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<\/figure><\/div>\n\n\nPanel of experts<\/strong><\/p>\n\n\n\n More flexible working means more flexible office space, and the market is maturing fast \u2013 more than three quarters of landlords reported growing demand for flexible space last year, while two thirds of flex space operators plan to expand this year, according to The Instant Group\u2019s UK Flex Market Report 2023.<\/p>\n\n\n\n Property Week<\/em> and Yardi <\/a>convened a panel of seasoned industry experts to unpick why so many occupiers, investors and developers are going flexible \u2013 and to assess trends in the current market and the prospects for the flexible future.<\/p>\n\n\n Emily Smith:<\/strong> We\u2019re at a very exciting time because the whole market is moving towards wanting more flexible leases and more amenity space. Back in the day, flex was a bit of a poor cousin to conventional space, and it certainly isn\u2019t anymore. Last year, we [Argyll] were over 90% occupied for half the year. I\u2019ve never seen that before and I\u2019ve been in the industry since 2005.<\/p>\n\n\n\n What\u2019s really interesting about sitting around the table today is seeing who is here talking about flex [big landlords such as Grosvenor and Landsec, for example]. I think each of us would have a different description of what flex is, though. Some of the large landlords coming into the sector are doing three- to five-year leases across whole floors, whereas before, flex was always about individual spaces for eight to 10 people. Now we\u2019re seeing a merging of the two.<\/p>\n\n\n\n Piers Townley:<\/strong> As an emerging landlord in this area, I look after Grosvenor\u2019s Belgravia offices as well as our flex business. I think of it [flex] as a continuum of our leasing. The value is in being able to approach our customers and offer them a variety of products \u2013 so if they want to grow mid-lease we can move them into offices that are suitable for them. Having that flexibility is where we are going.<\/p>\n\n\n\n Ralph Dorey:<\/strong> I was reading some stats from one of the big agencies recently, which said that their average flex deal was just under 2,000 sq ft. Our average is probably about eight desks at the moment. If you look at our US data, the average there is bigger, but it\u2019s still not 2,000 sq ft. We look at flex more as coworking, rather than managed office solutions.<\/p>\n\n\n\n Natasha Morris:<\/strong> At Landsec, we have three products: Blank Canvas, our traditional cat-A space; Myo, which will do from six desks up to 15,000 sq ft; and Customised, our more fitted and managed product, which sits in the middle. But it\u2019s exactly as everyone is saying \u2013 there is a blend. We have customers who might use all three, either at the same time or over the course of their lifetime with us. The opportunity as we see it lies in that breadth of demand.<\/p>\n\n\n\n NM:<\/strong> What I have heard most often in the couple of years since I joined the industry is that we need to fix how flex is valued. If you put flex space into a building you are supporting its attractiveness \u2013 we [Landsec] see that as being accretive to value but the one place that doesn\u2019t happen is at valuation.<\/p>\n\n\n\n RD:<\/strong> I rather flippantly said in a meeting once that if we called it hotel workspace the valuers might do better.<\/p>\n\n\n\n Justin Harley:<\/strong> Unlike student accommodation or hotels, for example, flex space is not seen as an asset class in its own right by investors. And there is not enough transactional evidence. Until that changes, valuation is always going to be difficult because it is just a case of one underwriter against another.<\/p>\n\n\n\n NM:<\/strong> There is also still a bit of a negative perception in the market, perhaps perpetuated by WeWork failing, which has also damaged the credibility of some other operators who have been very successful for a long time.<\/p>\n\n\n\n ES:<\/strong> It\u2019s important not to have this narrative that flex space equals start-ups. Actually it\u2019s increasingly big corporates that value the flexibility, the amenity space and having someone to make sure the fridges are stocked.<\/p>\n\n\n JH:<\/strong> Yardi is a flex space customer and we have 9,500 employees worldwide \u2013 we are an established business, not a start-up. When we came to London, we started with a small space with only four or five desks. Now we have about 35 desks in the same office building and about 60 people dropping in and using the space.<\/p>\n\n\n\n That flexibility has been brilliant for us \u2013 it helps to mitigate risk. It makes it so easy to put a new team in somewhere, even if you are not quite sure whether that market is going to work for you or not.<\/p>\n\n\n\n PT:<\/strong> It\u2019s a maturing market. We\u2019ve just done a couple of lettings to FTSE 100 companies, which we weren\u2019t expecting. That\u2019s because they don\u2019t want the hassle of setting up a small satellite themselves \u2013 they just want to be able to move in. That\u2019s what draws people in. We see the market only going one way in demand terms.<\/p>\n\n\n\n NM:<\/strong> A lot of customers use it [flex] as swing space \u2013 if a landlord wants to improve a building\u2019s ESG [environmental, social and governance] elements for example, customers have to find a temporary home [while the upgrades are done]. If the base building is being improved, they might decide to redo their fit-out at the same time. We\u2019re seeing a huge demand coming in from office refurbs alone.