Venturing into co-working and serviced offices could give traditional landlords an advantage

Take-up by serviced office providers across the UK and, in particular, London in the last three years has gone through the roof, as demand for co-working and flexible office space continues to grow from both small and large companies alike. However, despite this growth very few conventional landlords have considered entering the sector themselves. To date the majority have either entered into a lease or a management agreement with a serviced office or co-working provider.

With the continued rise in popularity of flexible offices, this might change. Landlords could move away from the relatively low risk option of simply granting a lease to a provider and instead seek to set up their own operations to take a larger share in this fledging sector.  

In the past months we have met with a number of landlords, including major funds, property companies, developers and REITs and there is no doubt that they all see flexible offices as a growing, if not mainstream, market. However, they are all at slightly different stages, some are only just coming round to the idea, others have considered in detail how they might enter the sector, and a select few have actually set up their own brand.  

Leading the way is Brockton Capital, who recently launched FORA, which offers high quality flexible office space at their first site in Clerkenwell, where they have also partnered with the new Palatino restaurant by Stevie Parle.

In similar fashion, CEG has set up Alpha Works which opens in April 2017. Two floors of the firms Alpha Tower in Birmingham has been designated to co-working and private offices to cater for SME and start-ups, creating a vibrant hub for the wider building.

Whilst a floor of start-ups may not have any long term income security from an investment value perspective, there are clear wider benefits and opportunities for the property if there is an area designated to co-working and flexible office space. For example, opening up the ground floor to co-working and flexible office space can attract a variety of exciting small businesses and start-ups that otherwise are not in a position to take a lease, giving the property a buzz that a regular reception simply can’t compete with. This in turn can make the property an attractive proposition to possible larger occupiers, especially those that might want to locate close to innovative start- ups and talent. The opportunity for them to collaborate with start-ups and attract the best talent is a major driver for larger occupiers seeking to locate next to or even within  an innovative flexible office environment. For them and their staff to be able to share the same amenities within a building is becoming a major attraction.  

As a result of the changing demand patterns of occupiers big and small, we expect the trend of landlords opening up part of their building (or even more) to co-working and flexible office space to continue. In the short term we are likely to see a growing number of partnerships between landlords and both new and well known operators, however longer term we predict that more landlords will go down the route of ‘doing it themselves’. Whilst it might mean a little more risk and resource to set up, the opportunity for greater cash-flow, greater access to start ups and the buzz it can create for the building, we believe will outweigh any possible negatives.