The rapid growth of the serviced-office market has been one of the defining business trends of recent years.
Driven by a growing demand for flexible working spaces and changes to International Financial Reporting Standards (IFRS) – which have made long leases less desirable for companies – the serviced-office market is only heading upwards.
“The move towards the flexible utilisation of space is a structural super-cycle – that’s where the market is going,” says Thomas Sinclair, Group CIO and Global Head-Network Development at IWG. “In that context, landlords have no option but to address this trend.”
A report by real-estate firm Savills found there had been a 150% upsurge in demand for serviced-office space in 2017, while Jones Lang LaSalle (JLL) predicted technology would continue to drive growth in flexible-working spaces by up to 30% a year.
It’s not just startups and SMEs embracing the trend, either. In 2018, the model was responsible for some of the biggest flexible-working deals in New York and London, with leases signed by major players such as Adidas, Facebook and Microsoft.
For landlords, there are lots of advantages. With prospective tenants increasingly wanting more flexspace, a site is made more attractive to them if that type of flexible-office offering is available onsite. Also, a landlord’s cashflow and the valuation of their building can be improved because tenants are less likely to move out or break their terms
For tenants, the advantage is being able to reduce their upfront spend on things like outfitting an office, being able to collaborate with other companies, and the opportunity to benefit from fully-maintained non-office areas such as co-working areas and breakout rooms.
Another clear advantage is the diversity of portfolio. In the past, many companies were only willing to lease property in global cities such as New York, London or Tokyo. But while they’re still hugely in demand, the popularity of so-called second cities has steadily increased as firms look for lower rents.
Cities such as Manchester, Lille and Frankfurt have seen the supply of serviced flexible-working spaces grow by 15% as a direct response to this trend, while Oklahoma, Kansas and Nebraska in the US all reported growth rates of more than 20% over the past year.
Such growth is due in no small part to the changes brought about by the flexible working market, which benefits from the ability to position an office closer to where people live. At the same time, tech such as video conferencing and superfast broadband means a second-city office can easily be as productive without being in the middle of Wall Street or Roppongi Hills.
From a landlord’s perspective, this offers the opportunity to lease office space in an area that in the past might have not have been deemed prime. From a client’s point of view, the portfolio of property sites they have to choose from is expanding all the time, providing the opportunities to move company operations where they need to.
“This is a trend that’s enabled by technology and a trend that we believe is here to stay,” Sinclair adds. “This is not only a trend we believe landlords need to and want to embrace; we also believe it adds values to their businesses, their locations and their assets by properly and efficiently monetising their space.”
Learn more about how IWG can take the hassle out of leasing a property and generate a steady income stream.
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