Demand for flexible office space set to dramatically increase, research reveals

The demand for flexible workspace is set to accelerate as over two thirds of global corporates plan to increase their use of flexible co-working and collaborative space over the next three years, according to new research from Knight Frank.

Knight Frank’s (Y)OUR SPACE report surveyed senior executives at 120 global companies which collectively employ over 3.5 million people and occupy an estimated 233 million sq. ft. of office space.

The research reveals they plan to significantly reduce their number of traditional leased offices and operate increasingly from flexible, serviced and co-working spaces, which create a more collaborative environment and offer the freedom to expand and contract quickly, according to market conditions.

Flexible workspace is defined as workspace that is furnished and ready to use – complete with everything needed to facilitate work straightaway including WiFi, a receptionist, meeting rooms, technology and equipment.

Patrick Matheson (Partner at Knight Frank Newcastle), said that some North East landlords are ahead of the curve having already started converting their offices into flexible and collaborative spaces.

He comments: “The Greydient @ 71 Grey Street, The Pearl on Northumberland Street and NEON at Quorum are good examples of landlords developing collaborative space within their offices to meet this changing occupier trend.”

“The likes of WeWork and other co-working operators haven’t committed to Newcastle as a location to open co-working operations yet, but the thriving tech/digital scene we have here gives us the right platform and I’m sure if one of these did come to town they would do well.”

Today, despite the proliferation of co-working and serviced office operators, the majority of global corporates occupy offices on a traditional lease model. Two thirds of companies surveyed reported that co-working, serviced and flexible office space comprise 5% or less of their current office space.

However, the research reveals that the proportion of flexible space within companies’ portfolios is set to increase dramatically.

69% of global corporates plan to increase their use of co-working spaces, and 80% expect to grow the amount of collaborative space they use over the next three years.

Furthermore, almost half (44%) said that flexible space will constitute up to a fifth of all office space in the next three years. An additional 16% estimated that as much as half of their workspace globally would be flexible space within the same time period.

The drivers

What are your reasons for opting for flexible/collaborative workspaces?

  • 75% said they believe it would increase personal productivity - linked to wellbeing and happiness
  • 55% said it gives increased flexibility
  • 11% state it would increase the sense of community amongst workers
  • 11% said greater speed to becoming operational

The North East

Paul Lancaster (Founder of Plan Digital and Newcastle Startup Week) says it is a demand for vibrant, buzzy, collaborative, high-spec workspaces that is driving forward this trend in the North East.

“Managed workspaces are not new. Places like PNE’s North East Workspace, North East BIC, TEDCO and Regus have been around since the 80s or 90s” says Paul. “They’re great places but they’re traditional, serviced offices where companies usually work in their own spaces, behind closed doors. They are often out of town and difficult to reach without a car.”

“What we’re seeing is people wanting to be part of a vibe. They want to be amongst other like-minded people and innovators, bouncing ideas off each other in high-quality, boutique-style-décor, collaborative spaces. They see the Google and Facebook offices of Silicon Valley and they want a slice of that. And they want to be in city centres, within walking distance of entertainment and shopping,” says Paul.

The war for talent

Paul continues: “The global war for talent is definitely a thing. That ever-increasing competition for winning the best employees for your business is strongly behind why companies are moving towards higher quality, contemporary, flexible and collaborative workspaces.”

“Top class people are no longer willing to relocate for a job – it’s now a case of taking the job to the talent, which is where short-lease flexible, co-working offices come in. If that person is in high-demand for their skills then they don’t settle for mediocre, bland, traditional, working-in-silos, offices on the edge of town. Absolutely not.”

The flexible scene

The North East’s journey onboard this global trend was highlighted in what is known as ‘The Auxin Report’ back in 2016. This research, commissioned by Newcastle and Gateshead Councils, looked at the region’s digital sector and explored what the councils could best do to help the development of the digital sector with a particular focus on workspace provision.

One of the upshots of the report was the revealing of the tech community’s desire for modern, shared workspaces with a community vibe and short-term, affordable leases that allow them to expand and contract as needed.

Campus North was, of course, the first proper co-working space in Newcastle and fulfilled that brief for around five years until closing its’ doors earlier this year.

Paul Lancaster, who was originally a sponsor and supporter of Campus North whilst at Sage and then Tech North (now Tech Nation) before becoming a tenant when he started his own Plan Digital business in 2016, said:

“Campus North was Newcastle’s first generation of co-working space and people loved it for its community feel, city centre location, flexibility and affordable price. It was the perfect home for freelancers and early stage tech and digital startups. But although it will be sorely missed, it wasn’t right for everyone with some people demanding the community vibe but with an even higher quality environment and also more follow on space that they could grow into as their business grew.”

“The fact that 71 Grey Street is almost at full capacity from the outset shows the demand is there for high quality, flexible and collaborative workspace for fast-growing and ambitious startups and established SMEs, and highlights just how vibrant the tech and digital sector is in Newcastle these days.”

The future

Hanro is one of the first North East property developers to take the baton and run with this changing occupier trend.

Hanro has invested £2m in transforming 21,000 sq. ft. of offices at the prestigious, central Newcastle address of 71 Grey Street and has incorporated communal, networking spaces.

Erin Peart (Head of Property, Hanro) said: “What we really want to do is create a buzz in the building with scaleup businesses who can be complementary to one another.”

“On the second floor of the building the firm is offering shorter term leases in smaller spaces, alongside longer leases on other parts of the building, offering a great mix of options for occupiers.”

She said: “Rather than try to swim against the tide, this is a building where we are happy to accept that the more flexible we are with leases, the more demand we will have from occupiers.”

To sum up - demand for flexibility is the single biggest threat - and opportunity - to owners of office space. The recent boom in co-working is indicative of a structural change within commercial real estate whereby companies desire space that is flexible, highly serviced and aligned within the realities of doing business in an age of disruption.

Whilst it’s tech, digital and gaming companies that are at the forefront of this vogue, professional services firms are now making-up ground and, as the Knight Frank research shows, global corporates have cottoned-on to its benefits too.

  • 69% of global corporates plan to increase co-working & flexible workspace over next three years
  • 44% believe flexible workspace will comprise up to a fifth of all corporate workspace
  • 75% aiming to boost employee happiness and productivity through business space

A version of this article first appeared in the December 2018 issue of Northern Insight magazine and you can read a scanned version here.

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