid-19 had on your operations during 2020?

It has been a really tough year for everyone. We have had to work harder than ever before for our clients, playing an active role in supporting their mental health and wellbeing at the same time as fundamentally reconfiguring our operations to make them Covid-secure.

Sadly, some of the smaller enterprises who use our workspaces have had to leave us and some have even ceased trading altogether.
Our larger clients have been more resilient; in fact, the pandemic has caused many of them to accelerate their use of flexible workspaces. The pandemic has taught us all that we need to re-think the way we live and work; it has been a giant global experiment, but a clear message seems to be that the office still has a central role to play.

How will your product and portfolio offering change in 2021?

We are looking at how we need to adapt our spaces to support clients in a changed world. As an example, we are improving acoustics in meeting rooms so that people attending remotely always come across loud and clear; and we are creating more privacy spaces and booths so people can take time out of an open plan environment if they need to. Office life is not a static concept and we have to adapt our offer to reflect shifts in working patterns and client need.

Increasingly, we refer to our proposition as a platform. That’s because we offer members access to the full array of workspaces, amenities and services in our portfolio, including lounges, gyms, barista bars, meditation spaces and event spaces. The platform has evolved to enable greater choice, flexibility and convenience and is now designed to better support larger enterprises, as well as smaller business, with space where their people can thrive.

Our goal is to deliver a fully developed workspace platform that serves the UK and European markets, enabling businesses and their people to work flexibly, collaboratively, healthily and productively.

What, in your view, will be the big trend shaping the flex sector in 2021?

There will be two central considerations for employers in 2021. The first is the health and happiness of their people. The pandemic has changed everything and it is clear that businesses will need to offer the right kind of working environment and structures to support wellbeing to attract and retain the very best talent.

The second is managing risk. Everywhere you look it is businesses with large fixed asset bases that have struggled the most, many of which are now looking for new ways to address their work space solutions and better support a more agile workforce. For those on conventional long-term leases, this will be uppermost in their minds as they come towards the end of their current arrangements.

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WEWORK

WeWork is a global leader in flexible space, providing businesses of all sizes with the space, community and services they need to run and grow their business. With 859 locations in 151 cities in 38 countries across the world, WeWork delivers flexible space solutions to its 542,000 members worldwide. Large enterprise companies (organisations with over 500 employees) represent 54% of WeWork’s global membership. WeWork is present in five UK cities and London is the second largest city globally for WeWork locations behind New York.

What impact has Covid-19 had on your operations during 2020?

The biggest impact on our operations has undoubtedly been the changes we have made to ensure our spaces are safe. During this time, it’s absolutely essential that those who do need to go into the office can do so in a space that prioritises their safety and gives people the reassurance they may need. The flexibility of our physical space has been crucial in addressing this – easily adaptable to meet government requirements, it enabled us to quickly implement comprehensive new safety measures with greater ease compared with more traditional office space. 2020 has been incredibly stressful for many people and it’s important for employers to understand that mentally, people may need more reassurance about their health and safety, and may need time to readjust.

By gathering feedback from our members, especially large enterprises, we know they trust the measures we have taken. And we are continuing to innovate and enhance what we are doing. Our health and safety measures, response plans, and space modifications have been independently audited and verified by Bureau Veritas – an internationally recognised testing, inspection and certification organisation. We have also retained International SOS to serve on WeWork’s Covid-19 response team – they advise us on quality assurance and best practice methods of measuring the effectiveness of Covid-19 risk mitigation.

How will your product and portfolio offering change in 2021?

With the pandemic prompting every business to consider new ways of working, we know from talking with both new and existing members that flexibility is something businesses are now considering more than ever. We are able to leverage our scale to offer our members truly adaptable and reconfigurable space to meet with evolving requirements. We have tapped into this and harnessed our global footprint with “WeWork All Access” which grants access to any of our 800+ locations across the globe. So if you take a city like London, where we have over 45 buildings, this means members can use the city as a campus and choose to work wherever is most convenient and suitable for them.

Workers now value their work-life balance even more, but they have also come to appreciate the benefits of the office environment, so getting the balance right is crucial. As employee wellbeing and satisfaction become the highest priorities, their working preferences must be a pivotal part of any workplace strategy. This is vital for talent retention, workforce motivation and will subsequently yield increased productivity. We will be working with our members and new clients to create workspaces that foster the collaboration and innovation missing from home.

