The words co-working and shared workspace are echoing across UK regional property markets but what does it actually mean and is the influx of operators changing the dynamic of office take up in our major cities?
With the concept that office space is just the delivery vehicle for a variety of businesses to undertake their core function and that this work space can be provided in a variety of different ways and in different environments it is absolutely clear that co-working and shared space is not just the domain of trendy millennials but an entirely new way to interact with others in the work environment. The benefits of the flexibility of serviced offices overlaid with the ‘club’ mentality of shared spaces is not lost on businesses from across the spectrum and we are seeing real evidence of international corporates sitting comfortably alongside start up’s.
How this is immediately manifesting itself in market terms is becoming clearer – the big players in this sector are currently striding across regional cities committing to long term leases on both prime and secondary office space, different buildings, different locations but the same core concept. The days of management agreements and shell companies are left in the distance as these operators have sufficient confidence in the depth and potential of the market to commit over the long term in return of course for chunky rent free periods. There remains something of a calculated leap of faith for landlords as operator profits have not grown as quickly as the sector or the players within it but the momentum built up underpins the belief regardless of the potential to reach a tipping point in terms of market saturation.
With some operators entering the market with an established global client base already in tow coupled with a curious cohort of indigenous businesses wanting to be part of the movement hard facts tell us that the first phase of the property industry’s dalliance with the flexible sector has been an unprecedented success. The ability, experience and skill of the operators will undoubtedly be needed though to grow and maintain the client base beyond the initial sweeteners offered to join up and of course ensure income is sustained beyond the point their landlords start expecting rent to be paid. The corporates who are brought into the flexibility of the concept will undoubtedly stay with them but retention of the indigenous occupiers will need to be navigated carefully to ensure continued success.
Whilst Birmingham saw an explosion of flexible workspace off the back of the commencement of the new high speed rail connection and the requirements of the supply chain that came with it - it seems to be Manchester where the major operators are choosing to speculatively lay down roots, however all UK regional markets are reporting healthy demand from the flexible work space sector.
Whether regional office markets has been fully ‘disrupted’ is yet to be seen – In many cases 2018 saw record take up figures drawn from all types off office product and lease lengths. At the lower end of the range it is clear that we have seen a reduction in the number of businesses seeking space below 5,000 sq ft – whether this is a long term dynamic change or a just a short term gravitation to the ‘new kids in town’ is yet to be fully understood, however the reality is that the long standing traditional office market is changing before our eyes as occupiers speak in a louder voice about the type of space they want and the terms they want it on – reacting more quickly to trends and technology will see a faster moving environment which investors, developers and most importantly advisors need to react to.