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Flexible boom to continue, says JLL

Flexible office space will account for more than 8.5% of total UK office stock by 2023, up from the current 5%, according to research by JLL, which expects to see landlords and operators combine forces as the market matures.

The consultancy’s Disruption or Distraction: where next for the UK flex market sector? report suggests that over the next five years more than 10m sq ft of flexible office stock will be added across key cities in the UK. In 2018 alone, the UK’s flexible space footprint grew by 25%, building on a similarly strong rate in 2017.

Although London still leads the way in total volume, Manchester and Birmingham are heading the regional cities. In Manchester, flexible space has grown at just under 350% in the last five years outstripping London’s 210% growth, with more than 100,000 sq ft of stock added in 2018. JLL said that flexible space will continue to expand at a faster rate in what it calls “the Big Six” – those cities plus Bristol, Leeds, Edinburgh and Glasgow – than the capital. Manchester in 2019 has already seen 147,000 sq ft taken up by flexible operators.

Elaine Rossall, head of UK offices research at JLL, said: “Activity in the Big 6 will take off in the next few years, particularly with WeWork now entering the regional markets.

“Manchester is presently the most mature of the regional cities. New markets for operators will be chosen carefully, operators will not target every city and secondary cities are less likely to see the widespread adoption of flex.”

As to how landlords react to the shift, JLL suggested that the concept of a partnership model is gaining momentum. This alternative solution will see landlords and operators partner-up, with the former gaining the benefits of offering flexible space without having to enter directly into the sector. The result could be akin to the hotel industry’s model of operational and contractual arrangements.

Neil Prime, head of Central London offices and UK office agency at JLL, said: “To date investors have largely, but not exclusively, engaged with this sector on a traditional lease basis, however as the sector and investor attitudes have developed and matured there are increasing instances of partnerships between investor and operator where both can participate in the performance of the coworking entity.

“One of the key issues for investors as the sector moves forward is whether a consistent valuation methodology can be adopted to more accurately assess the potentially higher income returns that can be achieved.

“We expect that, given the scale of the sector and the likely increase in partnership agreements as investor attitudes change, that it is more likely that this will happen, and investors will become more comfortable with partnerships as part of a long-term risk adjusted portfolio.”

A further trend that the firm predicts is more specialism within the sector, following the likes of Ministry of Sound, Huckletree and Runway East targeting tech start-ups, while London-based centres such as Third Door and Blooming Founders have established themselves in a market segment catering for family and female focused customers respectively.

The full report is available to download online.

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