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2nd July 2019
GKRE director Will Kinnear on how large corporate requirements will push the next phase of growth for flexible working
British Land's flexible Storey club in Paddington
British Land’s flexible Storey club in Paddington

The flexible office market has recorded significant annual growth for over five years, and growing global demand has been met by an ever increasing amount of flexible workspace coming to market. The key to its continued growth will be demand from larger corporates, writes GKRE director Will Kinnear.

New research forecasts large corporations will be one of the key drivers of growth in flexible workspace in the next few years with forecasts suggesting they will account for 40% of global demand. Ultimately, what started out as an office model for start-ups that appreciated collaborative workspace is likely to grow into the dominant office model as a great number of large corporations see the benefits of Space as a Service.

This could lead to a tiering in the market with enterprise space being offered by flexible workspace operators to corporations, building owners offering flexible workspace products direct to corporates and a drive towards the provision of ever greater niche products from flexible workspace operators as they look to differentiate themselves and remain competitive. With the flexible workspace market expanding so quickly there is likely to be room for all to grow and flourish helping to make Space as a Service the mainstream office product.

SMEs have been the prime drivers of flexible office growth

The flexible workspace sector is a global phenomenon. There are now approximately 32,000 centres representing 521m sq ft globally, and growth is forecast to continue well into the 2020s as more cities encourage flexible workspace and developing markets drive demand. Until recently growth had been driven by start-ups and small-to-medium sized enterprises (SME) to which flexible workspace is well suited, as it allows SMEs to grow and flex into the space as and when their business requires. Moreover, a community of SMEs, which may collaborate with one another tends to develop in many flexible workspace centres fuelling entrepreneurialism and growth. Some flexible workspace operators have already recognised this. Runway East, for example, is specifically targeted at start-ups that are getting ready to scale up. Meanwhile, industry sector specific offices have emerged along with female-only co-working spaces such as AllBright in London and One Girl Band in Brighton.

Increasingly larger corporates appreciate the benefits

More recently however a large swathe of global corporations have come to recognise the benefits of flexible workspace. Last year alone Microsoft, American Express, IBM, GlaxoSmithKline, Adidas, and Facebook were responsible for some of the biggest flexible workspace deals in both London and New York. In fact, 69% of global corporates plan to increase their use of co-working and flexible workspace over the next three years, while 44% believe flexible workspace will comprise up to a fifth of all corporate workspace within the same time frame. Moreover, three quarters of global corporations say they are planning to increase their uptake of flexible workspace to boost employee happiness, increase staff retention and improve productivity. In London alone, enquiries for flexible workspace for between 50 and 99 people increased by 19% in 2017 and by 21% globally. This has driven building owners such as The Crown Estate and Landsec in the past year to launch flexible workspace products as part of their portfolios.

Flexible workspaces offer corporations greater agility

Large corporations have realised that flexible workspace enables them to quickly establish a footing in new markets or respond to changing economic developments. As Dan Wheble, director of the Boutique Workspace Company told u recently: “We have begun to see global corporations of the pedigree of Jaguar Land Rover (JLR) making enquiries about taking flexible workspace with us. In the case of JLR they ended up taking a full floor at one of our centres. I would say its clear large corporations are now waking up to the benefits of flexible workspace

Operators such at the Boutique Workspace Company have begun to benefit as corporations have come to realise they too can use flexible workspace to respond to changing global market demands, reducing some of the risk of launching into new markets and thereby enabling them to expand their business and shift personnel and resources quickly without the cost associated with a long-term lease.

Moreover, they have realised that they can collaborate with SMEs in the same sector, Google’s campus complex is one such example but there are others including Facebook that are taking a similar approach. A greater willingness to collaborate with SMEs has started to encourage corporations to approach building owners with a view to taking a whole building and offering a proportion as flexible workspace to innovative SMEs that work in the same or relevant sectors with which the larger corporations might want co-operate or work with for their mutual benefit.

Market characteristics likely to change

For flexible workspace operators and SMEs alike, increasing demand from large corporations for flexible workspace may be both an opportunity and a threat. Proximity increases the chances for intrepid SME entrepreneurs to collaborate with larger corporations and perhaps win business. But they could also find themselves squeezed out by larger corporations as they take an ever greater share of the flexible workspace centres. IBM already has an entire WeWork building to itself, and corporate occupiers are making their presence felt. It is estimated 30% of flexible workspace in London is now occupied by larger companies (50+ desks), such as banks and other financial services firms, and this is growing year on year.

It is likely we will see a degree of divergence as this market develops. Large corporations will likely partner with the flexible workspace operators to the extent that some flexible workspaces begin to resemble typical corporate towers. Flexible workspace operators will probably create ever greater niche products that continue to cater for start-ups and SMEs in specific industry sectors as they seek new ways to differentiate their product from the ever growing number of competitors. Building owners will likely realise the opportunity providing enterprise space offers them to attract large corporations and this will help Space as a Service become the mainstream – a development few would have predicted even just a few years ago.