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Flexible Workspace Sector to Play Key Role in Post-Pandemic Recovery

The UK flexible workspace sector is facing its biggest challenge in history due to COVID-19 but could play a vital role in the recovery, according to a new report by Cushman & Wakefield.

As outlined in their ‘Coworking 2020: What’s Next on the Flexible Workspace Horizon?’ report, the sector remains resilient despite a slowdown in take-up activity. However, the global real estate firm believes that the post-COVID recovery could lead to a demand for more flexible workspaces in the future.

Christopher Dunn, from Cushman & Wakefield’s UK Research & Insight team, said: “We see Managed Offices as an area of the market that will continue to grow in the medium to long-term, as occupiers are attracted by the opportunity to outsource their office requirements to specialist operators whilst spreading the cost of their office fit-out.

“New entrants to the market will range from “pure” managed solutions to landlord operators who want to add flexibility to their offering whilst maintaining some alignment with traditional leases.”

Unsurprisingly, the COVID-19 pandemic has impacted both the number and volume of leasing transactions as companies delay decisions relating to future growth.

Despite the current downturn, Cushman & Wakefield predicts’ significant’ growth in managed workspaces due to the ease and autonomy fr the occupier, as well as the low capital required upfront (when compared to a traditional office).

Regional Outlook

Cushman’s report identifies Manchester and Birmingham as having the two most established flexible workspace markets outside of London.

The regional UK office markets saw continued growth from the first half of 2019 up until the first quarter of 2020 when the pandemic started to impact the UK real estate market.

In 2019, nearly 530,000 sq ft was acquired by flexible workspace operators, with Manchester and Birmingham cementing their status as the two most established markets outside London.

So far in 2020, activity has been significantly impacted by the ongoing pandemic, and take-up from flexible workspace operators has reached just under 30,000 sq ft, accounting for 4.2% of total take-up across the “Big Eight” regional cities.

In Manchester, flexible workspace accounts for 3.6% of total office stock.

Rob Yates, Partner and Head of Office Agency at Cushman & Wakefield (Manchester)

Rob Yates (pictured right), Partner and Head of Office Agency at Cushman & Wakefield in Manchester, said: “In Manchester, we have seen the pandemic accelerate trends that were emerging before COVID-19. Occupiers now more than ever are focusing on several key areas: flexibility, transparency on cost, and minimising upfront capital expenditure. There will also be an increasingly wide range of occupational solutions on offer for an occupier. As the market becomes more sophisticated, there can no longer be a standard approach to discussions between occupiers and landlords.

“Over the past few months, we are also beginning to see forward-thinking landlords/developers providing flexible offerings alongside the standard leased space within buildings. Schroders already do this successfully at City Tower with their Elevate concept, and many other landlords are now considering how they too can enter the sector.

“Established flexible workspace operators have been affected by the COVID-19 pandemic in different ways, with some reporting little change in contractual occupancy, whereas others citing they have been significantly impacted – however, operators continue to be optimistic about the sector and the role it can play in the recovery of the wider market and return to the office.

“While there is no doubt that there are testing times ahead, the market in central Manchester was in a good position at the start of this year, with strong foundations on which we can build. During the last downturn, Manchester remained active, driven by a strong indigenous community of businesses from a wide range of sectors.”

Meanwhile, in Leeds, flexible workspace accounts for 1.4% of total office stock.

Harry Finney, Surveyor in Cushman & Wakefield’s Office Agency (Leeds)

Harry Finney (pictured right), Surveyor in Cushman & Wakefield’s Office Agency team in Leeds, said: “Leeds has for some time had an exciting flexible workspace landscape, with a vibrant mix of both local and national operators. Compared to other regional cities, we see Leeds as having a good diverse foundation to build on and create a balanced and mature market moving forwards. Without the presence of WeWork, the city can expand and grow at its own pace.

“There is increasing appetite from landlords to get more involved in flexible workspace, either by operating their own space in existing buildings or looking to acquire new space. Bruntwood already do this successfully at Platform and many other landlords are now considering how they too can enter the sector.

He added: “Operators have been affected by the COVID-19 pandemic in different ways, with some reporting little change in contractual occupancy, whereas others citing they have been significantly impacted – however, operators continue to be optimistic about the sector and the role it can play in the recovery of the wider market and return to the office.”

Cushman’s report also looks at how previous recessions have acted as a catalyst for growth in the flexible workspace sector and predicts that the current pandemic will also drive further growth.

One of the predictions in the report is a proposed increase in the number of private landlords entering the sector and delivering their product, following the lead of the likes of British Land, Landsec, The Crown Estate and Bruntwood.

Emma Swinnerton, EMEA Head of Flexible Leasing Solutions at Cushman & Wakefield, said: “Whilst we believe the long-term fundamentals of the flexible workspace sector are strong, COVID-19 is accelerating changes that we have been seeing in the last 12-18 months.

“In particular, we anticipate a move away from traditional lease arrangements between landlords and operators with these being replaced by [a] partnership and/or self-delivery models more akin to the hospitality sector.

“As flexible workspace providers recover from a tough few months, we believe greater adoption of this risk-sharing model together with increased occupier demand will continue to drive growth in the medium-long term.”

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