- Appetite for flexible workspace still high with take-up in London likely to exceed 2 million sq ft for third successive year
- Average transaction sizes fall from more than 39,000 sq ft in 2017 to around 26,000 sq ft in 2018
The march of the flexible workspace is evolving and is set to further penetrate the office market says real estate advisor Cushman & Wakefield, in a new report, Coworking 2019: The UK Flexible Evolution Continues.
Despite political headwinds, flexible workspace operators let more than 1.2 million sq ft of space across 40 transactions in Central London during H1. If letting activity progresses at the same rate for the remainder of 2019, Cushman & Wakefield predicts flexible workspace take-up to exceed two million sq ft for a third successive year.
While there has been a small decline in flexible workspace take-up from the record levels seen in 2017, the total number of transactions is increasing year-on-year (63 in 2017; 77 in 2018). The average transaction size consequently fell 41% year-on-year to 26,010 sq ft in 2018. This is due to the fact that new entrants to the market (e.g. Knotel) are offering a different model and are consequently taking smaller amounts of space. In parallel, the average deal size of some of the more established operators has also reduced slightly following a series of significantly large deals in recent years.
Emma Swinnerton, EMEA Head of Flexible Leasing Solutions at Cushman & Wakefield, said: “It is worth remembering that while we have witnessed accelerated growth in the last few years, the flexibleworkspace market in its current guise is still in its relative infancy. The sector will continue to grow and drive change in the UK office market as we see new operators emerge, traditional landlords diversify, and the expectations of office workers climb towards a hospitality model.”
Given current take up and anticipated completions, Cushman & Wakefield forecasts that flexible workspace will account for at least 5.5% of total office stock in Central London by the end of 2019 (14.9 million sq ft) – three years ahead of previous forecasts. By the end of H1 2019, 12.95 million sq ft of flexible workspace was in operation, accounting for 4.8% of total office stock.
Mirroring the findings in Cushman Wakefield’s Movers & Shakers report, the City Core has been the most active submarket since January 2018, with a total of 27 flexible workspace transactions taking place, totalling 691,570 sq ft. This is followed by Canary Wharf, Midtown, Southbank and Victoria. Fitzrovia is outperforming the market in terms of overall stock, with flexible workspace take-up accounting for 7.3% of stock since January 2018. Certain fringe submarkets such as Paddington, Battersea & Nine Elms and White City are also showing comparatively strong performance.
In 2018, take-up by flexible workspace operators in Manchester reached 107,000 sq ft, bringing the five-year total to nearly 280,000 sq ft. Similar trends have been seen in Birmingham, where 2018 flexible workspace take-up reached 101,000 sq ft, bringing the five-year total to over 316,000 sq ft. Glasgow and Leeds have both attracted flexible workspace take-up in excess of 100,000 sq ft between 2014 and 2018.
Looking ahead, Birmingham and Manchester are likely to continue to cement themselves as the regional flexible workspace hotspots, whilst flexible providers continue to seek new opportunities in potential growth cities across the UK.
The Supply Challenge
The development pipeline of speculative office space in Central London and the majority of the UK’s cities remains particularly thin and could prove to be a barrier to growth at the rate we’ve seen in recent years.
Christopher Dunn, from Cushman & Wakefield’s UK Research & Insight team, said: “Acquiring suitable stock will be a challenge for flexible workspace operators, particularly at a time when off-plan pre-lets are removing space from future supply at a growing pace. However, in those markets where large, quality buildings can be brought to market, the flexible offering is likely to flourish. In markets with very limited space in the pipeline, there are opportunities for commercial developers to lead the market.”