Servicing The Flexible Office Market
Over the past couple of years, The Occupier has highlighted the fast-paced expansion of the serviced office market. The increasing number of providers, geographic expansion and a growing range of space offerings, has enabled the sector to become a more dominant and recognisable form of leasing. However, it has not necessarily been plain sailing for the most recent emergent contingent of coworking spaces, having been tried and tested on numerous occasions. Whilst the premise of taking office space on flexible terms will become increasingly attractive in a post COVID-19 world; this current situation looks set to shape the sector further. Throwing up several challenges from access, space use, design and even competition from its own clients adopting more remote working from home. So, what are our expectations for the sector in the short-to-medium term?
SUPPORTING CLIENTS IN UNCERTAIN TIMES
Government restrictions on the movement to and from the workplace immediately reduced the use of centres and significantly impacted the ability of operators to provide staff and services. Whilst some have kept centres open by providing businesses with digital access to buildings, the majority remain closed. Therefore, the focus of providers has switched to one of support in the immediacy of this crisis.
This too has been a recent focus of DeVono Cresa. We have been supporting our clients on subjects ranging from monthly payment deferments to re-visiting space requirements upon easing of restrictions. What has been paramount is ensuring that the lines of communication remain open between workplace operators and businesses facilitating conversations that could potentially offer assurance for occupiers and may well alleviate some burdens.
The financial impact of the pandemic will start to unravel as time passes in lockdown, for both operators and their customers. Whilst government support schemes have been numerous and far-reaching, access to a business rates holiday could give a significant boost. Whilst this has not been forthcoming, the government has recognised that small business in shared serviced offices do need further support. This has led to the creation of a discretionary fund, in which businesses of less than 50 employees can access cash grants administered by local authorities.
Despite this, the pressure of business rates on a company’s cash-flow is very real. DeVono Cresa has led on a petition to lobby the government for such a payment holiday. Our campaigning has seen us join forces with our peers in the industry and numerous operators to ask for further support, like that being given to the retail and leisure industry. We are hopeful of a successful outcome, which would provide businesses that little extra ammunition to
battle through the current climate.
THE GREAT OFFICE RE-ENTRY
Coworking spaces have increasingly thrived off its sharing and collaborative approach to office occupation. Shared facilities, a busy calendar for groups and activities have established innovation and collaboration hubs. Whilst this is true for a growing generation of centres, the majority of businesses that occupy flexible workspaces still have their own closed-off and private office space. Yet the community nature, which some in the sector have been fostering, is counter to a ‘new world’ of social distancing.
Recognising this, operators are working on ensuring that protocols are put in place to allow centres to reopen at a capacity which is safe and not detrimental to the experience. Whilst each provider will have their own plans which will also be dictated by country-level regulations, numerous international firms have formed a working group called the ‘Workspace Operator Readiness Council’. This sees a collaboration of industry and health specialists from the US, Europe and Asia on how to deliver a safe workspace. The work from this council is aimed at establishing a collective approach being taken by the industry. And, in a competitive industry, it shows that at times of crisis, people do pull together.
Over the coming weeks, operators will put into practice workable measures to kickstart operations upon easing of restrictions. Yet it is already clear that those operations will not return to the scale we saw earlier in the year. Even though operators will keep customers abreast of the changing situation, maintaining dialogue should work both ways. Managing expectations during these uncertain times will be key to relationships.
THE SHAPE OF THE SERVICED OFFICE SECTOR
And it is those relationships that operators will need to nurture. At the beginning of the year, DeVono Cresa’s set of predictions for 2020 talked of “putting the service back into serviced offices”. We predicted the enhancing of customer relationships to become more tenant centric improving loyalty and retention. There is no better time to put this in to practice, as action today will pay the dividend on the other side of this crisis.
However, some centres or even operators may not survive the financial turmoil that is expected ahead. Reduced numbers in centres, businesses not wanting to renew at similar levels or even businesses ceasing trading, could all severely impact operating viability. A recent study by Gartner suggested that 74% of companies surveyed would shift an element of their workforce to working from home permanently. If this were to be a reality, this would impact the entire office market, not just the serviced offices. The scale of disruption is not yet manifesting itself. When it does, we could start to see a consolidation within the market. This was already on the cards due to the extent of recent expansion and competition (especially in London). For some, it may come a little sooner.
Those that have showcased coworking and community above all else will now need to rethink this and certain elements within the space to be compliant of the new boundaries. These will not only be ones that have been given but boundaries that people will have developed as a result of lockdown. The serviced office sector will indeed evolve with agility as a result of the pandemic, and the core principle of flexible leasing will remain. No doubt they will attract more businesses as firms review their real estate strategies.
DeVono Cresa’s flexible leasing team is available to discuss any matters concerning existing serviced space or future requirements.