The flexible office market in and around London will need greater support from local authorities and real estate developers if it is to capitalise on new opportunities in a post-Covid market, according to a new Greater London Authority-backed study.
Consultancy Monday Works’ Covid-19 survey report was commissioned to dig into how the pandemic affected flexible workspaces, how operators responded and what comes next. The paper was based on three surveys conducted with close to 50 flex operators between July 2021 and May 2022, and was published this week, shining a light on a sector now facing shifting tenant types, lease structures and revenue projections.
“The pandemic had a widespread impact,” said Monday Works founder Jamie Dundas in the report’s introduction. “The flexibility these spaces offer and the meagre support they received meant that very few went unscathed. But despite this we found a remarkable degree of resilience and optimism in the sector.”
Opportunities for the industry include supporting larger corporate customers to move away from fixed leases, Dundas said, as well as “rejuvenating local high streets”.
“Moreover, meeting the unique demands of dispersed teams and accommodating the rise of hybrid work arrangements presents another avenue for growth,” Dundas said, adding: “This industry can make a positive social impact by providing affordable workspace solutions for those who are most in need, promoting inclusive and equitable access to workspaces.”
However, to realise these opportunities, workspaces and operators are in need of support, Dundas said – “from the government, GLA, local authorities, developers, collaborative networks and other key stakeholders”.
Perfect storm
The surveys found that Covid-19 created “a perfect storm” for flex office operators, with tenants leaving “in their droves”.
“The nature of flexible contracts meant that there was little security for operators when lockdowns and social distancing hit,” the report said. “This had a particular impact on knowledge-based workspaces – co-working, serviced offices – where tenants left in their droves to work from home.”
Single-site operators and those offering only open-plan workspace were particularly hard-hit, with fixed property costs a significant headache as properties emptied. Some 55% of respondents said their landlords gave them no flexibility on rent during the pandemic lockdowns, with just 12% qualifying for the government’s temporary relief scheme.
Dundas highlighted “a remarkable degree of resilience and resourcefulness” in response to these problems as companies adapted. “Many workspaces pivoted business models, fast-tracked the roll-out of technology, transferred various services online, adapted their space and infrastructure and increased their all-round flexibility,” he wrote.
But the sector’s recovery has stuttered – although 60% of survey respondents expected to expand their business in 2023, 45% said their revenue was still lower than it was before the pandemic at the time of the third survey. “Whilst the sector has proven robust and operators are optimistic for the future, recovery still has some way to go,” the report said.
Degrees of demand
The future is even more flexible, the study found. “There has been a shift in power from employer to employee when it comes to decision-making,” Dundas wrote. “Employees are demanding greater freedom and choice over where they work than they did pre-pandemic. All companies have been galvanised to question exactly how much space they need, and how they can use it better.”
The sector should be well placed to make the most of hybrid working policies now being introduced in businesses. But as the report noted, the big issue is quantifying that demand. “Anticipating exactly what degree of hybrid work companies will want moving forward remains a major challenge for planning ahead,” Dundas wrote.
Other opportunities for the sector include pivoting to new types of tenant – 70% of respondents said they were doing this, pointing to spun-out corporate teams that were new to flex space, larger businesses and, outside the city centre, remote workers who wanted to have a workplace nearer home.
And in terms of the takeaways for property owners, the study found that operators too now want more flexibility from their landlords.
“Operators who had good relationships with their landlords, or who were operating under partnership agreements, were much less vulnerable when the pandemic hit,” Dundas wrote. “Partnership agreements – joint ventures, profit shares and management agreements – mean the operator and landlord share in the highs and lows. This means in a crisis the operator is not left to carry the burden of a rigid fixed rent payment.”
He added that the surveys had found a “seismic shift” between the types of lease operators had and what they would want next: “Most currently operate under traditional leases, but in the future want to operate under partnership agreements.”
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