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FLEXIBLE OFFICE SOLUTIONS MARKET UPDATE- OCCUPIER FOCUS Q4 2020 - 2021 CBRE
FLEXIBLE OFFICE SOLUTIONSMARKET UPDATE- OCCUPIER FOCUS
Q4 2020 - 2021CBRE
2CBRE FLEX MARKET UPDATEFLEX MARKET UPDATE2CBRE
A N O T E F R O M T H E H E A D O F F L E X A T C B R E U K
COVID-19 was the unexpected guest that arrived at the serviced office and coworking party this year; uninvited, unwelcome and seemingly impossible to get rid of. As I write this we are all starting the year in another lockdown. What makes this time feel different is the promise of an escape and therefore the need to plan and re-imagine a future back at the Office.
Ultimately, while COVID-19 has delivered an unimaginable year for Flex, the occupier and investor and operators alike; Flex’s key attraction for occupiers in unprecedented times is offering a hedge against uncertainty. There are other important reasons that we examine in this commentary, which lead us to expect a resurgence in this sector.
As we look forward to a return to offices, our surveys and corporate analysis affirm that COVID-19 is not a threat that will destroy the sector, rather a justification for its continued growth.
We hope you find this flex review informative and we look forward to sharing more insights with you throughout the year.
STEWART SMITHHead of Flex CBRE UK
3CBRE FLEX MARKET UPDATE
F L E X D E M A N D T O T A L M O N T H L YR E Q U I R E M E N T S
The December evidence demonstrates a further reduction in requirements which is unsurprising
given the usual seasonal reduction in activity at this time of the year and the threat of a further
lockdown. This reduction disproportionately impacts the final quarter figure which was showing
some recovery towards pre-covid levels.
Despite enforced work from home strategies, it appears, companies are anticipating the need
to escape lockdown and start rebuilding their businesses in a new, agile way, mitigating capex
and avoiding long-term commitments.
• We expect that the enquiries and investigative work being undertaken now will result in a
rise in space taken in the first half of 2021.
• Many enquiries are linked to broader post-covid workplace strategies being developed by
companies, including distributed working, employee choice and experience and a focus on
recovery in productivity.
Source: Valve, 2020
Total Flex requirements, UK
This index uses 2020 pre-covid levels as the baseline.
-17%
-49%-41% -39%
-19%
-1% 17%
1%-10%
-18%
-60%-50%-40%-30%-20%-10%
0%10%20%30%
Mar-
20
Apr-
20
May-
20
Jun-2
0
Jul-
20
Aug-2
0
Sep-2
0
Oct
-20
Nov-
20
Dec-
20
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F L E X D E M A N D –R E Q U I R E M E N T S I Z E
Requirement size has fluctuated significantly, over the course of 2020, albeit off relatively small
sample sizes. Up to and including June the largest cohort of requirements was 31-50 desks
and we have ended the year in the same place with a flurry of smaller transactions in the 21 to
30 bracket in November and December.
Source: Valve, 2020
Our client conversations mirror these changes and seem to reflect several issues: that occupiers are currently taking only the minimum space they need while balance sheets remain pressured and that corporates have not yet finalised their view on the exact role that flex will play in their future strategies.
With only a few notable exceptions it is the absence of the large scale corporate requirements from the market that has reduced take up in 2020. This position is likely to remain, until a clear back to work strategy in the office is adopted at scale.
Figure 1 Proportions of Requirements in each Cohort Source Valve June 2020.
Figure 2 Proportions of Requirements in each Cohort Source Valve December 2020.
5CBRE FLEX MARKET UPDATE
M A R K E T P R I C I N G
Understanding the importance of desk pricing in decision making is a reasonable ask by
corporate clients, but one that isn’t easy to answer given the data opacity of the flex sector.
Nevertheless, CBRE can see that occupier searches continue to be driven by value and decision
making/approval requires demonstration of best value.
On average from April 2020 CBRE have saved their clients 19% on the monthly cost whilst also
ensuring clients are able to operate safely and negotiate the additional flexibility they require
for these uncertain times.
When return to work happens in 2021, CBRE believe that the significant reduction in
occupancy and the subsequent reduction in pricing that has been seen during the second half
of 2020 will reverse swiftly as demand picks up and choice diminishes.
CBRE recorded
significant discounts
in 2020, the largest
being 44% from the
initial price quoted.
CBRE have saved
their clients 19% on
the monthly rate
of their licence
agreement…
Top five enterprise
transactions recorded
an average contract
length of 18 Months
in 2020
Key stats
Source: CBRE, 2020
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O U T L O O K F O R 2 0 2 1 -W H A T F A C T O R S A R E M O S T I M P O R T A N T W H E N E N G A G I N G W I T H A F L E X I B L E S P A C E O P E R A T O R ?
