New research from The Instant Group shows that enquiries for flexible workspace in the UK have increased by 72% since an initial drop at the start of the pandemic (Q2 2020). The research shows that total demand now stands at 16% above the pre pandemic levels of 2019, indicating that flexible workspace is not only here to stay, but is now a fundamental component for new ways of working.
London continues to dominate its share of the market with 21% of all UK enquiries coming from the capital – the same as 2020 and 2019. However, this growth is small compared to other major UK cities where demand for flex space has increased significantly, such as Bristol (41%), Manchester (28%), and Reading (27%). As a result, desk rates have also increased: Edinburgh (+17%), Manchester (+12%), Leeds (+9%), Bristol (+2%), and Birmingham (+62%), as landlords start to gain confidence in the market.
The Donut Effect
Despite London still dominating the flexible market across the UK from a supply perspective, prices have slightly decreased by -6% in the capital. But there is a high variance to these price fluctuations, with some areas showing very robust recovery including Kensington [+24%], Euston [+25%] and Bloomsbury [+18%], as companies initiate their return-to-work strategies.
While rents charged for flexible workspace in many central London locations have fallen, they
have risen in the commuter belt on the outskirts of the capital. Maidenhead saw the biggest rise, with average rents in 2021 recorded at £414 compared with £296 in 2019 – up 40%. Harlow (27%), St Albans (10%) and Milton Keynes (7%) also enjoyed strong rental growth as occupiers looked to take space outside the capital.
Occupancy of Flex Space
Occupancy rates of flexible workspace across the UK continue to rise, and at 80%, are now the highest level since the start of the pandemic. This far outstrips the figures for more traditional office space. Smaller UK cities such as Reading and Bristol are seeing some of the highest occupancy rates in the country at 86% and 83% respectively. When restrictions were at their tightest, occupancy rates in some cities such as Edinburgh fell close to 50%, whereas during Q3 2021 occupancy rates across all key cities analysed were over 80%, a very positive sign for the recovery of the industry.
Instant’s 2022 predictions for the flexible workspace market
Flex Space demand to increase – Research highlights that larger companies now identify flexible workspace as a solution to new hybrid ways of working.
Larger occupiers will demand flex bringing new operators to market – Increasing interest from larger occupiers is putting pressure on the industry, resulting in a shortage in supply of large spaces. Currently only 15% of available flex space can accommodate 25+ people.
Recovery will be stronger outside the capital (for now) – Regional office markets have received a faster recovery compared to London. E.g. Orega signed for 30,000 sq ft in Manchester, X+Why signed for space in Birmingham and Cambridge, while Leeds recorded a trio of flex office deals during Q1 2021.
Average lease lengths will reduce for conventional space – With rising occupier demand for flexible leases, the average lease length to expiry for conventional offices in London has fallen from 10.7 years in 2009 to 7.9 years in 2020 (Savills, 2021).
The race to quality will increase competition – We are starting to see larger transactions take place but there is one common theme running through them – Quality.
Boom in Entrepreneurialism – With new company registrations at a five year high, this is expected to create an influx of entrepreneurial activity creating growth for the flexible workspace industry by the end of 2022.
John Williams, Director, The Instant Group, said: “Despite the change in working patterns over the past year, demand for office space has not disappeared. Instead, the occupier mindset has changed and both employers and employees alike see flexible workspace as supporting and enhancing the hybrid working model. Flex space will be the key to achieving this balance and, as a result, we fully expect occupancy rates to continue on this upward trajectory over the coming months.”