Blurred lines: where does a flexible office end and conventional lease begin? And what happens next?

For a long time, the definitive differences between conventional and serviced / coworking offices have been relatively black and white. However, with demand for flexible office space heating up, the lines between the two are becoming increasingly blurred as a wide range of spaces and models become available to an expanding customer base.

Physically speaking, the flexible office has typically been synonymous with smaller companies, start-ups and SME’s. Workthere’s Flexmark report shows that start-ups of 2 to 20 people currently account for half of all flexible office space globally, with individuals and scale-up businesses accounting for 21 per cent and 17 per cent of space respectively.

One of the major reasons behind the blurring of lines has been the increase in the size of space a flexible office provider takes. For example, in London in the first half of the decade, the average size space taken by a provider was 17,574 sq ft, however, in the second half of the decade, this rose to 30,496 sq ft, reflecting a 74 per cent increase.

These larger spaces being taken by providers require larger occupiers to fill them; the providers cannot solely rely on start-ups and SMEs to fill a space of over 50,000 sq ft or, in several cases, over 100,000 sq ft. We have therefore witnessed the birth of ‘enterprise space’ and flexible providers targeting companies of 50 to over 100 people in 5,000-10,000 sq ft of office space that would previously only consider a traditional lease for such a requirement. Workthere research shows that companies of over 100 people currently occupy 13 per cent of space within flexible offices. However, we expect this figure to rise over the coming years as companies of all sizes increasingly realise the benefits of flexible offices in terms of increased productivity, talent attraction & retention, augmented collaboration and improved space utilisation.

In response to flexible space providers targeting companies with larger office requirements, the landlord market reacted, and we saw some of the major REITs in London develop their own ‘flex’ product in order to compete. In essence, both came from opposing ends of a market to meet in the middle, in order to meet the modern demands of the customer.

Our own data underlines this increase in requirement size for flexible space with 11 desks reported as the average in 2017, rising to 15 desks in 2019.   

We have also seen the average lease length for some flexible space increase in response to growing demands from corporate clients. In 2017, the average contract length for flexible space in the UK was 10.8 months compared to 12.3 months in 2019. We have also been involved in transactions whereby the occupier has signed a lease for a long as 4 and 5 years. Coupled with this, the average UK office length shrunk from 9.7 years in 2002 to 6.9 years in 2018, according to MSCI data, reflecting how traditional landlords are looking to make their offer more nimble and attractive to a generation who has become used to increased levels of flexibility.

Whilst several landlords have created successful spaces, it is no easy feat, and with the second and third round of landlords contemplating their offer, we expect more providers to partner with sector specialists as they seek to build clusters of like-minded businesses. One such example being Huckletree partnering with the Public Hall where it runs a hub of GovTech-focused businesses. These clusters are a way in which to foster a collaborative environment and, according to a report by The Future Laboratory, are a way in which companies can attract and retain high-calibre employees.

So what does the future look like? Some have predicted that flexible space will represent 30% of the overall UK office market by 2030. Our view is that it will become very hard to draw a line between what is flexible space, space as a service, landlord space and other models. This is due to the combination of a growing range of supply and an increasing appetite from larger companies, both scale-ups and corporates, to acquire a greater share of this type of space, inevitably  blurring the line between the two. The increasing competition across the office market will also add further need for providers to have a real differentiation. In most cases, price or design alone simply won’t be enough.