Flex working space still on the increase

Tim Harrup

Real estate advisor Savills has conducted a survey into the growing ‘flex’ office market in Europe. Traditionally, they state, flex office occupiers have been smaller start-up companies in the tech sector. However, the Flexmark report showed a shift in occupier type post pandemic, with more corporations and larger scale-up companies active in the B2B and financial services now taking up flex office space. One of the explanations for this shift is that corporations and larger scale-up companies are looking to test the new way of working policies without locking themselves in with a conventional longer office lease, and collectively account for 39% of the total market. This is increasingly likely to impact conventional office demand for the 500-1,000m² lot sizes.

Savills also define the different types of flexible office space available on the market. Co-working, firstly, is an open plan area that offers hot desks and dedicated desks to customers usually on the basis of a monthly rolling contract. The space will provide a shared break-out space. Co-working will quite often form a small part of a larger serviced office, where there are private suites and break-out spaces. Serviced offices 3-24 months 1-200 people.

The next category is serviced offices, which usually provide a range of private office suites, ranging in size from 1 desk through to 200 desks, which are let on licence contract to customers on terms ranging from 3 to 24 months, and sometimes longer. Average term is usually 12 months. The serviced office will provide those customers with a shared amenity space such as kitchen, break-out, meeting rooms, lounge space etc. A serviced office space might also include a co-working area within the space, usually 5-10% of total desk space. Managed offices 2-5 years 25-500 people.

Next comes managed office space, providing a self-contained suite for a business, which is fitted out with all furniture and meeting rooms and all include services such as IT, cleaning, utilities in one monthly contract. The suite includes a dedicated kitchen and break-out, therefore none of the space is shared with other companies. The occupier can usually customise the space to their own brand.

And finally plug & play, similar to managed space in that it provides a self-contained unit that is fitted with furniture to allow for a company to move in immediately. The key difference is that the services are not always included and it is typically on a lease rather than licence contract.

Looking at the evolution of the market, Savills finds that European flex office demand reached 193,000m² during the first half of 2022, in line with the levels recorded for the full year 2020 and 2021. Flex office demand accounted for 5% of take up across European cities during this half year, up from 3% during the pandemic, and remains on a gradual recovery to the 8-9% observed before the pandemic. Amsterdam, Paris CBD and Lisbon have been the most active flex markets over the last 18 months, however, the major German cities have generally seen lower levels of flex office demand in recent years, partly due to a more traditional working culture and more cellular office layouts, with a higher proportion of private offices in conventional space. In Brussels, flexible office demand exceeded 10% prior to the pandemic before slowing, driven by Spaces, Fosbury & Sons and Silversquare, although in 2021, new take-up has been more limited.

Investor sentiment towards the flexible office sector, Savills confirm, remains buoyant. Savills EME Investor Sentiment Survey, Autumn 2022 indicates that 29% of investors would increase their exposure to flexible offices over the next 12 months. Landlords remain cautious regarding the increased construction and fit-out costs, with only 7% looking to increase exposure through fitted space. However, 14% would register through a management agreement, and 21% through a lease agreement with an operator.