Boom in UK co-working as sector comes of age across top cities

Demand for flexible workspace across the UK saw record growth in 2017, according to the latest research from Cushman & Wakefield.

The firm’s Co-working 2018 report reveals the extent to which the sector has evolved and matured. The flexible workspace sector accounted for 17% of all office leasing activity in the UK’s nine largest cities in 2017. This compares to just 6% of leases in 2016.

Central London saw a record 2.5m sq ft of lettings signed for flexible workspaces, more than 21% of all commercial office leases in the capital. The average rent paid by flexible workspace providers across the capital also rose to £65.50 per sq ft in 2017, a 10% increase on the previous year.

Around two thirds of the UK flexible workspace market is outside London, and the UK’s largest cities saw significant growth in the take-up of space for co-working, as the trend for flexible workspaces spread well beyond the capital for the first time.

Take-up of flexible workplace in the UK’s largest regional cities, including Birmingham, Bristol, Cardiff, Edinburgh, Glasgow, Leeds, Manchester, and Newcastle, increased from 2% of all city centre lettings in 2016 to 7.5% of take-up in 2017. This increase was largely driven by the rapid expansion of WeWork and Spaces, which were responsible for more than half of the year’s take-up of co-working space across the UK.

Elaine Rossall, Head of UK Offices Research & Insight at Cushman & Wakefield, commented: “Flexible workspaces are now a vitally important part of the UK economy, and an increasingly familiar presence in our cities. The popularity of co-working has seen demand continue to grow exponentially across the country, both for fast growing SMEs and increasingly also for larger and more established companies.

“Co-working not only offers flexibility and room to grow, but can also improve the employee experience, revitalise corporate culture, and minimise companies’ exposure to long-term leases. One of the additional key drivers of the market will be accounting changes that make shorter-term leases of flexible space more attractive to larger businesses.”

London is the Global Capital of Co-working

London has cemented its position as the global leader for flexible workplaces, easily outstripping New York in terms of both space and number of operations. Since 2012, flexible workplace leasing has represented an average of 2.9% of the market in Manhattan, compared to 10.6% in London.

Across Central London, flexible workplace providers took more than a fifth of office space last year. A total of 2.5 million sq ft of space was let in 2017, tripling the previous year’s volumes. This represented 21.1% of all Central London take up, compared to 8.5% in 2016. Flexible workplace operators now occupy around 10.7 million sq ft of space across Central London, or just over 4% of all office stock.

This has resulted in WeWork emerging as the largest taker of space in the capital over the past five years, with 2,578,000 sq ft of space since 2012. This places it ahead of Google (1,344,000 sq ft), Amazon (1,013,000 sq ft), Deutsche Bank (858,000 sq ft) and fellow flexible office provider The Office Group (853,000 sq ft). In fact, such is its expansion that WeWork now has the largest volume of office space commitments in London, second only to the UK Government.

As the sector has expanded, so too has the average workspace unit size in London to 40,000 sq ft, up from 15,000 sq ft in 2015. There are now around 30 units in excess of 50,000 sq ft in London.

Growth Outlook

Over the next year the sector will see increasing demand for co-working space from larger businesses, as corporate occupiers embrace a more dynamic co-working culture or shorter and lower-risk leases. Uncertainty around Brexit may be driving demand for flexible workspace in London, as major corporates look to avoid long-term space commitments.

Demand for flexible workspaces is likely to be driven further by new lease accounting standards (IFRS 16) which require occupiers to capitalise rental liabilities on their balance sheets. However, leases or licences under 12 months can be excluded, increasing their appeal.

With demand for flexible workspace in Central London almost doubling from 853,178 sq ft in 2016 to 2,484,000 sq ft in 2017, there is significant pressure growing on the supply of space in the capital to meet this demand. The pace of growth in the market will be limited by operators such as WeWork reaching critical mass, while limited supply of new space will act as an inhibitor to those seeking larger spaces.

Cushman & Wakefield predicts that in future, every large multi-let building will have a proportion allocated to flexible workspace as landowners look to take advantage of growing demand and meet the needs of potential occupiers.

Elaine Rossall added: “One of the key issues will be growing pressure on the supply of suitable co-working space and whether landowners and developers can keep up with demand. Nevertheless, we expect flexible workspaces will account for at least 10% of the total market across the UK within the next 10 years.

“Providers will increasingly focus on 1-3 year leases over short-term membership models, as these represent more sustainable and lower-risk tenants for occupiers.

“While offices have been the traditional source of space, pubs, hotels and libraries are increasingly of interest to flexible space providers, building on the popularity of coffee shops and cafes as flexible workspaces. Any brick-and-mortar business that is vacant for a period during the day could be utilised for flexible working, and the availability of vacant retail units could see co-working become a fixture of high streets across the UK.”