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You probably haven’t met Elaine Rossall and, if it weren’t for this interview, the odds are that you would reach retirement age without hearing her name.
That would be a shame, because Elaine is one of the most influential people in the UK office market.
Elaine is Head of UK Offices Research with global surveyors, JLL. She arrived at JLL in September 2018, having spent 20 years working on office market data for mega-rivals Cushman & Wakefield.
Elaine and her number-crunching team matter – matter very deeply – because, for the last five or six years, data has been king in the property industry. Driven by cautious lawyers and by investment committees insisting on due-diligence paperwork, and inspired by the horrible lessons of the hunch-driven boom-and-bust property market of the Noughties, data analysis is now at the heart of all property decisions. Investors, landlords and developers do nothing, spend nothing, buy nothing, without running the numbers through the research team.
Perched at the top of the research tree in arguably the UK’s leading property consultancy, Elaine is the queen of property data. If she says it doesn’t add up, then it doesn’t add up.
New markets for operators will be chosen carefully, operators will not target every city and secondary cities are less likely to see the widespread adoption of flex
So what is Elaine ‘green-lighting’ at the moment, and what does she expect to be reviewing next in the turbulent UK office scene? The answer is flexible workspace – not just more, but lots more. Tons more. Millions and millions of square feet of offices, which are also cafes, which might also be shops, or hotels, or almost anything. Because flexible workspace is about to seep into everywhere.
JLL research predicts that flexible office space in the UK will account for over 8.5% of total UK office stock by 2023, up from about 5% today. In some locations the flex market will represent a larger proportion (London and the big cities), and in some locations growth will be faster (the Big Six regional cities, where flex space volumes are doubling or tripling each year). But, over the entire UK office market, growth will be rapid. They estimate that 10 million sq ft more flexible office space will be added by 2023.
‘Activity in the Big Six will take off in the next few years, particularly with WeWork, who was instrumental in driving the expansion of Central London, now entering the regional markets,’ Elaine says.
‘Manchester is presently the most mature of the regional cities, not only was it the first location outside of London to secure WeWork, but over the last five years flex space has increased in the city at a rate of just under 350%, outstripping Central London, which saw an increase of circa 210%. New markets for operators will be chosen carefully, operators will not target every city and secondary cities are less likely to see the widespread adoption of flex.’
‘London will also see further growth as operators plan to expand their footprint in the capital, however, in the short term, the pace of growth may slow due to supply dynamics in Central London. The increasing number of landlords launching their own platforms and therefore seeking not to let space to flex operators may also impede their expansion.’
Elaine insists that fears that the flex market has peaked (or soon will) or that the coworking bubble will burst, are misplaced. In fact, they are based on a misunderstanding.
‘We expect the London flex market to reach about 10% of the office market, so that is about 25 million sq ft from a total London office market of 235 million sq ft. Compare that to today’s flexible market of 15 million sq ft and you can see we have a long way to go,’ she says.
However, as Elaine explains, there is a cap on the market, thanks to simple property economics. As flexible working expands, it draws in occupiers who want longer-term arrangements. The result is that average flexible workspace tenancies get longer, heading towards two or three years in some cases.
Meanwhile, the traditional office market is adapting fast and today a three-year traditional lease (or five-year lease with a break at year three) is increasingly common.
The result is that flexible workspace and traditional workspace begin to compete for the same valuable customers, fighting for tenancies of roughly the same length.
We’re going to see more hybrid flexible floorspace, which mixes collaborative space with more traditional serviced space, and we’ll also see operators take larger units
At the other end of the market, super-flexible coworking space has grown fast (from a few per cent of the flexible market, to up to 20% for some operators). But it cannot grow very much faster because, with a high turnover of relatively low-rented desks, it simply doesn’t make operators much money. It is the nursery in which their bigger, longer-term tenants grow – and is not in itself very profitable.
‘What we’re seeing is that the flexible and traditional office markets are blurring. That is why it is wrong to focus too strongly on the risk that the flexible market will get saturated. The saturation risk is exaggerated,’ Elaine says.
Unfortunately for data-driven decision making, the finances and pricing structures of the big flexible floorspace providers are far from clear. Anecdotal evidence is second-best for people like Elaine, but combining known data with conjectured occupation rates and pricing suggests that flexible providers will want to keep expanding. They will also look at new partnership arrangements and begin to colonise other types of floorspace. ‘We’re going to see more hybrid flexible floorspace, which mixes collaborative space with more traditional serviced space, and we’ll also see operators take larger units,’ Elaine says. ‘We’ve already seen some of this with average flexible hub sizes growing from 16,000 sq ft five years ago to about 32,000 sq ft today, and that average is still getting bigger.’
JLL’s research suggested that the concept of a partnership model is gaining momentum as the sector continues to evolve. This alternative solution will see landlords and operators partner-up, with the former gaining the benefits of offering flexible space without having to enter directly into the sector. The result could be akin to the hotel industry, which provides a model of the operational and contractual arrangements that could achieve this.
There will also be a blurring of boundaries between the workspace sector and the leisure and retail sectors. Today, coffee shop and coworking space are often indistinguishable. Tomorrow, the same trend could sweep through shops, restaurants and hotels.
‘As technology gets better so you can move around between different locations in quite interesting ways. We’ve already seen Staples, the office supplies people, teaming up with Regus, and we’re looking at petrol stations and service stations, and as the worlds of work and retail merge, we’ll see more,’ Elaine says.
‘We’re also seeing hotels develop their business centres as the process of consumerisation of everything grows.’
As yet the data-sets with which Elaine and her team work show just the smallest trace of the trends she describes – but these trends are growing. The next set of research to go before a property developer’s board or a pension fund’s investment committee could bear it out. But you read it here first.
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