<\/p>\n\n\n\n JH:<\/strong> The quality of the product is fantastic now. It has moved on immeasurably from the early days, when flex offices could be pretty soulless places. I don\u2019t think the industry gets enough credit for what it has done in terms of raising the bar for the quality of workspace across the board.<\/p>\n\n\n\n RD:<\/strong> We\u2019ve moved away from providing a workplace solution to providing a workplace experience, so that people actually want to come to the office. The challenge is to create experiences that are for everyone, whether that\u2019s having interesting activities at lunchtime or just the fact that someone knows their name and what kind of coffee they like to drink.<\/p>\n\n\n\n We don\u2019t want to be like the gym where you only remember that you enjoy it after you have been. We want the office to be one of the reasons you get out of bed in the morning.<\/p>\n\n\n We\u2019ve moved away from providing a workplace solution to providing a workplace experience, so that people actually want to come to the office. The challenge is to create experiences that are for everyone<\/em><\/strong><\/p>\nRalph Dorey, Industrious<\/em><\/cite><\/blockquote>\n\n\n\n Jacob Fisher:<\/strong> Operators are moving more towards experiences, specifically experiences that help differentiate them from other operators. So we\u2019re never going to compete for customers with Argyll, for example, but they probably aren\u2019t going to compete with us for Runway East people, who want things like \u2018Cake Wednesday\u2019, for example.<\/p>\n\n\n\n PT:<\/strong> You can\u2019t forget about the basics. When we started out, we spoke to a lot of customers about what they care about in flex. The overwhelming things were keeping the place clean and having reception staff that mirror their businesses operations \u2013 starting at 8am rather than 9.30, for example, so they can have meetings at the times they need them.<\/p>\n\n\n\n ES:<\/strong> Last year we spent \u00a323m refurbishing seven buildings and they look amazing. But when we asked our customers what the best thing about their building was, they said the free Twix.<\/p>\n\n\n\n ES:<\/strong> We all report very differently \u2013 we [Argyll] don\u2019t report by desk, we report per square foot. When we get data out to our investors and shareholders, they ask for an industry standard. But because some [operators] might wrap in breakfast, for example, and others wrap in a bit of tech, it\u2019s very hard to make a meaningful extrapolation.<\/p>\n\n\n\n JF:<\/strong> There\u2019s a lot of desk rates data. But \u00a3600 for a 120 sq ft desk is a very similar rate on a per-square-foot basis to \u00a3800 for a 140 sq ft desk. Then there are managed suites with communal spaces and meeting rooms. It is hard to compare like for like \u2013 you have to walk around to work out what is really happening.<\/p>\n\n\n\n JH:<\/strong> The technology is disjointed. People have had lots of different systems, so it takes a long time to pull data together from those systems. There has been no real data integrity. Yardi\u2019s core proposition is to bring all that together and have one set of data to make it much easier and quicker to report back to investors and landlords.<\/p>\n\n\n\n JF:<\/strong> The regional markets can be challenging to get into \u2013 you need to do more research and it can be tempting to stay in London where there is plenty of volume. But we have found the larger cities like Bristol are great \u2013 places where there is enough liquidity in terms of transactions, and there is good graduate retention in local businesses [to drive demand].<\/p>\n\n\n\n Also, it is good to play a part in supporting local businesses outside London \u2013 the tech scene in Bristol has really taken off over the past 10 years, and having great space is important for them when it comes to attracting talent.<\/p>\n\n\n\n RD:<\/strong> We are in Manchester and we have looked at the other major cities and Ireland. For us it\u2019s about the network effect \u2013 where do our clients want us to be? About 12% of our clients in Manchester are also with us in London.<\/p>\n\n\n\n ES:<\/strong> People are returning to the office, but the new working week is Monday to Thursday. Fridays are quiet. We have to make offices into places people actually want to be.<\/p>\n\n\n\n JF:<\/strong> There was a school of thought that the office was going to be unbundled \u2013 people might book a hot desk from Argyll, go for a meeting at Runway East and work at Industrious when they are in LA, for example. I\u2019m glad to say that hasn\u2019t really happened, or only to a very small degree. People want somewhere they can call their own, where they can get the team together and they know it is right for them.<\/p>\n\n\n\n\n
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<\/figure><\/div>\n\n\nHow is the flex space market changing as it matures? Are tenants taking more space?<\/em><\/strong><\/h3>\n\n\n\n
What are the key challenges facing the flex space market in 2024?<\/em><\/strong><\/h3>\n\n\n
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<\/figure><\/div>\n\n\nIs flex space still predominantly for smaller occupiers?<\/em><\/strong><\/h3>\n\n\n\n
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<\/figure><\/div>\n\n\nWhat about the quality of the space that is available now?<\/em><\/strong><\/h3>\n\n\n\n
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<\/figure><\/div>\n\n\n\n
Investment is the key to continuing growth \u2013 how could the sector make itself even more attractive to investors?<\/em><\/strong><\/h3>\n\n\n\n
How much potential is there in regional markets for flex space?<\/em><\/strong><\/h3>\n\n\n
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<\/figure><\/div>\n\n\nTwo years after the end of the pandemic, are working patterns finding a new equilibrium?<\/em><\/strong><\/h3>\n\n\n\n