What, in your view, will be the big trend shaping the flex sector in 2021?

Growing demand from larger businesses and the need for flex options at scale. More and more companies are now looking to swap their traditional, fixed real estate commitments to adaptable, flexible and inspiring workspaces, designed for collaboration; what we initially offered to small businesses and start-ups, the world’s largest companies now want too. Business leaders recognise the advantage of not having to commit to large amounts of office space on long-term leases.

This is a huge benefit when you consider that real estate is one of the biggest costs for most companies and you would never expect a business to predict its headcount and way of working for the next ten years. We are seeing this in our own membership base – enterprise companies now make up 54% of our global membership. And this demand is only going to grow –the pandemic has put commercial real estate on the C-Suite’s agenda like never before and business leaders are now exploring what actually works for their business.

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Work.Life

Work.Life is a flex workspace provider for businesses who care about people. We believe that happy teams deliver measurable benefits for businesses. That’s why everything we do, from workspace design to delivering a best-in-class personal service, is designed to create happy working environments. We have co-working and managed offices across London, Reading and Manchester.

What impact has Covid-19 had on your operations during 2020?

There have been both direct and longer-term effects of Covid-19. Like the rest of the market, for us the first lockdown resulted in a sharp decrease in footfall (around 90%), as well as new business, with tour bookings down 85% in April from the previous month.

Likewise, the immediate health & safety concerns due to Covid-19 caused us to review the layout and operations of our space to ensure our team and members’ safety was top priority. This meant introducing a number of new safety measures, such as: designing and signposting one way systems throughout each space; reducing the number of members allowed in communal areas (such as our hot-desking or breakout areas); and increasing our cleaning schedules (especially for frequent touchpoints).

We quickly had to move all our in-person community events online, which led to the creation of Work.Life Anywhere – an online programme of community, wellness and informative events. This was vital to keeping our members connected and engaged, even if virtually!

Covid has also caused us to review longer-term concerns and behavioural changes such as physical distancing, term flexibility and our product offering. It’s become clear that the purpose and function of the office has and will continue to change, with the workspace becoming a place for collaboration and joint working, and we’ve had to adapt our offering accordingly.

How will your product and portfolio offering change in 2021?

We expect to see demands shift greatly in 2021, as businesses look for more flexibility from their workspace than ever before.

With companies who have downsized this year, some will be less reliant on using office space five days per week. As a result, we expect to see increasing demand for flexible working and “hybrid” home/office set-ups in 2021. We have created a new “Timeshare” private office solution, which allows a business to take private office space in any of our co-working spaces for between one and three days a week instead of full time. For example, a business could choose to take a ten-person private office in Soho every Monday, Tuesday and Thursday while another business leases the same office on Wednesdays and Fridays. This type of offering creates a cost-effective solution for businesses who choose to adopt the hybrid way of working for their team.

Another changing demand we expect to see is businesses engaging only with hot-desking, seeking the most flexible option that allows them to access a network of shared spaces. We saw a rise in demand for our pay-as-you-go hot-desking product in 2020, and wanted to address the increasing demand for flexibility from larger teams, so we have also introduced temporary passes (day and/or week), for teams wanting a private office to meet and work from on a short-term basis instead of hot-desking. To help employers adopt flexible working successfully, we also introduced the ability to track utilisation for staff working across our network of co-working spaces.

For bigger businesses, agility will also be key. Instead of signing a traditional lease with a minimum term of three to five years, businesses will now seek shorter, more flexible terms. This is where we see our managed office solution (Yours) providing an attractive alternative to traditional leases, by offering the flexibility of co-working, but in your own private office with your own amenities.

What, in your view, will be the big trend shaping the flex sector in 2021?

Demand was growing for greater flexibility before the pandemic, but now it is essential for businesses of all shapes and sizes. For businesses downsizing, this might mean a move to a part-time office space they use three days per week on a rotational basis; for corporates and larger companies, it might mean increasingly adopting flex/serviced options.

As we have all seen this year, your business can change overnight – and your office solution needs to be flexible to adapt to your business needs.

View our video: 

The office as a strategic device - Part 2

Changes in the business dynamic