The rise of flexible office spaces: challenges, opportunities and prospects

The commercial real estate sector has been facing volatile and uncertain times in the past few years, due to a range of factors such as Brexit, pandemic-related disruptions, and economic headwinds. These pressures have posed significant difficulties for investors and occupiers alike. However, one ray of light amidst these challenges is the emergence of flexible office space as an attractive option for businesses looking to stay agile in their operations.

Simon Eastlake, Managing Director at Office Space in Town (OSiT), a leading provider with offices across London, Cardiff and Edinburgh has been at the forefront of this change.

We had the chance to learn more about his views on how the market will evolve from our interview with him; he gave us invaluable insights into why flexible offices are becoming increasingly important nowadays.

Why are businesses considering adopting more flexible offices spaces, and how is this changing the demands of modern businesses?

Businesses are seeking more flexibility in their office space arrangements which is leading to an increased demand towards flexible workspaces. This presents traditional landlords with the challenge of how to incorporate such spaces into their portfolios.

Research has shown that almost 70% of businesses are looking into incorporating more versatile office spaces to adjust to the changing requirements of their staff. With the tough economic climate, businesses have been turning away from classic, long-term leases, which has caused traditional landlords to reorientate; 61% plan on introducing more flexible workspaces in their portfolios within three years. This shift towards flexible office arrangements is an obvious indicator of the needs of modern companies.

Why are traditional landlords incorporating flexible workspaces into their portfolios?

The pandemic has caused significant transformation in the office space sector, with flexible offices at the forefront of this change. There is a strong sector demand for flexible spaces and companies like us at OSiT are attempting to extend their presence and holdings in London through both buying buildings outright and forming management contracts with landlords.

This transition is seen as beneficial the future of this industry with research showing that there is a more than 80% boost in request for flexible offices as compared to pre-pandemic levels. In summary, flexible workspaces allow traditional landlords to provide a product that meets these needs while also providing them with a reliable source of recurring income.

What are some new developments in the flexible office space sector, and what benefits do they offer investors and tenants?

One of the most exciting developments in the sector is the emergence of the “work village” – workplaces that offer a dynamic and multifaceted combination of amenities, services and working spaces beyond just traditional desks.

This new model represents a major departure from traditional office space, offering a self-contained community that provides a diverse array of facilities and services such as childcare facilities, restaurants, GPs and hotel rooms, to support the unique needs of modern businesses.

The “work village” model is gaining popularity because it offers a one-stop-shop solution for businesses and can provide additional revenue streams for flexible office space operators. For investors, it offers a range of opportunities to generate a sustained flow of income as tenants are more likely to stay in a long-term lease arrangement.

What does the future of the office space industry look like?

The future of the office is one that offers more than just a “desk-in-a-box”. It’s clear that the industry needs to adapt to changing demands and the flexible office space sector is well positioned to do just that.

By providing businesses with a range of amenities and services to support their growth, flexible offices are also emerging to be an attractive asset class for investor – with projections placing the sector’s value at over £120bn by 2026, there is a very exciting opportunity ahead for investors.

Flexible office spaces should no longer be seen as niche investments, instead seen as a safe-haven as institutional investors seek to diversify their portfolios and access long-term income streams in a challenging economic environment. The sector’s track record of resilience during periods of uncertainty should only serve to cement its appeal as a stable and profitable investment opportunity.

However, despite being increasingly recognised as an attractive asset class, the sector’s full potential for growth and long-term returns has yet to be fully realised. Current valuations of flexible office spaces have yet to fully capture the sector’s enormous potential, and there is a growing need for a more comprehensive approach to valuation that accurately reflects their unique characteristics and potential for significant returns. As the industry continues to mature, dialogue around the valuation question has progressed, but there is more that must be done to empower the sector fully.

By Simon Eastlake, Managing Director of Office Space in Town (OSiT)