The evolving office market of 2019, by Sophie Eastwood, YEP Global Director and managing director of communications consultancy Holistic

by Johnny Clayton on Monday, 7 January 2019

Uncertainty can bring a shift in the way companies approach their real estate. There’s already evidence that it’s changing, with a move to flexibility in all its guises.

First, we’ve all read about the co-working craze, although it might surprise you to know that it’s actually only 10% of all office stock in major markets. So, while it has a role to play and represents a demand for flexible, collaborate environments, its proportion must be acknowledged.

That said, the take up of serviced office space in the UK increased by 150% in 2017 according to Savills and continued to rise in 2018. Demand has come from large corporates as well as the SME market. In fact, we’ve heard rumours of a well-known, global firm looking to take an entire serviced office for itself.

Why would a large company do this instead of going down the traditional route? Well, perhaps because the premises’ capabilities are greater and there’s little if any work to be done to deliver the level of functionality needed. A serviced office already offers a variety of work settings, meetings suites, food and drink offers, front of house, resilience and other facilities demanded by a modern workforce. ‘Workplace as a service’ has been bandied around for a while now and, if that’s what you’re looking for, what better option than a fully serviced office.

Interestingly, the emphasis on facilities management in a service-driven workplace is considerable. It’s more like running a hotel or restaurant than an office. Landmark, a leading serviced office operator that has significantly expanded in the last year is actually owned by an FM provider – the only one that is and bringing with it a distinct advantage.

Add to all this the change in accounting standards, which mean businesses need to record leases as long-term liabilities as well as assets allowing external stakeholders to scrutinise company balance sheets more closely, and flexible, pay-as-you-go space becomes even more attractive.

With serviced office demand on the rise, how might the traditional office landlord respond? Shorter leases? Or more up-front work undertaken? The Knight Frank Global Occupier Survey report made the observation that CAT A spaces all look the same. In recognition of this, organisations like Thirdway are pioneering a move to so-called Cat A+, where a ‘plug and play’ space is created with all the functionality needed and all tenants have to do is add their brand stamp. The benefit for the investor/developer/landlord is more tenant competition for space, no rent-free periods and higher rentals. At the end of the tenancy, dilapidations become easier, cheaper and far less contentious. It’s also less wasteful as there’s no need to rip everything out.

So, will we see more and more companies, large and small, opting for more flexible options so they can be more agile? Will they want more choice in the type and range of spaces in response to staff demand?  If we remember that real estate is only 15% of total operational costs with staff four times this, and the cost of losing staff is up to 10 times greater than the cost of accommodating them, property needs to play its part. Watch this space!

Previous post:

Next post: