Europe’s flexible office market is enjoying a new lease of life. Hit hard by the initial Covid-induced slump in office use caused by work from home and social distancing policies, the hybrid working shift that followed is now reenergising the sector.

“The pandemic has impacted how we use offices in general,” says Emma Swinnerton, Head of Flexible Workspace, EMEA with Cushman & Wakefield. In the UK, Europe’s most mature flex office market, flexible workspaces “currently make up 6% of total office space. But that could go to 20% to 30%.” 

And interest in flexible offices is growing across Europe, observes James Rankin, Head of Research and Insight at workspace specialist The Instant Group. In Germany – where the shift in working patterns post-pandemic, inflationary pressures and prospect of recession are driving a take-up in flexible workspace by large corporates – demand for flex space has soared 47% year-on-year. In the UK it is up 22%.

“Flex needs to grow by 40% to meet the demand for flexible, high-end and amenity-rich spaces,” Rankin notes. “In response to this shifting dynamic, 74% of flexible office operators globally are looking to expand, in both city centres and suburban areas, while 64% of landlords want to deliver flexible solutions.”

Union  Investment, for example, currently has leases with co-working provider tenants in 15 of its European office properties, including ones in Amsterdam, Copenhagen, Manchester, Paris and Vienna. The average lettable space is around 2,500 m², but can reach over 8,000 m² in individual cases. Its largest office service provider partner at present is WeWork, with around 5,000 m² of lettable space in Union Investment’s 55 Colmore Row Grade A office building in Birmingham.

With such strong market dynamics, there is plenty of scope for both big operators and today’s range of boutiques with local flavour offerings to co-exist and grow, adds Swinnerton.

The market continues to evolve considerably, with companies wanting increased flexibility around their office space – including less rigid lease terms, opportunities to scale space up and down quickly, and more amenities to offer employees.

The right solution for changing times

The pandemic showed that being able to work remotely is invaluable. Still, physical office space remains a crucial part of working life, promoting collaboration, knowledge-sharing, team building, integration of new joiners, and physical and mental health, says Enrico Sanna, CEO of UK and Germany-focused workspace provider The Office Group (TOG). “Human connection is more important than ever, with people valuing the opportunity to collaborate and connect, while having the option for individual focus time.”

For companies, flexible workspaces offer ways to reduce risk and running costs, and retain talent, says Rankin. “With 90% of employees demanding flexible working, and 89% of companies reporting better retention rates if those demands are accommodated, employers are starting to embrace the future by seeking out shorter-term leases and other flexible workspace solutions, such as serviced and managed offices.”

Plus traditional offices may not be as innovative. “In the war for talent, an entrepreneurial flexible workspace offering can help attract and retain staff, especially in Tech and creative sectors,” says Swinnerton.

A building’s green credentials play a further recruitment role, in addition to helping firms meet their net zero targets. TOG’s recently opened The Black & White Building, for example, is central London’s tallest mass timber office building, says Sanna. “The sustainable mass timber structure reduces embodied carbon creation by 37% compared with a concrete structure of the same size and is perfect for sustainability-minded businesses.”

And the plug-and-play offering within flexible workspaces is a positive step towards greater operational efficiency, notes Rankin. “It removes the interior fit-outs often seen in leased offices, where incoming occupiers remove building owners’ flooring and lighting in favour of a bespoke fit-out.” 

Flex offices can also deliver a competitive edge. “They make it easier for tenants to move into new markets, helping drive their expansion plans,” observes Swinnerton. Lease terms are more flexible too and offer scope for savings.

Flexible take up by diverse tenants

This multifaceted appeal is starting to attract a broader array of tenants. Research by real estate advisor CBRE found the technology, media and telecoms (TMT) sector dominated Europe’s flex market in 2022. But average occupier size is on the rise, with large corporates increasingly looking at flexible offerings, says Rankin. “Sometimes this involves a range of workspace solutions, such as a longer-lease HQ on a couple of floors of a building, fully managed offices in key cities, and bolted on serviced offices to provide greater agility for a more dispersed employee base.”

Deloitte, for example, based its Innovation team in the WeWork facility in London’s Waterhouse Square, says Swinnerton. “Banks are also taking up flexible space, a trend we couldn’t foresee a number of years ago but which I expect to continue.”

WeWork, which has a presence in over 100 locations across Europe, offers a range of flex options, from pay-as-you-go to monthly global memberships and private offices with shared amenities. Attractions include scalable space to accommodate firms’ growth, short flexi-leases, day-to-day operational support, and well-connected, commute-worthy, class-A office space in central locations.

The Office Group is seeing similar client diversification, with current tenants including bp, GSK, Ocado, British Fashion Council and Peloton. “The market continues to evolve considerably, with companies wanting increased flexibility around their office space – including less rigid lease terms, opportunities to scale space up and down quickly, and more amenities to offer employees,” observes Sanna. “To meet employee demands moving forward, offices must be beautifully designed with a market-leading offer on the amenities side, with gyms, yoga studios, cafes and bars, roof terraces and outdoor spaces featured throughout the buildings.”

In the war for talent, an entrepreneurial flexible workspace offering can help attract and retain staff, especially in Tech and creative sectors.

Return opportunities

The growing demand for flexible workspace by corporates across Europe, combined with supply shortages, mean cost per square metre in the flex market is rising, notes Rankin, “providing an opportunity for landlords and operators to enhance overall returns.”

According to Workthere’s UK 2022 Flexible Office Market Snapshot for example, the average cost of a private office desk in 2022 was £549, up 24% on 2021. In London it was £674, a 27% rise on 2021. Average contract terms increased 4% to 13.1 months, with UK providers reporting average occupancy rates of 90%, from 71% in December 2021. Across EMEA, The Instant Group’s most recent Future of Flex report found almost half of operators had occupancy rates above 80%. The report added that corporates will be willing to pay a 10% to 15% premium for flexible workspace that enables them to hit their ESG targets.

The challenge, says Swinnerton, is how best to access the market. “Firms can buy an existing flexible workspace portfolio, build one in-house or partner with a third party. Each has its merits. Flexible offices are more operationally intense to run though, so there are challenges.”

By Paul Allen