14/05/2021

The future of flex space

Robin Pugh, Head of EMEA Flex, JLL

Robin Pugh, Head of EMEA Flex, JLL, comments on the evolving relationship between landlord and operator and how this might define the future of flex space.

Flex space rebounds

Whilst 2020 saw a fall in leasing activity in the flex sector it’s making a comeback, spurred by landlords adjusting to preferences for hybrid work environments.

A JLL survey of 2,000 office workers revealed that two thirds want to work from different locations post-crisis.

Companies and investors are taking a different view on flex space entirely and are willing to invest because they see this as a bigger proportion of the overall office market than it is currently. The pandemic has spurred renewed interest from landlords facing swathes of empty offices. As many employees’ perception of the workplace changes, office owners are actively increasing the amount of space in their buildings dedicated to flexible working.

Owners and investors are paying heed to the messages in the market from occupiers that the shape of demand is going to be flex. While we’re seeing the contraction of some flex-operator portfolios and some that have not made it through this incredibly challenging time, that doesn’t mean that the amount of space available on a flexible basis is reducing.

In fact, we expect a return to growth in the flex market in the second half of this year.

Evolving relationships

The flex landscape is adapting. Management agreements – whereby flex space operators share revenues with landlords – are becoming increasingly common. Although landlords will absorb more of the fit-out costs, they can continue to monetise the space regardless of who operates it. This leaves flexible space operators free to expand without the burden of lease obligations, a model that has been validated by the hotels industry.

Like hotels, desk space will be aggregated, and technology will underpin a new, global network of managed space so users can see flexible offices near them at the touch of a button.

It’s a seismic shift from the industry’s current model but an even bigger leap for the capital markets, where lenders and banks favour fixed income streams over variable, multi-tenant covenants.

They, too, will look to the hotels market as a guide and buildings with a high percentage of flexible space will be increasingly seen as viable investment propositions.

However, investors and office owners will be cautious, partnering only with trusted, well-financed providers.