GPE’s ambitions for its flexible office offering have never been greater. Tim Burke met with the top team to talk acquisitions, competition and “earning the commute”.
GPE’s ambitions for its flexible workplace business have just been given what real estate developers might call a significant upgrade. A year ago the FTSE 250 company told investors that the growing business was likely to account for 600,000 sq ft across its portfolio within a few years. Now, it has upped the target to north of 1m sq ft by 2028, up from 414,000 sq ft today.
The business has surpassed expectations on a variety of metrics. GPE aimed for its fully-managed flex space to bring in net effective rents that are 50% ahead of traditional fitted offices. As of the firm’s annual results to the end of March, that stands at 81%. It is a similar story for relative cash flow – 54% compared with fitted space, smashing a 35% target.
Rents have surged. Chief executive Toby Courtauld points to an unnamed customer – do not expect GPE’s leaders to use such a vulgar term as “tenant” – that signed up for flex space in September 2021 at £178 per sq ft and has now re-signed at £278. “That’s 18 months’ growth that is way ahead of any other form of growth we have experienced anywhere else in our business,” he tells EG.
Chief financial and operating officer Nick Sanderson adds that the flex space leases quicker than traditional offices. Businesses large and small are snapping it up – joining entrepreneurial start-ups in fully managed GPE offices are companies like Morgan Stanley Investment Management. GPE’s traditional headquarters offering remains robust – last year it sealed its largest ever traditional letting, to Clifford Chance – but the team expects a growing swathe of corporates to consider its flex space.
Like all office owners, GPE is seeing values fall, but over its most recent financial year flex office values dropped by only 5.1% compared to 7.3% for the entire office portfolio. As recently as a year ago GPE expected most of its flex space to be conversions of existing assets. Now the team is eyeing acquisitions specifically with the goal of making them fully managed offices – sites such as 141 Wardour Street, W1, and Bramah House at 65/71 Bermondsey Street, SE1, which it bought earlier this year.
“We’re going to need to buy a decent chunk more stuff,” Sanderson says. “The investment market is loosening up and we’re seeing more opportunities emerge from sellers who have buildings with great potential but don’t have the appetite for the operational intensity involved in flex, which we think is worth doing and are getting suitably rewarded for.”
New mindsets
Overseeing GPE’s portfolio pivot towards flex is Steven Mew, who joined in 2016 as a portfolio manager from McKay Securities and last year was named customer experience and flex director. EG meets Mew and several other members of the flex-focused team at GPE’s 16 Dufour’s Place in Soho, W1, to talk through the vision, achievements so far, and what a company like GPE has to learn as it makes a name for itself in a part of the office market that can be very different from traditional lettings.
The setting is deliberate, Mew says. GPE’s flex push has its roots back in 2018, but it was Dufour’s Place that the company used as what he calls the “pilot project” for the fully managed offering, where companies can take an entire floor, with their own front door, and sign just one contract with GPE rather than the 15 or so they might need to fuss over in a traditional letting. “The service and the experience is a differentiator,” Mew says.
The flex team has been built quickly but carefully. “Delivering flex, because of the intensity and a different mindset, doesn’t really suit doing things in a traditional way,” Mew adds. “We started building a team, bringing people in from the likes of WeWork, Myo, Argyll – people with that flex experience.”
People like Jack Kelly, head of flex customer experience, who came across from Landsec, where he had been part of the founding Myo team.
The team is trying to think differently as GPE starts to compete with the likes of WeWork rather than just the Derwents and Helicals. Like so much in real estate, the shift has been sped up by the events of the pandemic, homeworking and new approaches to when and where to work.
“Property had it too good for too long,” Kelly says. “It was a captive audience – if you had a massive trophy asset, you knew you had 2,000 to 3,000 people coming in every day. Now people are choosing where to be and how to be there. That has forced all of us to up our game.
“Members clubs offer offices, hotels offer offices. It’s good for the end user because we are all frantically competing to create the best experiences and match or better what others are doing. If you’re a user you can come to here, to a Storey [from British Land], to a Myo, then go to a TOG and Fora and you’d get these different – but all premium – experiences that you’d not have got 10 years ago.”
Not taken for granted
That notion of not taking tenancy for granted runs throughout discussions with the GPE team. They talk of “earning the commute” – giving people a reason to want to come to the office rather than working from home. Anthony Osho was heading customer experience and brand partnerships at Hammerson until earlier this year. Now “customer first” lead at GPE, he is tasked with working out what companies in GPE buildings want and the best way to give it to them. The retail mindset he brings from his previous company adds a twist, he thinks.
“In the retail space, because you’re more focused on end-product and service, customers and how you’re attracting them, the mindset is different – especially in shopping centres,” he says. “Traditionally in offices you think: build an office, get it let, leave, have another chat in five to 10 years’ time to regear. Whereas in retail, you have two customers in that space – tenants who are leasing space from you and the people you need to attract to the space. The benefit I can bring here is to start thinking about the assets differently.”
Every member of the GPE team in a building is crucial, the team leaders say.
“It’s getting people that have that blended mindset. Not like traditional facilities management, which you saw in offices 10, 15 years ago, but a more hospitality-focused skillset,” says Osho. “You will have been to some buildings where there’s an amazing front of house team but then the security guard is in a tuxedo with a really angry screwface just making you feel quite uncomfortable. You can’t afford to do that. Everyone on the site in that building has to get the ethos.”
Weaponised workplaces
Companies signing up to GPE flex space now will have the opportunity to grow with the company, its leaders hope. “We see some of the customers currently in our fully managed portfolio could end up being our HQ customers of the future,” says Simon Rowley, director of office leasing and flex. “But equally, every prelet discussion we have had in the last five years has involved some form of the discussion around options,” he adds. “Not so much taking flex space from us, but just saying can we [drop or add] space? What about growth? Having a ready-made model that provides for shorter lease terms gives us a good weapon.”
But there are other drivers for the business’s growth. These fitted out office spaces were once “purely a void mitigation exercise”, Rowley says. “You did it as a last resort. You did it to see if that can actually find a customer.”
Now they are offering a speed of deal that companies increasingly want. “This wasn’t just people looking for short-term leases. That hasn’t actually been the driver,” Rowley says. “We call it flex, because people think it’s flexibility that people are after. It’s actually people who just don’t want all that hassle. They want to concentrate on their business. One monthly bill in the hands of a FTSE 250 company that works with KKR and Clifford Chance but also works with small start-ups is pretty attractive.”
Back in the boardroom, Courtauld and colleagues are embracing the change. As the chief executive notes, it is overdue.
“Why is it that every walk of life except for real estate has been radically altered and improved by the internet and by classic comparative-advantage thinking?” Courtauld says. “You are now seeing that happen in real estate, where specialists like us can do for the customer the things that they’ve had to do [themselves] because nobody’s been willing to do it. Now, they’re willing to pay for it.”
To send feedback, e-mail tim.burke@eg.co.uk or tweet @_tim_burke or @EGPropertyNews
