Flex space UK Research | 17
Adopt or Adapt?
The rise of flex space raises many issues about the evolution of the office market and of how we work. JLL’s research demonstrates quite clearly that the demand for flexible space shows little sign of abating.
Investors and developers are being forced to consider what the rise of the sector means for their portfolio and how they ensure that their space remains relevant and delivers the best returns. Expectations from corporates that new buildings should have some flex operation or provider as an added amenity are also fuelling this change.
While at one time seen as risky tenants with weak covenants, many landlords are now comfortable enough with flex business models to lease space to them.
“ Even three years ago you had to really justify putting flex space into a building, but now people are working differently and it’s the norm.” National flex operator
Limited exposure to the flex sector is now generally associated with an upside for the landlord, with the right flex operator activating leasing velocity and energising communal spaces, and has not had any significant impact on yields.
But there has been some evidence of buildings trading at a discount where flex space represents more than half of the office space, albeit the number of deals is limited. But covenant strength still has a part to play and a weak track record will still be reflected in the underlying yield.
The last 18-24 months have seen a raft of announcements from, mainly London based, landlords launching their own product. But the likes of Bruntwood and Orbit in the North West have operated this model for some considerable time.
In fact, many landlords have been operating their buildings on a flexible or plug and play basis for some time. GPE is one such landlord, with around 2% of its portfolio dedicated to plug and play space, while Legal & General’s Capsule concept is a similar offering.
But why now? Landlords to a certain extent are enriching their total property offer in response to the increased demand for flexibility and are seeking to gain control as the new wave of flexible workspace providers continue to expand around them. A flex offering is complementary to their existing customer base who increasingly want a core and flex arrangement.
“ The reason for doing our own operation, is so that you own the conversation.” Landlord operator
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