Management agreements are set to account for 50% of deals in 2023 and will – along with M&A activity – dominate the flex office sector next year, according to data from office agency Workthere.
The brand, owned by Savills, has found that management agreements have surged in popularity over the last three years and accounted for 41% of deals so far in 2022, compared to just 9% in 2019.
It says this shift marks a change in landlords’ view of flexible lease structures that favours the control provided by a management partnership over the perceived risk associated with not having a formal lease in place.
Another emerging trend it identifies is the use of flexible offices by corporates, which are now including a proportion of flex in their portfolios as standard, such as swing space and project space.
Workthere said that in 2022 alone, the number of transactions over 50 workstations that it completed has risen threefold from that of 2021. It expects this to increase, as well as the 100 and 200 desk plus sector, a change which it says is already being reflected in the current pipeline.
M&A activity, as well as capital raising, will also be a key feature of the flexible office market next year, it notes. This is a continuing trend from this year after the TOG and FORA merger, Industrious’ purchase of The Great Room and Welkin & Meraki, and IWG’s purchase of the Instant Group.
This comes as many operators prioritise growth and look to grow footprint, forcing operators to look at different routes to scale such as accessing capital and buying sites with their own operator, as with Castleforge and its operator Clockwise.
As the “flight to quality” continues to drive market polarisation, the “significant quantity of legacy stock” that needs to be upgraded is available as extra space, it said. But this might be challenged over the next 12 months as headwinds in the wider market and economy, including inflation pressures on costs and rising risks surrounding the business rates review, may cause an increase in desk prices.
Global head of Workthere Cal Lee said that the flex office market was “quick to learn and adapt” during the pandemic, which has “made it a far more resilient sector” but said it “needs to mature further”.
Lee said: “The flexibility that [the flexible office market] offers combined with an agile structure and dynamic pricing model has made it a more versatile option for a wide range of occupiers, allowing it to both complement and compete with conventional space.”
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