Rising demand for flex office space puts balance back in the market

The fluid and fast moving nature of the flexible office sector means that it is responds almost instantly to changes in the market. This was perfectly demonstrated when the UK went into lockdown last year and resulted in the flexible office market being at the apex of those real estate sectors exposed to the crisis. The short term nature of contracts and shift to people working remotely resulted in an almost overnight change from a relatively balanced market to one that was very much dictated by tenants, with providers competing to retain customers by offering hugely reduced deals and contract terms. However, fast forward to this year and the pace of the market has meant that, whilst it was the first to fall, it has been able to adapt quickly and be one of the first to recover, and recover strongly.

The short term nature of contracts and shift to people working remotely resulted in an almost overnight change from a relatively balanced market to one that was very much dictated by tenants, with providers competing to retain customers by offering hugely reduced deals and contract terms. However, fast forward to this year and the pace of the market has meant that, whilst it was the first to fall, it has been able to adapt quickly and be one of the first to recover, and recover strongly.

In fact the flexible office market has bounced back quicker than many anticipated with demand surging for this type of space. As a result we have seen the operator / tenant balance start to return with the pendulum beginning to swing in favour of the provider in many cases. The competitive deals that were on the table for occupiers last year are no longer available to such an extent, which has come as a surprise to some occupiers, but is yet another example of the speed at which the flexible office market can adjust. For many providers, each space or building is run as an individual business that adapts to supply / demand. This allows providers to increase pricing or incentives depending on vacancy rates in the building.

Whilst there are still some good deals to be achieved, the flexible office market is gaining momentum again with space being taken more quickly. The low barriers to entry combined with a substantial rise in demand has meant that occupiers need to be out looking for space significantly sooner than they have over the last 18 months. This is particularly relevant for large requirements which have proved especially popular as corporates look to add flexible offices to their real estate portfolio.

Increased demand will inevitably have an impact on the supply pipeline for flexible office space. For London this is less of an issue, although a lack of larger floorplates means that we are starting to see the return in appetite for pre-lets in the capital. However, if demand continues at this pace, it could cause some issues for the regional markets, which are less mature and have a lower supply of flexible space. This opens up a wealth of opportunities in these markets for operators to both grow and establish a presence to captilise on the increased appetite, which is here to stay. We have already seen this start to happen in Manchester and Birmingham with the supply pipeline of flex space beginning to increase.

The neutralising of power between occupiers and operators will create a healthier market and we expect the emergence of this middle ground to instill further confidence in the flexible office sector as it continues to progress.