Occupiers still willing to pay for quality flex space

In the last three years, low levels of stock in the office sector - both flexible and conventional markets – have created a flight to quality for occupiers. This is especially true of new and refurbished buildings, and Covid has only intensified this.

As businesses are now keen to return to the office, we have started to see increased activity in the flexible office market as a result. Lease expiries, a desire to move from conventional to flex space, as well as a return to the office for those who have been “office-less” for many months, are all driving factors. But it isn’t yet working life as we know it. More than ever companies are conscious about the buildings they occupy. It is no longer considered as a place where staff are simply provided with a desk, computer and water cooler.

Consequently, employers and employees are demanding more from the workplace. Broadly, a quality product that suits business values, staff commuting patterns and ESG agendas are key. But how that shapes up for individual occupiers varies.

Bike racks, showers, locker rooms matter to some, others want outdoor space – be it private or communal. Curated spaces like break out and activity areas, beer taps, yoga classes and gyms are also among the most wanted side dishes of workspace provision.

What’s more, employers believe that to retain the talent they must also have space for collaboration and socialising and they are willing to pay more for the right space.

We saw flexible office operators offering competitive deals for the first five months of the year because availability was high, but as the stock has reduced over 2021, pricing is beginning to increase. We are already starting to see the effects of this. 

A two-tier market is emerging, but this is not entirely new. There are some operators that aim to cater for the higher-end of the market, but there is also a variety that offers incubator, start-up or charity-focused spaces - so by design, there is a polarization of the market. Without a doubt, the distance between the best and the rest is widening. Some operators continue to push the boundaries of their offering but there will be a level at which it no longer is economical to do so, and the ROI will not be there in today’s market because of current supply levels.

Pricing, however, will change for individual buildings within a provider’s portfolio. This will be down to supply and demand certain assets and certain micro-locations. Compromises may be reached overpricing when a tenant shows serious interest and an operator wishes to seduce them.