Coworking and flexible workspaces are taking a firmer hold on office markets in UK cities. The Instant Group’s 2022 market review revealed demand had recovered beyond pre-COVID levels in London, Birmingham, Manchester, and more. Growth in the flexspace sector is building momentum and the number of UK workspaces is projected to surpass 9,000 by 2026.
Interestingly, this growth is now being fuelled in large part by institutional landlords and commercial property investment groups entering the picture. Keen to capture the growing demand for quality local coworking spaces, they are diversifying their portfolios by expanding their flex offering.
Some are taking the traditional approach of acquiring or investing in existing coworking brands – such as CBRE who have increased their stake in Industrious to over 40%. Others are taking a more novel and involved approach, becoming what we can call ‘brandlords’.
What is a brandlord?
Brandlords are landlords-turned-brands. They are commercial property owners and investment groups that have decided to create their own coworking offering, rather than apply their capital in existing ventures. Zoe Ellis-Moore coined the term.
Despite the high investment required in terms of both capital and effort, this model is proving popular. Examples of coworking or flexspace brands set up by traditional commercial landlords include Shaftesbury’s Assemble, British Land’s Storey, and Landsec’s Myo.
It’s not just the UK that’s seeing brandlords emerge – there are plenty of examples across the British Isles and mainland Europe, too. In the Czech Republic, there is Penta Investments’ FLEKSI and CTP’s Clubco. In Ireland, IPUT launched Making it Work. And in the Netherlands, Highbrook Investors and REB birthed The Collection.
These brandlords are preparing for the continued growth of the flexspace sector. They are at an advantage in the market, able to leverage their high capital reserves to roll-out quickly, their existing locational research resources to choose the right focus areas, and their commercial partnerships to ensure quality product.
And, with market conditions in other commercial property sectors, such as retail and traditional office space, being less of a sure-bet than ever before, the move towards creating coworking brands makes a lot of sense.
A favourable market landscape
The coworking market landscape is in brandlords’ favour. There are a range of factors that put them in a uniquely advantageous position, increasing the chances that their ventures will pay off.
Broadening occupier profiles
Traditionally, flex office occupiers have been smaller start-up companies, typically in the tech sector. However, a 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. They collectively account for 39% of the total market. This is increasingly likely to impact conventional office demand for the 500–1,000 sq m lot sizes
Gaps in coworking brand coverage
While a strong brand positioning strategy is important in any sector, it seems particularly relevant in the flexible workspace sector because of the scale of competition and the rapid market expansion. Although the market is already reaching early stages of maturity, there is still a vast collection of gaps in existing brand positioning coverage, ripe for brandlords to fill.
This is significant because it means they can position themselves in a way that minimises competition. There are plenty of examples of effective brand positioning to learn from in the flexspace market. Techspace, for instance, specifically targets tech companies seeking growth, with technology based locational clusters in London and Berlin.
Some hotel groups have also created coworking brands, including Wojo by Accord and Bouygues Immobilier, VWorks by The Village Hotel, and Working From_ by Ennismore. These are naturally positioned as convenient and luxurious by their location in a hotel, filling a brand positioning niche that is otherwise untargeted.
Economy of scale advantage
Brandlords, with their significant capital backing, are also well placed to leverage economies of scale to meet a specific emerging facet of flexspace demand. The growth in ‘work-near-home’ models are driving a renaissance of the local area, and institutional landlords have the resources to capitalise on the 15-minute city trend by rolling out networks of workspaces in urban, suburban, and rural settings. This approach can give their customers the locational flexibility they need.
Their capacity to invest big from the beginning will also help them to meet other demand trends, including the desire for amenity-rich spaces that The Instant Group’s research show benefit from a significantly higher occupancy rate than traditional spaces.
The alternatives for landlords
Becoming a brandlord is not the only option for commercial property owners and investment groups looking to capitalise on the growth in the coworking and flexspace market. They can also take the more traditional route of investing in established brands, consider management agreements to leverage their portfolio, or even invest in some of the existing franchising brands that are expanding across the UK.
What is clear is that institutional powers are paying attention to the sector. How they choose to get involved will vary, but their interest can only be taken as a sign that big developments will continue to unfold as flexible working becomes a habit.