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UK office landlords and investors to embrace the flexible revolution

by | Jun 7, 2018

CBRE’s new report: UK Landlords & Investors Embrace the Flexible Revolution explores the reaction of the UK landlord community to the wave of unprecedented demand for, and provision of, flexible office space recently (outlined in an earlier report: The Flexible Revolution: Insights into European flexible office markets).

 

Serviced offices, and more recently co-working facilities have long been a part of the UK office market. However, there has been a marked surge in the demand for this type of space in recent years and increased take-up from operators within this sector. In 2017, for instance, take-up from the sector accounted for 18% of overall take-up in the Central London office market. In the wider South East and the large regional office markets like Manchester and Birmingham, take-up from the sector more than doubled in the past year, when measured against a five-year average.

The pace by which flexible working is already transforming the market has not gone unnoticed by the traditional owners of the large office buildings across the UK. To better understand how landlords are responding to these trends we surveyed CBRE clients with office investment across the UK.

The findings make it clear that the landlord community regard flexible occupation as a trend that is here to stay; 92% of respondents agreed that flexible office space is on the brink of becoming mainstream; only 8% thought the current trends were a fad. The survey also suggests that landlords are keen to respond to these developments and to do so relatively soon. Around three out of every four respondents stated they are currently considering some form of provision, and 79% of this group are prepared to act within the next twelve months. Aspirations are high, with many looking to introduce more sophisticated forms of flexible office space, with by far the largest increase for co-working space.

Whilst office owners see the need to act on the structural changes, they are not all yet fully decided on the level of response. The three largest perceived barriers to offering flexible space were a lack of experience to run such facilities, the risks associated with disruption to existing cash flows within a portfolio, and uncertainty about the underlying valuation of the assets concerned. In contrast, the perceived upsides to provide a flexible offering were occupier retention and the preservation of income as occupier behaviour evolve further.

What form could landlord interventions take? Despite the lack of experience cited by many respondents, 38% are considering their own brand of flexible office space. However, a larger proportion (49%) are more likely to use the skills of others, by entering into a formal partnership with an existing flexible office space provider, or simply leasing space to these providers.

Whichever course of action individual landlords decide is right for their particular blend of properties, occupiers and circumstance, it is clear that the ‘flexible revolution’ is here to stay.  The arms-length relationship that has existed between landlords and occupiers is rapidly becoming a thing of the past.

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