The same but slightly different: London and New York’s flexible office markets

New York and London are often mentioned in the same breath as hubs of global business, innovation, and creativity. But when it comes to their flexible office space markets, while there are many parallels, there also some differences between the two cities. What, precisely, do they share and where do they differ?

First the similarities. Both markets have experienced a flight to quality, with best-in-class spaces reporting high occupancy levels, mirroring trends seen in the traditional office leasing market. While accelerated by the pandemic, the trend has been building for several years. The result is that both New York and London are seeing high demand for top end, normally brand new, flex space, while lower quality and older space is struggling – this bifurcation is particularly prominent in New York.

Again, both markets are seeing similar trends in where this demand is coming from. Since the pandemic and changing work patterns, almost every type of company can see a role for flex space in their strategy, instead of it being limited to a smaller group of companies before. This has coincided with some macroeconomic uncertainty, which makes a short-term commitment to flex more appealing that a mid- or long-term commitment to traditional space, and the maturation of supply, meaning that there is a flex product in each market that appeals to almost every type of tenant.

In terms of location, both New York and London are also in relative harmony. New York’s most popular flex hotspots are all governed by their proximity to transit hubs: Grand Central Station, Bryant Park, and Pennsylvania Station locations are all in demand, along with neighbourhoods where there is high-end residential real estate in submarkets like Soho, Union Square, West Village/Hudson Square and Tribeca. Tenants are looking to accommodate shorter commute times, whether within the city itself or in suburban markets just outside for smaller satellite offices, such as Westchester and Fairfield Counties. In London, the locations considered the main flex hubs remain the traditional markets which also tend to have strong transport links, including the West End, the City and Midtown - Kings Cross, Fitzrovia, Marylebone and Soho have all performed exceptionally well and Old Street remains a favourite for more tech-focussed businesses. It’s anticipated that now the Elizabeth Line has opened other larger flex spaces will emerge along the network taking advantage of its connectivity.

But there are differences. Management agreements have formed the majority of central London flex deals in London in the past 12 months, with operators and landlords embracing them as they create a true joint venture allowing for open lines of communication and design, aiming to generate increased returns for each party. A straight landlord/tenant relationship has not proven to work as well in the long term, and so London is set to continue this trend indefinitely.

While widely discussed in New York, management agreements have not been adopted in the same way. New York landlords, faced with more economic uncertainty, financing and debt challenges, have been hesitant (despite the clear benefits of a joint venture) and instead have tended to hold out for tenants and/or flexible office providers willing to sign a traditional lease. However, with a shifting landscape and an increasing desire for flexibility from occupiers, particularly following WeWork’s recent Chapter 11 filing, landlords have begun to further develop their in-house serviced office product or continue to foster relationships with third party office providers.  Given demand forecasts moving into 2024 for the serviced market sector, we expect creative solutions to grow in popularity in New York towards a profit-share model with a shift away from the traditional lease agreement partnership between landlord and operator.

Looking ahead to the future, our two markets are unified once more in agreement that both require more quality flex space to service demand. It’s clear that, while there’s a healthy level of supply in the city, London’s flex office market needs more supply. Demand will remain strong for flex space as businesses continue to embrace new ways of working and the average size of space taken will continue to increase. These factors will accelerate further the move by more landlords to deliver fully managed products. The same is true in New York: over the next 12 months, continued adoption of flexible/serviced office space by companies of all scales and industry which recognise the agility license agreements provide - both in how quickly they can be executed and how flexible the terms can be – will put pressure on a limited volume of top-quality space. This “flight to quality” has created an arms race for flex providers to adapt and elevate their locations to a level of quality that meets what the modern tenant demands as standard – New York or London this expectation remains the same.