The Changing Face of an Industry: UK Flex Market Review

KEY FINDINGS

• Suburban locations see demand and occupancy growth of 100%
• Supply grown by 4% despite Covid-19
• One in four occupiers say flexibility is key to future strategy

30% of flexible workspace providers reported that occupancy rates have remained relatively stable through the global lockdown, only falling by 10%.  On average, operators reported demand for flex space at 52% of pre-Covid levels, but some suburban markets have seen significant growth and pricing in those areas has increased.  

In Instant's latest UK flexible workspace market report, The Changing Face of an Industry, research shows a rise in demand within the smaller, regional markets, with towns such as Bishop’s Stortford, Walton-on-Thames, Almondsbury and Rickmansworth all seeing demand growth of well over 100% in Q2-Q3 2020 compared to 2019.

"The flex industry has experienced a dual impact - on the one hand, the pandemic exposed weaknesses in some of its operating models but the future of the office market looks to be considerably more agile, which will ultimately play to its strengths.

“Whilst the remainder of the pandemic period requires nerves of steel, the recovery phase will see significant opportunities as the sector's relevance in terms of corporate recovery and strategic portfolio solutions come to the fore.

For operators and clients alike this year has proved extremely challenging but there is a very palpable sense of significant change in the future of the office market. Although it is still very early to make sweeping judgments as to the future of the office market, the way space is procured and used, appears to be changing and businesses of all sizes need more agile solutions for office space.” - John Duckworth, Head of UK and EMEA, The Instant Group"

Pre-Covid, an increasing number of corporate occupiers were turning to flex space. A trend that Instant expects to continue once businesses have re-evaluated their current real estate portfolio and have a clearer picture of their future needs. However, Instant’s data also shows an increase in demand for smaller offices of 1-2 desk as the contingent workforce drove the vast majority of deals during lockdown  – 80% of demand is currently coming from individuals/freelancers and small companies.

The research also found that a significantly higher proportion of operators in suburban locations have seen contract terms increase compared to those in city center locations, suggesting that occupiers are much more confident in the future of their suburban office locations.

Supply and diversity of location

Before Covid-19 hit, supply in the flexible office industry was increasing at a rapid pace, with a growth of 11% throughout 2019. Although growth slowed during the first half of 2020 due to the widespread disruption, all the top markets in the UK have continued their growth resulting in a 4% growth rate. While London’s share of the flex market was up to 31% in 2020 in terms of supply of centers, this balance is shifting in favor of suburban markets as their popularity increases over the past six months.

This activity has been supported by the larger and more innovative providers who see long term opportunity in the market and are actively seeking more suburban locations to expand. It is the smaller independent providers that have been most impacted by Covid-19 with very little activity seen from this segment of the market so far this year. 

Positive pricing

With suburban demand on the up, desk rates in smaller markets have seen growth. Average desk rates increased by 5% over the last six months.  In London, however, rates dropped by 6%, compared to other markets where increased supply means that rates have become more competitive.

Average flex space rates have decreased by up to 22% in Manchester, 16% in Oxford and 17% in Basingstoke. However, in markets such as Bristol, where demand remained more stable, rates have increased upwards of 22% as well as Edinburgh (13%), Leeds (25%) and Reading (14%).