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At the beginning of this year, we published a blog post: What does 2020 have in store for the flexible office market? We began this blog post by saying how 2019 was the most ‘eventful’ year for the flexible office market to date. Little did we know what 2020 had in store.
At the point of writing the original 2020 predictions blog post, COVID-19 was seemingly contained within China and we had no idea how much disruption and devastation it would cause. However, despite the world looking like a very different place now, all of our predictions have held up and some have even been accelerated. In this blog we revisit the original prediction headlines made at the beginning of the year with an update.
Remote working has become the norm – much faster and to a much greater extent than we ever envisioned. However, the use of flexible offices in the UK greatly reduced during lockdown and building occupancy is still below normal levels. In the short-term, coronavirus has been challenging for the flexible office market, but in the long-term we expect this shift towards employees working more flexibly to considerably increase the demand for flexible offices, particularly from large corporates. We have had a number of enquiries from large corporates that are looking to make flexible offices a significant part of their real estate strategy.
The trend towards rural and suburban flexible offices has been vastly accelerated by COVID-19. There has been a lot of discussion around the ‘hub and spoke’ model, and we have seen a significant increase in enquires for flexible offices in rural and suburban locations. The majority of workers are looking to reduce their use of public transport as much as possible, or completely avoid it, and the option of working in a flexible office near to their home is highly appealing. We expect the shift towards rural and suburban flexible offices to be permanent, at least to some extent.
Customer retention is more important than ever in the current COVID-19 climate. Customer service and, in particular, making customers feel safe is absolutely crucial, both in terms of retaining existing customers and attracting new ones. Negotiating power has shifted towards the occupier and the nature of short-term leases in the flexible office market means they can be footloose and fancy free in terms of moving from space to space in order to meet their requirements. This has generated an even greater sense of competition between providers with some offering reasonable discounts to new customers. Flexible offices that don’t prioritise customer retention will have a much lower chance of surviving the pandemic. We expect to see accelerated consolidation as some providers go into administration and other more cash-rich providers see it as an opportunity to buy growth at a depressed price.
The relationship between landlord, operators and customers in the office sector has become pivotal to the success of a building or scheme. Teamwork is essential to maximise the chances of companies surviving. We have already seen a move towards management agreements in many flexible office markets, with landlords and flexible office providers more willing to share the highs and the lows of profitability cycles. If landlords are prepared to help out flexible office providers, for example by offering rent holidays or rent reductions, when times are tough, it’s only fair that they reap the benefits when times are good. We expect more landlords to enter the flexible office market, either directly themselves or in partnership with an operator, over the coming months and years, which is another trend that has been accelerated by COVID-19.
We speculated that sustainability could take a backseat whilst companies were having to deal with COVID-19-related matters. However, sustainability has remained an important topic and has arguably become even more crucial in the current climate. Some companies who have had their core operations slow down have taken the opportunity to focus even more attention towards sustainability. In addition, employee welfare has become even more paramount, with health and safety being top of most company agendas.
The major change that, for quite obvious reasons, we did not predict was the adaptation of office setups to accommodate for social distancing. This has completely transformed the flexible office landscape in the short-term, with most offices having to reduce their capacity to enable larger spacing between desks, as well as including addition services such as hand sanitiser units. We expect these to be short/medium-term measures. There has been speculation over whether flexible office densities will remain lower, but flexible offices have been set up for a certain density of workers and we think that there will be a reversion to this norm in the long-term, protecting the break-out, meeting and collaboration spaces that are so important in the flexible office world, as well as the future of work.
COVID-19 may have triggered changes for flexible offices, but our predictions for this year still hold and, if anything, more so now than when we first made them.
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