The flexspace sector continues to grow year-on-year. The latest UK-wide Instant data recorded a 22% increase in demand for flexible spaces from 2021 to 2022. With this growth comes opportunity – not only for existing flexspace brands but also for commercial landlords.
We’re here to break down the opportunity for landlords considering whether they should be entering the flexspace market. We’ll talk through the options, highlight some landlords that are already positioning themselves for success in flex, and explain how you can get involved too.
Why should landlords be considering flex?
Before we move on to the detail, lets first consider the proposition itself. Why is flexspace becoming a hotspot for growth, and why should landlords be considering it as a priority in their portfolios?
The main factor at work here is simple – occupiers are increasingly interested in flexible workspaces. JLL found that 41% of occupiers expect to increase their use of flex space, driven by the 63% of employees who prefer the hybrid model to working exclusively from home or an office.
For landlords that are battling to restore their properties’ occupancy and cash flow to pre-pandemic levels, flexspace offers a compelling alternative to traditional office space.
Long-term leases from blue chip occupiers are not a guarantee anymore, but flexible workspaces are easier to fill. Not only is there more demand than ever, floorplates can be divided into smaller chunks to minimise the reliance on large occupiers taking whole units.
What options do landlords have to get involved in flex?
Plenty of landlords are entering the flexible space sector, keen to benefit from the growing demand. Some are allocating provision of flex in all their office buildings. x. Others are making their first entry into the office sector with a flexspace investment. Importantly, this isn’t a short-term trend. Instant’s The Future Of Flex report from November 2022 found that half of the landlords surveyed expected 16-25% of their portfolios to be flexible by 2025.
There are essentially four different options for these landlords to consider when it comes to adding flex to their portfolio. We talked more about each of these options in our post dedicated to the different flexspace business models. But here’s a quick summary:
- Create a brand – Landlords can create their own flexspace brand and go it alone. This is a high risk, high reward strategy. There’s a lot of work involved, and it requires the biggest investment, but the landlord gets to keep all of the profits and make all of the key decisions.
- Join a franchise – Landlords can join an existing flexspace franchise, transforming their properties into franchised workspaces. This cuts out some of the work of building a brand from scratch, but limits control and means sacrificing some profits to franchise fees.
- Build a management agreement – Landlords can approach operators with a management agreement proposition, allowing the operator to use their space as their own in return for a cut of the revenue. This limits the landlord’s practical involvement, but means they’re still financially tied to the success of the venture.
- Lease their property – Landlords can simply lease their property to an existing flexspace operator for a set rent. This means they’re not involved at all in operations.
Data from Instant’s Future Of Flex report shows that landlords are choosing to get involved in the flexspace sector in all of these ways:
- 10% of landlords want to partner with an existing flexspace provider through a management agreement
- 18% of landlords want to lease their space to an existing provider, with no serious involvement
- 36% of landlords want to deliver their own flexible workspace offering
The most interesting part of this data is that 36% of the landlords surveyed are choosing the most involved option.
Building and managing a flexspace brand is a big commitment, taking lots of time and effort. So why is it the most popular option for landlords considering joining the flex sector?
You only have to look at examples of how major landlords are currently faring in the flexspace market to find out.
The success of ‘brandlords’ in the flexspace sector
As flexspace has become a hot commodity, in response to the growth of demand from businesses for more flexible workspace options, established landlords have increasingly gone all-in with their own, self-managed brands. We coined the term ‘brandlords’ to describe these market participants, and wrote a whole blog post on who they are and why they’re doing it.
In short, brandlords are landlords-turned-brands. They’re commercial property owners who have decided that the best way of getting involved in the growing flexspace market is to create their own offering..
Here are some examples of brandlords and the growth their flexspace offering has experienced so far:
Landsec, one of the UK’s largest listed commercial property developers/landlords, launched its Myo brand in 2019. In 2023, they announced plans to triple the size of the brand, adding 139,000 square feet to their existing 72,000 square feet of space in London.
This is a huge sign of trust in their strategy. And it’s backed up by Marcus Geddes, the Managing Director of Workplace at Landsec, who said, ‘looking ahead, we’re confident we’ll continue to see strong demand for our premium, flexible offer’.
Great Portland Estates is an institutional property landlord with over £2.5 billion of real estate in central London. GPE has entered the flexspace sector in a big way. They’ve approached it from two angles: building partnerships with existing providers and also developing their own brand, ‘GPE Flex’.
In an announcement in 2022, they revealed plans to grow their total flex portfolio to over 600,000 square feet across the capital. Steven Mew, the Flex Director at GPE, said, ‘our goal… is to meet the increasing demand for flexible workspaces within our portfolio’.
The Crown Estate
The Crown Estate is another major UK landlord that’s entered flex. Their portfolio of workplaces across the capital covers more than 2.6 million square feet, and has been recently transformed into a more flexible offering to suit the demand they’re experiencing.
And they’re expanding their flex portfolio, too from One Heddon Street and Swallow Place. They recently launched their newest concept, 6 Babmaes Street as an events, meeting rooms and coworking facilities available to their office clients. Simon Harding-Roots, the Managing Director for London at The Crown Estate, said, ‘Babmaes is not only a great addition to our portfolio, but a suitable response to an evolving world… [providing] a different environment to more traditional office settings’.
British Land are another FTSE 100-listed firm, managing a portfolio totalling over £19 billion in value. They launched their own flex brand, Storey, in 2017. Since then, the portfolio has grown to include over 12 workplaces across London, with more forecast to be launched in the coming years.
This growth is a signifier of their trust in the success of the brand. James Lowery, Head of Storey at British Land, said, ‘COVID 19 accelerated a range of workplace trends… Storey is well placed to respond to [them], providing flexibility in the broadest sense’.
What you can learn from landlords moving to flex
There is a movement from some of the biggest and most successful commercial landlords in the country to flex. These companies would not be paying as much attention to the flexspace sector if they didn’t believe it was complementing their traditional office leasing offering and supported with placemaking in blended mixed developments.
Furthermore, there’s a clear template for success that seems overwhelmingly to point towards taking the ‘brandlord’ route.
Having the opportunity to manage your own approach to offering flexible space, building a brand that resonates with your perception of the market, and getting all of the rewards of your efforts might just outweigh the time, effort, and risk that launching your own flexspace brand involves.
If you’re a commercial landlord, interested in the opportunities that the growing flexspace sector offers and keen to learn more about how you can enter the market, Spaces to Places is here for you.
Get in touch with us for a free discussion about your ambitions and we’ll help set you on the right path to grow your portfolio’s success and prepare for a more flexible future.