Office space is one of the key factors in managing an organisation and there is no denying that we are now experiencing a shift from traditional office layout, when some space is fixed to a person, to alternative models, with flexible workspace and co-working being on the rise.
What drives the appearance of these models and what do these drivers tell us about how the real estate sector as a whole is changing?
These questions have been recently raised at a panel discussion led by Annelou de Groot MRICS - IWG/Regus, Ed Bouterse - Workthere, Savills, Eduard Schaepman - Tribes and Locke McKenzie - Deka Immobilien and moderated by Tina Paillet FRICS, Chair of the RICS Board in Europe.
The increased demand in flexible office space is driven by the following factors:
Diversity in an investor’s portfolio is key, with flexible office space making an investor less dependent on a single tenant.
Developments and trends never end, they evolve. The future is impossible to predict, but the demand for traditional office space, including long-lease agreements, is unlikely to disappear altogether.
There is still scope for flexible office and co-working growth in Europe. When measured as a percentage of total leased office space, the United States leads globally, and the UK leads in Europe.
It was also acknowledged that this discussion was held at a time where business is going exceptionally well and where providers of flexible and serviced office space can still cater to flexible demand from tenants. It will be interesting to see what will happen at a next market downturn, or when flexible serviced office providers start operating at maximum capacity.
Maximum capacity could be addressed through increased offering in secondary areas. Annelou de Groot MRICS from IWG/Regus explained how they are looking to increase their offering in cities as of 50,000 inhabitants, which would allow people to avoid a long commute.
Many occupiers are currently experimenting with co-working and flexible office space. One general driver increasing in importance is the presence of common spaces and amenities in the building, such as a restaurant or a service team. The vast majority of inquiries prospective tenants submit to flexible office providers is about amenities.
Which leads to the final, and most important point. The trends in flexible office space and co-working show that the real estate sector is changing its mindset from buildings to people. The wishes and expectations of tenants are seen as the highest goal. Going forward, where will matter less, while what (services and amenities) will lead choices.
Is it time to re-think the real estate mantra “location, location, location”?
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What is the value of flexible office space and how to create evidence for investors that flexible office space as (part of) their portfolio makes business sense?
How is risk assessed in comparison to other opportunities, and which financial guarantees can be provided?
Whilst exact impact on valuations is hard to determine, traditionally, long-term lease agreements provide certainty to investors and hence are perceived to have more value than short-term leases. However, recent research findings show that flexible office space has an impact on value. According to the panel, a US-based study on buildings traded showed that flexible office space increased value when floor space was less than 30% of the total. Value decreased when it was above 30%.
Locke McKenzie from Deka Immobilien explained that they had investigated one of their buildings where the floor space was more or less equally divided in thirds between two different tenants and a provider of flexible office space. If one of the three were to move out, the impact would be highest with the flexible office provider.
Director Corporate Affairs, Europe