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. 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.”
Rob Yates, Head of Office agency at Cushman & Wakefield in Manchester commented: “The entry of WeWork to Manchester has grabbed the headlines regarding Coworking in Manchester. The flexible working giant has committed to 100,000 sq ft in the city in two Grade A offices and is currently in the market for a third Manchester centre. Behind the headline, a notable number of other flexible working providers have taken space in Manchester and others are consider taking accommodation soon. Providers including, Work Life, Work Place, Headspace, Zifferblat and the Offices have committed to accommodation in Manchester, whilst providers such as the Ministry of Sound and MSO mull over Manchester acquisitions.
“The appetite for accommodation for flexible working providers seems insatiable, we can only see this trend continuing with the growth in start-ups and SME’s. The shift to self-employment post-recession now seems to be a permanent feature of the UK economy rather than just a necessary reaction to economic crises. Self-employment has grown by a quarter since 2009 to nearly five million people in the freelance sector. Looking forward, the advent of the new lease accounting standards (IFRS 16) is likely to boost demand for flexible workplaces. Leases or licences under 12 months can be excluded from IFRS 16, which is expected to result in an uplift in demand for flexible workplaces as there will not be a requirement to capitalise the rental liability on the occupier’s balance sheet.”
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.
