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Shift in corporate occupier behaviour sees the rise of the flexible office market

The rise of the flexible office is the result of dramatic changes in the way corporate occupiers approach their real estate decisions, and will open up opportunities for landlords able to adapt and respond to these shifts, claims a new pan-European report ‘The Flexible Revolution’.

The report compiled by global real estate advisor, CBRE states that over the past decade the global flexible office market has been growing at an average of 13 per cent per annum.

Growth rates in EMEA (excluding UK) and APAC have averaged around 20 per cent per annum, while the more mature and larger markets of the UK and the USA have seen average growth of 10 per cent per annum over the same period.

Key European cities like Berlin, Paris and London have all seen strong year-on-year growth of 12–21 per cent between 2016 and 2017, which is comparable with markets like New York and San Francisco, where the flexible office concept has existed for longer.

The main growth drivers according to the report have been technology – such as on-demand apps – economic trends such as rising levels of self-employment – and, behavioural changes such as a greater focus on flexible working styles, portfolio agility and the need for quicker go-to-market strategies. In combination with business disruption more generally, these are producing changes in corporate occupiers’ approach to real estate decision-making, leading to a growing need for flexibility within portfolios.

London is the largest market by far, not just in European terms but globally, with over one thousand serviced and co-working centres. The reasons for London’s pre-eminence include the length and relative inflexibility of UK leases, for which flexible offices may provide a solution for occupiers.

The Central London market has seen a diversification in the type of occupiers taking space, including a notable uptick in the amount of space leased to flexible space operators. Demand for flexible space has been fuelled by an increase in the number of small businesses in the UK since the recession (22 per cent) and heightened political and economic uncertainty. Recent strong levels of take-up by flexible space operators show no signs of slowing. Demand remains robust with some operators reporting close to 100 per cent occupancy of some centres.

According to the report, new entrants are also making their mark on London. A global co-working start-up entered the market in 2014 and has since expanded to over two million sq ft of space, covering all the main London submarkets, with the majority of offices located in East London near to the ‘Silicon Roundabout’ tech cluster. Other co-working focussed operators, many with only one or two centres are also springing up to cater to local demand.

The report concludes that the building of the future is likely to move away from the traditional model of all floors being let on conventional lease terms. New developments will incorporate a flexible space element from inception with new buildings marketed as having floors dedicated for this purpose, along with wellness and other shared amenities.

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