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JLL: What’s next for UK flex market?

London has dominated the flexible office market, with significant growth over the last five years but there has recently been a noticeable shift into the regional markets, according to research by real estate giant JLL.

Here are some takeaways from JLL’s report, Disruption or distraction: What’s next for the UK flex space market?

1. JLL predicts flexible office space in the UK will account for over 8.5% of total UK office stock by 2023; currently it’s at 5%.

2. The report suggests that over the next five years, more than 10m sq ft of flexible space will be added across core cities in the UK.

3. In 2018 alone, the UK’s flex space footprint grew by 25% building on a similarly strong rate in 2017.

JLL Flex Research 1

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4. Regional cities have experienced strong activity over recent years, particularly Manchester and Birmingham; each saw more than 100,000 sq ft added to flex stock in 2018.

5. So far in 2019 Birmingham has added 55,100 sq ft of lettings and Manchester 147,000 sq ft.

6. In Manchester, flex space has grown at 350% in the past five years, outstripping London’s 210% growth.

JLL Flex Research 2

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7. JLL highlighted the pattern of take-up in the Big 6 (Birmingham, Bristol, Edinburgh, Glasgow, Leeds, Manchester) is following a similar trajectory to Central London but lags around three years behind.

8. Six out of 14 flex workplace operators currently have a partnership with landlords, and 11 out of 14 operators have been approached directly by landlords about a partnering model over the last 12 months. JLL’s research suggests the concept of a partnership model is gaining momentum as the sector continues to evolve. 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.

9. In addition to the increase in flex space JLL has identified disruptions occurring as operators keep abreast of clients’ needs and seek to develop their own brand, culture and USP. A consequence of a more focused client service has been the growth of centres targeting specific verticals.

10. The term ‘coworking’ has featured prominently in the flex workspace narrative in recent years, demonstrated by the exponential rise in the level of interest using google search data. However, 80% of searches on Hubble, a digital office broker, are for private offices, with coworking space appearing infrequently.

JLL Flex Research 6 Hubble

11. Nearly half of all 2018 searches on Hubble were by information and technology companies.

12. The largest increase in searches year on year was from the larger size brackets, with searches for 50+ desks more than doubling. JLL believes this is perhaps an early indicator of larger organisations’ desire to use more flexible space as part of their portfolio strategy.

JLL Flex Research 7

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Elaine Rossal JLLElaine 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, who was instrumental in driving the expansion of Central London, now entering the regional markets.”

She added: “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.

“London will also see further growth as operators plan to expand their footprint in the capital, however in the short term, the pace of growth may slow due to supply dynamics in Central London. The increasing number of landlords launching their own platforms and therefore seeking not to let space to flex operators may also impede their expansion.”

Neil Prime JLLNeil Prime, head of Central London offices and UK office agency at JLL, said: “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.”

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