Unsurprisingly 70% of occupiers are concerned about the health aspects of workspace
when engaging with operators and this is probably the single most important factor in
understanding why the return to the flexible office from the corporates has been slower than
initially anticipated.
As we look forward, it is clear that in managing these risks the operator reputation will have
a key part to play. The corporate occupier will wish to control their private space and
manage the interactions their staff have with others. Something that goes against the very
essence of the benefits of coworking.
It is the case that the justification for the use of these spaces in the short to medium term will
not be around the previously hyped benefits of coworking and vibe but on the hard
commercial benefits of minimal capex, short commitments and ease of use.
CBRE GLOBAL OCCUPIER SURVEY
What factors are most important when engaging with a flexible space operator?
Source: CBRE, 2020
69.6%
52.2%
43.5%
39.1%
34.8%
30.4%
13.0%
8.7%
0.0%
0% 20% 40% 60% 80%
Ability to provide a safe working…
Reputation/health of flexible office provider
Privacy/security in flexible office space
Scale of global or national network
Cost
Ease of transaction
Amenities, services and benefits offered
Quality of furnishings and fixtures
Landlord engagement with flexible space…
7CBRE FLEX MARKET UPDATE
Our recent Global Occupier Survey has indicated that clients in all sectors and of all scales see
the benefit of flex as part of a broader real estate strategy.
When asked “what will be the most in demand services of office buildings post-covid”, 92% of
our clients cited ‘flexible office options’ as the most significant, with ‘shared meeting space’ not
far behind.
O U T L O O K F O R 2 0 2 1 -W H A T W I L L B E T H E M O S T I N - D E M A N D B U I L D I N G A M E N I T I E S I N T H E F U T U R E ?
CBRE GLOBAL OCCUPIER SURVEY
What will be the most in demand services of office buildings post-covid?
Source: CBRE, 2020
92.3%
80.8%
73.1%
65.4%
57.7%
53.8%
46.2%
34.6%
19.2%
15.4%
15.4%
0% 20% 40% 60% 80% 100%
Flexible office space options
Shared meeting space
Indoor air quality
Sustainable building design
Connected technologies / Building apps
Touchless technologies
Onsite café food and beverage
Public transportation access
Fitness facilities
Outdoor amenities
Concierge services
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O U T L O O K F O R 2 0 2 1 - I D E N T I F Y T H E M A I N R E A S O N S F O R U S E O F F L E X I B L E O F F I C E S P A C E E N V I R O N M E N T
Both our survey and the transactional evidence observed in 2020 indicate the occupier’s need to reduce capital expenditure. With free capital in short supply this is no surprise and this position will remain for the medium term. What is interesting is the need to not just avoid capex but to start to trial a variety of different uses for flex. Whether this is to accommodate a more dispersed workforce or to test alternative ways of working and new inter-team relationships and operating methodologies.
CBRE GLOBAL OCCUPIER SURVEY
Identify the main reasons for use of flexible office space environment
Source: CBRE, 2020
52.2%
43.5%
43.5%
43.5%
34.8%
26.1%
8.7%
8.7%
0% 10% 20% 30% 40% 50% 60%
Reduce capital expenditure
Short-term space solution fortemporary dispersed workforce
Test of alternate workspace oroccupancy models
Provide a network of locationsfor more mobile workforce…
Enter a new market(s)
Swing space while leased spaceis under construction
Access new services or amenities
Access more modern workplacedesign
9CBRE FLEX MARKET UPDATE
O U R G E N E R A L O U T L O O K F O R 2 0 2 1
Landlords remain curious as to whether there are improved returns available in some element
of flexible, tenant ready or serviced offer. They and the Operators will continue to work hard to
respond to the needs of the Occupier who is committed to this space long-term. We can expect
to see a convergence of products being offered by both the Landlord and Operator sectors
despite the strenuous efforts to differentiate each sector’s product. This will be good news for
the consumer.
As technology plays a greater part in our lives we expect it to continue to play a greater part in
how the industry interacts between the providers of and the consumers of space.
Improved data collection around space usage will help occupiers of the future evaluate the use
of memberships, meeting rooms, shared spaces and private offices. Pricing should become less
opaque and more easily evaluated bringing efficiencies to the market.
CBRE are well positioned to advise on flex in 2021 which will undoubtedly be a pivotal year for
this disruptive part of the property industry.
The Landlord & Operator Community
10CBRE FLEX MARKET UPDATE
C O N T A C T U S
STEWART [email protected] 876 065
MICHAEL GLYNNOccupier [email protected] 034 258
DAVID WILSONLandlord [email protected] 339 242
BILLY HODGESEMEA Agile [email protected] 397 476
Get in Touch for further information
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