Let’s talk about flex

Hartnell Taylor Cook, Chris Grazier, office, Cat A Plus
Chris Grazier

The office market is on the move. Moving from a conventional ‘one desk per employee’ approach to a more flexible model, occupiers have begun to view space differently, causing the market to rapidly evolve in the last five years. Chris Grazier explains

The businesses leading this trend to the flexible model, and where the greatest innovation is taking place, tend to be the smaller, younger companies – often in the tech, media or creative industries – whose young and dynamic workforce demand a different working environment. Their desire for more flexible, collaborative working days has in turn influenced how larger corporates approach workplace solutions.

One of the key drivers behind this new vision of the workplace appears to be rooted in the education of many start-up owners and millennial employees. They have graduated from a higher education environment that is dramatically different to what previous generations of workers experienced; it is now far less structured and concentrates heavily on informal interaction between students and lecturers rather than class-based teaching. This collaborative learning model has therefore increasingly influenced the way our new generation of workers approach their working days, and so, when transferring from the academic to the professional world, a conventional office environment no longer feels appropriate.

The much-publicised rise of the serviced office sector, with companies such as WeWork and Regus Spaces providing flexible and co-working space, has also facilitated the rapid evolution of the workplace and served much of the demand experienced over the past five years. Nonetheless, the sector primarily appeals to companies experiencing rapid growth or who require the ability to flex within their workspace to accommodate the gig economy or freelance style working. The model has remained an expensive option for larger companies or those with more static space requirements.

Some of the larger corporations have tried to overcome these hurdles by locating project teams in flexible serviced buildings, as this has the twin benefit of reducing the company’s exposure to long-term property costs whilst also allowing access to more vibrant dynamic space. But this has impacted conventional institutional landlords who have a business model based around long-term corporate leases. It has also been accompanied by a widespread move away from the perceived inflexibility of conventional leases by smaller companies, who now have an increasingly wide range of serviced office options to choose from as the market has expanded.

The institutional market has begun to respond with more pro-active funds trialling various solutions to deliver space that competes with the serviced sector. A good example of this is the development of ‘Cat A Plus’ accommodation, which sees landlords providing much of the infrastructure traditionally regarded as a tenant’s Cat B work as part of a Cat A offer, including fully-furnished accommodation with cabling infrastructure and telecoms pre-connected. This generally requires a rent premium of 10% - 20% above conventional landlord CAT A rentals to fund the work, but offers good value to the occupier as fully-serviced accommodation can often cost more than double conventional rents.

Size and configuration nevertheless remains an issue for many of the institutional landlords who own big buildings geared towards delivering large efficient floor plates, which are often not well-suited to sub-division to accommodate smaller occupations. Those that are most suited tend to be older buildings with narrower floor plans and multiple cores allowing for further sub-division. This is an interesting aspect of the evolving market and has led to some of the oldest and lowest value buildings in cities suddenly becoming appealing prospects for repositioning.

This has also caused a wave of regeneration in second-hand stock. With the widespread adoption of less formal refurbishments, issues such as floor-to-ceiling height or lack of a full access raised floor have become less detrimental on rental achievable. Narrower floor plates often work well for modern occupiers who will cable through desks from the perimeter or may have moved completely from hard wired equipment to a wireless set up meaning that very little cabling infrastructure is required.

Hartnell Taylor Cook, Chris Grazier, office, Cat A Plus

A potential future problem is that, in many office markets, the availability of Grade B (or second tier) stock is being quickly eroded by this regeneration. By its nature, new developer-built office stock is not able to offer the cost savings traditionally associated with second-hand Grade B offices. This cheaper, lower value stock, which is still valued by companies seeking to minimise property costs, is therefore in shorter and shorter supply.

Over the next decade, it looks likely that this will be one of the biggest influences on the office market across all sectors and is likely to lead to further expansion of the serviced market as occupiers seeking to save property costs are forced to move to a more flexible solution, only taking desk space when required or sharing desks on a co-working basis to save money.

Chris Grazier is partner at Hartnell Taylor Cook

Picture credits

Front page: Shutterstock.com/Monkey business images

Middle: Shutterstock.com/Dmytro Zinkevych

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