4 Lessons Flexible Workspace Operators Can Take From Knight Frank’s 2020 London Report

We get it — you hear about some new report on the state of the market that has come out and although you know you should read it, you’ve got accounts to do and somehow someone breaks the dishwasher and the dog gets sick and by the time you can sit down and have a moment to yourself again, the last thing you want to do is wade through a website, open 52 tabs and sift through the information to see if anything is of value to you.

So don’t. We’ve summarised the main takeaways from Knight Frank’s 2020 London Report. Although it covers office space as a whole and not just flex, there is a lot for workspace operators to take from it.

Let’s dive on in.

1. Staff retention is the most important problem real estate can solve

The finding

Knight Frank conducted a survey of London landlords — and they were no small fry: together, these landlords command nearly 25 million sq ft of office space, meaning that they own one out of every 10 offices in Central London. What was the main takeaway? Their tenants care more about “how to attract and retain the best staff” than rental costs.

There’s been a realisation that potential employees judge how a business treats their staff from what the workplace is like. It just makes sense: if you interview at one business with an office that is light and airy, with a wellness room and herbal tea on tap, and one that has stained carpet and dated furniture, you get the impression that one business cares more about their staff than the other.

It’s also important for showing off a company’s values. As environmentalism becomes a hotter topic every day (rather like the planet), employees are increasingly concerned that their business is acting in a sustainable way — and that applies to their buildings as well. As result, the majority of landlords say that when they refurbish or develop their buildings, they will consider how to boost their environmental credentials.

Another trend driven by employees is an increasing concern with digital connectivity (or “ digital wellbeing” as Knight Frank call it — presumably the wellbeing you get from your blood pressure NOT going through the roof when you can’t login to that conference call AGAIN). Good broadband is becoming more and more important, particularly as more work is done online and hotdesking means employees are using the WiFi.

Why is this relevant to flex?

Flex operators who want to appeal to organisations need to remember that quality is more important than cost-cutting to companies. Things that will appeal to staff about a working environment are the sort of things that companies also care about. Flexible offices that can act as “ talent magnets “ will be well positioned to take advantage of this trend.

Greener workspaces, outdoor terraces and gym facilities are all identified as something that appeals to employees. From the same survey, landlords said they were prioritising “end-of-trip facilities” (think bike storage, lockers and showers) and after that high speed broadband and flexible workspace and meeting rooms within the building.

Workspaces should consider the environmental impact of their building — both the building’s own sustainability and the way that it is run. If possible, it is worth investing in fast broadband — particularly in Central London, which has really bad internet, where it will help differentiate you from your competitors.

2. Customers, not occupiers

The finding

In broad strokes, traditional thinking has been that real estate is an expensive drain on finances and the best thing to do is to keep it as cheap as possible. Staff don’t need natural light, right? We can keep them in a subterranean basement until they are withered into prunes through lack of Vitamin D — it’ll save us 10 quid a head!

Knight Frank say that there has been a shift away from this way of thinking. Richard Proctor, Head of London Tenant Representation, says: “What we’re seeing all the time now is less nickle and diming over rents and incentive packages because the realisation has dropped that if an office building can move the needle on productivity or retention of staff, that is going to blow property costs out of the water.”

This doesn’t mean that companies are happier to be paying higher rents wily-nily; for more buck, they expect more bang.

Occupiers want more from their landlords, whether this is added amenities or a more empathetic, problem-solving approach. As a result, landlords no longer view their tenants as just occupiers but as customers who they have an on-going relationship and interaction with.

Why is this relevant to flex?

Because of their short-term contracts and heavy competition, flexible workspace operators have long known the importance of providing more than just basic office space.

Tellingly, as part of their report, Knight Frank looked at two cases studies: White City and Here East. Both of these offices have coworking spaces (and you’ll find Plexal, at Here East, on our platform 😉) and both attract a variety of occupants, from small startups to larger companies. Knight Frank believes that one ingredient for success that both locations share is a sense of community — something that will come as no surprise to anyone running a flexible workspace.

In short, flexible workspace operators: keep doing what you are doing. You’ve got this.

3. Flexibility is having an impact across the market

The finding

Returning to that survey of landlords who hold 10% of central London offices, a whopping 70% of them said that flexible workspaces were changing how they were operating, from offering more amenities to developing their own flexible office brand.

The growth of flexible workspaces and the rise in short-term leases is also leading to partnerships between landlords and occupiers so that they arrive at a bespoke solution for their needs, rather than an identikit standard office space.

In addition, flexible leases are becoming more and more popular across the board, partly because they are a better fit for modern workforces, suiting shorter CEO contracts and “agile business models” (and yes, that is one of those buzzwords that everyone wants to use but nobody knows what it means).

Why is this relevant to flex?

Well…

To break it down, what is perhaps most surprising is the disproportionate impact flexible workspaces are having on the wider market. Flexible workspace still makes up less than 6% of London office space — but it is apparent that they are changing the nature of offices. This is no longer a trend; this is here to last.

While this might seem like great news for flexible workspace operators, it is worth being cautious. On the one hand, it shows that there is huge demand for the sort of thing they do and the way they do it. On the other, if large landlords start their own flexible office brands, that means more competition. An optimist might point to the fact that some landlords are thinking of partnering with existing flexible workspace operators — but with a mere 3.3% of landlords considering this, you’d have to be a pretty shortsighted optimist to consider that a glass half full.

4. There is a lack of supply

The finding

Thanks to a little thing called the Global Financial Crisis, the last 10 years hasn’t seen a huge amount in investment in commercial property development. As a result of the undersupply, many businesses are committing to pre-lets on properties that are currently being built: there is 13 million sq ft of office space under construction right now — and around half of it is already committed.

Perhaps even more reflective of the undersupply is Knight Frank’s claim that there are 30 companies currently looking for office space of more than 100,000 sq ft… which is slightly awkward given that there are only 16 buildings in London that can accommodate such demand. (How will they resolve this problem? We can’t say for certain, but we are imagining a battle royale fight to the death.)

Why is this relevant to flex?

Because of this supply shortage, Knight Frank describes many of these businesses as being “ footloose “ (sing it with me! “Kick off the Sunday shoes”) and willing to move to new areas if the space meets their needs. Combine that with a desire for offices that are appealing to their workforce and you have a raft of companies that might be more open to taking space in a flexible workspace. The opportunity is there for those operators willing to grasp it.

Overall, it seems like these predictions give flexible workspace operators a lot of reasons to be cheerful — high quality workspaces and a range of workplace amenities are becoming a priority for companies, while the limited supply of offices may cause companies to look to flexible operators for workspace.

But cheerfulness is not a synonym for complacency. The popularity of flexible workspace attributes will lead to more competition from traditional landlords, while those operators who do not provide high-quality facilities such as high-speed broadband will struggle to keep up.

Of course, all of these predictions come with the disclaimer that Knight Frank’s view of the state of the London market may be completely misguided, misjudged and plain wrong.

But if you’re going to take advice from anyone, you probably want to heed the recommendations of a company that has been selling property for so long that they sold Stonehenge.

Are you a flexible workspace operator who wants to attract corporate clients? Find out more about what we’re doing to change the way corporates utilise flexible workspace here.

Originally published at https://desana.io on March 2, 2020.