Flex office sector sees management agreements increase by over 30%, says Workthere

According to research from Workthere, management agreements in the UK flexible office sector have accelerated in popularity accounting for 41% of deals in 2022, compared to just 9% pre-Covid in 2019. During the same period, the number of deals agreed on conventional lease terms has reduced from 81% in 2019 to 56% in 2022. The flexible office specialist also notes that, not only has the number of management agreements increased over the last three years, but they have already represented 52% of sq ft taken by flexible office operators in 2022 and expects this figure to increase further by the end of the year.

Jack Williamson, head of Workthere UK, comments:

“Essentially a profit share model between a landlord and operator, management agreements often gain more traction in more challenging markets typically due to them being more cost effective, as well as reducing the risk for operators. We therefore expected to see them become more prevalent during Covid as the market slowed down significantly. However, what is interesting is that whilst we saw the flex office market bounce back in terms of take-up in the second half of 2021 and demand has continued to remain strong throughout 2022, we have not seen any retreat in the popularity of management agreements. This could signify a fundamental shift in the acceptance of this type of structure from landlords who have historically been less in favour of them due to the perceived risk associated with not having a formal lease in place, and the subsequent impact on value.”

One of the key reasons more landlords are opting for management agreements is around control. In the right sort of partnership with an operator, a landlord has a lot of control as to how the space is delivered, as well as transparency around performance. Many landlords are combining the flexible workspace element with a wider amenity and conference space, creating an attractive offer as part of a larger multi-let building for prospective tenants. This is often demand driven, where tenants are requesting flexible space within a building if they are to consider taking a lease.

Workthere’s research also shows that the proportion of deals taken on management agreements on space in Greater London and the regional cities since 2019 represents 37% of transactions, which is higher than central London, where this structure accounts for 14%. This is predominantly due to the fact that these markets are less mature and, as a result, tend to carry more risk for operators than central London, which is a flexible office location recognised on a global scale where landlords are able to opt for conventional leases on a more frequent basis due to the scale of operators seeking to enter the best buildings in those core markets.

Jack continues:

“Looking ahead, the wider economic pressures will inevitably have an impact on the flexible office market, and as a result we are likely to see some consolidation and rationalisation. However, demand for the sector remains strong and we do expect take-up levels to continue to rise, albeit not to the levels seen in 2017 to 2019 in the short term.  Another factor that operators will need to consider is the number of landlords looking to manage space themselves, which brings a new dynamic to the market, although it may also create opportunities for more partnerships in the sector.”