25 June 2019 | Herpreet Kaur Grewal
Over the next five years more than 10 million square feet will be added to the stock in key UK cities and flex space will account for over 8.5 per cent of the total office stock by 2023, says real estate adviser JLL.
JLL's research found that the flex space footprint in the UK grew by 25 per cent in 2018, a similar rate to 2017. And although London dominated the sector, Birmingham and Manchester each saw more than 100,000 sq ft added to their flex stock in 2018, which has already been followed in 2019 by 55,100 sq ft and 147,000 sq ft of lettings respectively.
Although the UK's regional cities remain some way behind London in terms of the impact of the flex sector, the 'Big 6' cities (Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester) have seen strong activity among operators over recent years. Take-up rose 26 per cent between 2017 and 2018 to reach 584,000 sq ft, representing 10 per cent of overall transactions. JLL highlights that the pattern of take-up in the Big 6 is following a similar trajectory to central London, but lags around three years behind.
All are expected to see continued growth and it is anticipated that by 2023 flex space will account for an average of 5 per cent of stock. Elaine Rossall, head of UK offices research at JLL, said: "Activity in the Big 6 will take off in the next few years, particularly with WeWork, which was instrumental in driving the expansion in central London, now entering the regional markets.
"Manchester is presently the most mature of the regional cities; not only was it the first location outside of London to secure WeWork, but over the last five years flex space has increased in the city at a rate of just under 350 per cent, outstripping central London, which saw an increase of circa 210 per cent. New markets for operators will be chosen carefully; operators will not target every city and secondary cities are less likely to see the widespread adoption of flex.
"London will also see further growth as operators plan to expand their footprint in the capital, however, in the short term the pace of growth may slow due to supply dynamics in central London. The increasing number of landlords launching their own platforms and therefore seeking not to let space to flex operators may also impede their expansion."
In addition to the changes that the evolving flex office model has brought for operators and occupiers JLL's research points to the inevitable effect it has had on landlords and developers. They are being forced to consider what the rise of the sector means for their portfolios and how to make sure that their space remains relevant and delivers the best returns.
Limited exposure to the flex sector is now generally associated with an upside for the landlord with the right operator activating leasing velocity as well as energising communal spaces without significantly affecting yields.
JLL's study suggests that the idea of a partnership model is gaining momentum as the sector continues to evolve. This alternative solution will see landlords and operators partner up, with the former gaining the benefits of offering flexible space without having to enter directly into the sector. The result could be akin to the hotel industry, which provides a model of the operational and contractual arrangements that could achieve this.
In addition to the increase in flex space, JLL identifies disruptions occurring as operators keep abreast of clients' needs and seek to develop their own brands, cultures and USPs. A consequence of a more focused client service has been the growth of centres targeting specific verticals. Examples include Ministry of Sound, Huckletree and Runway East targeting tech start-ups while London-based centres such as Third Door and Blooming Founders cater for family and female-focused customers respectively.