The property industry may be nearing, or even at, peak cycle, but serviced offices will thrive in a marketplace bound to embattle other sectors.
In a market characterised by scale-backs, flexible space becomes a hedge, said market experts at a Regus roundtable event covering the prospects for the serviced offices sector.
In the wake of the 2008 recession the number of start-ups and freelance workers spiked, along with the demand for pay-as-you-go offices. In the next downturn, this is likely to happen again, the gathering agreed.
Today, the level of service offered by operators is unprecedented, the spaces vary wildly, and traditional office landlords are both competing and collaborating with specialist serviced office providers to generate additional revenue. This creates a compelling environment for occupiers even in the event of another lull.
Click on the player below to listen to a full recording of the roundtable discussion
“In a downturn start-ups will have to choose between paying £300 for a hotdesk in an environment where they can trade with 3,000 other start-ups on a day-to-day basis, or going back to their kitchen table. They will decide that £300 is not going to break the budget,” said Kontor co-founder James Townsend.
He added: “Over the past six months operators have held back to see if they can drive down prime rents from landlords. Even though they are desperate for space and want to expand, they are saying let’s wait and see if there is a better deal to be had.”
Townsend and his fellow industry commentators were exchanging their thoughts from a meeting room at Regus’ serviced offices inside the News Building at London Bridge, SE1. An unseasonably clear morning allowed for views across London, while the gentle hubbub of co-workers enveloped the room.
They predicted that as the sector evolves, it would be knowledge-rich startups rather than capital-rich corporates with the power to make a shared office scheme either flop or flourish.
Brand-driven providers and the tribes of workers they can attract to new developments were now just as important to landlords as covenant strengths and lease lengths.
“We’ve seen larger companies want to come into buildings because there is co-working. It is the bigs wanting to be close to the smalls rather than the other way around,” said Juliette Morgan, Cushman & Wakefield global tech group leader.
“I was asking myself, when does one of these providers become a brokerage house for freelancers? We look at their valuation based on revenue, but there will be a point at which they own a community of people who are very agile and are able to respond to the needs of big corporates.”
As they come to understand the benefits of leasing space to serviced office providers, landlords will increasingly investigate how they can become operators themselves.
But the roundtable heard this could be dangerous, since they lacked the expertise of professional operators.
Regus chief executive Richard Morris explained that landlord partnerships were key to the development of the business, and the industry.
“We enable landlords to participate in this growth industry and enjoy a better return on investment, and in fact we partner with landlords more than we sign conventional leases. This is becoming more compelling for all kinds of building owner, and that is key to how the market will develop.”
Regus has doubled in size globally over the past five years and continues to build a network of on-demand workspaces throughout the UK.
In North America it recently struck a deal to house the staff of broadband and telecoms company Verizon in its network of offices across 47 cities. The deal will halve Verizon’s operating costs for the next five years.
“The vision is clear,” said Morris. “Companies of all shapes and sizes will adopt the use of flexible workspace as a core element of how they fulfil their needs across different economies. More companies are seeing the benefits of consuming workspace as a service rather than signing up to long-term property leases.”
The technology sector has been driving and defining the sector’s growth, according to Will Kinnear, director at Green Kinnear Real Estate. He used the analogy of a car designer who “comes up with something radical, for a team of engineers then to knock it into something that can work in the marketplace” to describe how they were influencing product on the market.
However, Townsend predicted that as demand increases, and the sector sees a new breed of entrants, the future of flexible working will move towards bespoke products and expanded services. Crèches and even funeral services could be in the offing, he said.
He added: “You will see fashion hubs start, art hubs start, and whatever else it might be in areas that are affordable, but still central enough to attract people.”
Morgan said these trends would emerge outside the primary cities, and would be driven by lifestyle offering as well as affordability and internet connection.“We get fixated with primary cities – San Francisco, New York, London – but actually we’re seeing really interesting stuff come out of Barcelona, Medellin, Amsterdam, Stockholm and Bali.”
Primary cities would continue to be centres of finance, so occupiers’ ability to “dock in and dock out” between primary and secondary or tertiary cities was key, Morgan added.
What’s in a name?
Serviced office is a term that could be seen as staid, according to Kinnear, paving the way for a debate about how to define the sector. “Is co-working a name change or a product change?” he put to the experts, adding: “Collaborative spaces are positive, revenue-generating and an added service to a building or business centre.” Landlords might offer flexible workspaces, but not the service, he continued.
Morgan described a flexible workspace as a “continuum between flexible space and cellular office space”, but also highlighted the role of accelerators as “programmes embedded into serviced environments” or a means for corporates to move into the serviced office market.
Rebekah Paczek, founder of Snapdragon Consulting and PR for the Business Centre Association, said co-working served both commercial and social functions.
“A lot of people see it as where artists and studios should be subsidised and like to be associated with creative industries, but in a business environment where do they fit?”
Flexible office sector threats
• Permitted development rights
• Poor connectivity and resilience
• Contagion in the venture capital market
• Political uncertainty
• Lack of diversity
The panel
James Townsend co-founder, Kontor
Rebekah Paczek founder, Snapdragon Consulting/PR for Business Centre Association
Richard Morris chief executive, Regus
Will Kinnear director, Green Kinnear Real Estate
Juliette Morgan global tech group leader, Cushman & Wakefield
Chaired by Rebecca Kent special projects editor, Estates Gazette
To send feedback, email rebecca.kent@estatesgazette.com or tweet @Writer_RKent or @estatesgazette
