The rapid growth of serviced/flexible/coworking offices has garnered much press and industry attention over recent years. Without question the focus has been on London, which has been inundated with an influx of providers and centres. The evolution of the market landscape continues to keep pace and whilst there is no dip in desire to dominate London, providers are turning their focus towards other cities around the UK, hoping to get ahead of the curve, but more importantly follow occupier trends towards flexibility.
Flexible leasing solutions are not solely the preserve of start-ups or mid-sized firms, corporates are increasingly recognising the benefits of including a flexible/serviced element as part of their real estate strategy. A change in workforce dynamics, a shift in working patterns and emergence of new job types, all put pressure on current workplace needs. In addition, businesses are seeing the merits of locating operations outside of London. Whilst comparative property costs can be lower, access to skills and talent, a greater national representation and importantly access to cheaper housing for workers play a key part in real estate planning. We have seen this with the large-scale move by HSBC, establishing a new HQ in Birmingham for 2,500 employees migrating from London as part of a rationalisation of its banking operations. Likewise, Channel 4 is embarking on a redeployment of its London HQ to a number of regional locations including Leeds. These types of moves have added an urgency for some serviced office providers to establish a greater presence in secondary cities around the UK. Already in the first half of 2019, we have tracked over 645,000 sq ft leased in the top 10 office locations.
PROVIDERS SECURING SPACE - LEASING THIS YEAR SO FAR…
SERVICING THE SECOND CITY
Birmingham is hot-on-the-list for providers, as this central city sees a resurgence in general office demand from both local and national businesses. Increased acquisition activity of new centres gathered momentum in 2017 and has continued ever since. In 2018, just over 215,000 sq ft was leased, this level has since been surpassed in the first half of 2019. WeWork leading the charge by acquiring 229,000 sq ft of space over three buildings – firmly establishing itself from zero locations in 2018.
Birmingham is currently in the midst of a digital and technology renaissance. Attracting investment into both education and commercial ventures. Its tech hub status is growing in prominence. Not only are the local universities and colleges creating a vibrant talent pool and post-graduate scene, but corporates are identifying the opportunities too. The Economist have announced they are to create a new tech software innovation unit in the city. Developers Bruntwood have committed to a new development, Enterprise Wharf to attract tech businesses to the area, with a dedicated space close to ‘Silicon Canal’ .
It is not just tech that is driving requirements for space, the 2022 Commonwealth Games hosted by the city is creating short-term demand, whilst the development of the UK’s next High-Speed rail link is headquartered out of Birmingham and will prove to be a catalyst for growth.
POWER UP THE NORTHERN POWERHOUSE
If trying to attract future talent, then look no further than Manchester, with one of the largest student populations in Europe (over 99,000) and with 71% of the local population of working age, the city is proving to be a magnet for start-ups, and corporates alike. It is no surprise that serviced office providers are ramping up operations in the city. In 2018, just over 184,000 sq ft was leased by Work.life, Spaces, WeWork to name a few. In 2019, this figure is already up to 168,000 sq ft in just two transactions, including one of the largest regional deals of 122,000 sq ft at 125 Deansgate by Spaces. Cognisant of the draw of Manchester by younger workers, Manchester will see further providers hone in property over the course of the year.
Whilst technology and university spin-off ventures have been very successful for the city, the burgeoning media sector will continue to dominate demand thanks to the BBC, ITV and associated production companies. This looks set to spill over to the other ‘Northern Powerhouse’ cities who are all developing their own rival hubs. A growth in wages, access to quality office space and investment are all playing their part in attracting businesses to UK cities.
The Northern Powerhouse, whilst originally a political concept to address the economic divide between the north and south, it has now taken on a life of its own. It has entered into the local consciousness and has spawned a variety of initiatives and strengthened the voice for city/regional devolution. Alongside this the rallying call for more investment is being heard, with development activity both commercial and residential increasing across the cities. Despite, positive murmurings towards a more integrated regional transport network, this area of much needed investment is proving to be a difficult nut to crack. Once done it will further boost inter-city integration.
CHOICE FOR CONSUMERS
Whilst this article has highlighted increased activity in Birmingham and Manchester, we can’t stress enough that all UK cities are of interest to flexible office providers, bringing a greater choice of product for all types of businesses across the UK. Providers range from the large global players to the local homegrown providers, all contributing to the evolution of how businesses lease and use office space.
The success of flexible leasing options has in part been accelerated by general uncertainty arising from the current economic and political climate. Whilst this will continue to weigh heavy on long-term decision-making, businesses contemplating taking flexible space are driven by other factors. The ability of moving to more central locations, access to prime buildings, high-end fit-outs, all-in-one costs providing budget certainty as well as contributing to the talent strategy will all feature more prominently in business planning and which are directly addressed by the provision of new flexible/serviced workspaces. The rush to regions by the providers, creating more choice will push flexibility up the agenda for some firms when searching for that next space.