The Flex Factor: Office Trends & Transformation in London

Major external forces are reshaping the way London firms approach their workplace strategies. Among the list: a disjointed Brexit, a nationwide productivity slump, the shifting landscape of modernisation, and the risks of slowing economic growth and reduced occupier demand. These factors are fueling office transformation, with an increasing focus on flexibility, particularly for corporations.

Today’s whirlwind of volatility can be seen as the core driver of tomorrow’s office transformation. Adaptability and agility in office space options are getting more attention than ever in the face of so much uncertainty. Within the UK, the London market is particularly primed for this shift — its office sector is one of the most sizable demand centers for flex, already attracting a vast occupier base from enterprise and small- to medium-sized businesses (SMBs) to startups and contingent workers.

Why Flexible Space?

The concept of flex space arose to bridge the divide between the mechanisms of traditional commercial property and the unpredictable needs of the modern business. For a time, shared “coworking” space was the prevailing flex option, but when that model didn’t meet the needs of larger companies, the industry continued to evolve. London was a particularly early adaptor, and continues to dominate both the UK and greater European markets. Its market share is also notable on a global scale, with an estimated 10.6%, or 10.7 million square feet, compared to Manhattan’s 2.9%.

The flex office market grew by 25 percent in 2018 alone; yet flex makes up only 5 percent of office space across the UK. That percentage looks set to grow, however, as forces continue to reshape the market, and companies look to flex space address unforeseeable volatility.

Space as a Service

An added driver is renewed interest on a people-focused experience, as reported by JLL, not dissimilar from the typical hospitality-industry approach. The concepts of serviced flexible office and the workplace as a strategy are viewed as competitive advantages in today’s tightening labour market. In response, workplace strategy-driven environments with a comprehensive mix of amenities, high-quality services, modular office layouts, and collaborative space are becoming mainstream.

The Cost/Benefit of Flexibility

The cost profile of flex is likely to remain a strong draw, with its limited capital investment and relatively immediate occupancy. Consider the average London market rent of about £85–£100 per square foot, and add on a flex provider’s streamlined operating and buildout costs, which circumvent significant upfront CapEx. While flexible lease terms typically range from 4-6 months, these options can extend up to 2+ years, with rents in excess of a year capitalised.

Traditional office leasing in London comes with a slightly higher cost profile, considering the cost of market rent in addition to an average of £73–£140 per square foot in fit-out costs. All told, while the demand for traditional leasing remains strong, Fortune 500 companies are increasingly adding flex office into their portfolios to provide agility for growth and restructuring on short notice.

Flex in the Future

There is no sure predictor of what London’s commercial property market will look like in the next five or 10 or 20 years but the market’s early embrace of more flexible options appears to have been vindicated by increasing adoption on a global scale. The result is likely to be a more efficient global market in which companies have the ability to choose space on their terms and diversify their portfolios to ensure future stability.