The pandemic has caused significant disruption to communities, businesses and the economy on a scale that has never been experienced before. The economy shrank 20.4% between April and June as ongoing lockdown measures led the country into recession.
It’s the first recession (defined as two consecutive quarters of economic decline) since 2009 when the global financial crisis wreaked havoc with economies around the world. Hospitality, tourism and performing arts are among the hardest hit industries, but the flexible workspace industry hasn’t escaped unscathed either.
The global health crisis has had a huge impact on serviced office and coworking operators large and small. Lockdown measures are prompting people to switch to home working, albeit for the short-term, and the style of collaboration that flexible workspaces are synonymous with has been put on a temporary hiatus.
However, providing the UK’s social distancing measures work and the virus subsides, the disruption the industry faces might not last for long and it could gain traction in the latter part of the year and 2021. Research by Coworking Resources indicates that the number of coworking spaces worldwide will more than double by 2024 to surpass 40,000.
The serviced office market has a history of doing well in uncertain climates. The sector has been following an upward trajectory for the last four decades, despite disruptive events like the dot com crash, the global financial crisis of the noughties, and more recently, Brexit.
The reason for the sector’s continuing success is simple: there’s a growing appetite for, and a need for, business flexibility. Increasingly, company owners—including those running large global enterprises—are no longer willing to risk entering into a long-term lease.
FreeOfficeFinder’s data reflects this. Up until the end of February 2020, 18% of enquiries FOF received were for leased offices, compared with 82% for serviced/managed solutions. Fast forward to between April and August 2020, and 11% of enquiries are for leased offices, and 89% for serviced/managed solutions. That’s an 8.5% increase for serviced office enquiries and a 38.9% decrease for leasehold enquiries.
We expect a further increase in demand for serviced offices from businesses that come from a leased background; those looking for flexible alternatives in the wake of the coronavirus pandemic. Larger organisations may decide to go down the “managed” route by opting for a fully-customisable office for their team.
Why will serviced offices thrive?
The key to serviced offices’ ongoing success lies in the “serviced” component. The sector’s dedication to the occupier experience is what has made it so popular to date. From the way in which serviced offices are designed to the community and networking aspect, every interaction between the occupier and space is carefully considered and tailored to the needs of the individual business.
Signing up for a serviced office is also a comparatively frictionless process that takes little time and doesn’t involve extensive paperwork and legalese. Add to that the fact that there are no dilapidation, fit-out and IT infrastructure costs associated with serviced offices and you’ve got a winning formula.
The serviced office sector is also agile and used to adapting. Operators responded quickly to the pandemic, reconfiguring their spaces in line with social distancing measures and implementing enhanced clearing and safety strategies in accordance with the UK Government’s Working Safely During Coronavirus guidelines.
Yes, businesses could very well reduce their office footprint moving forward, but we think they could be willing to invest more in the services side of things. As such, we expect operators to continue to focus intently on dedicating floor space to gyms, wellness facilities and, provided the lockdown measures work, enhanced event spaces.
The appeal of serviced offices over leased workspaces:
- Minimal or no capex—the cost is inclusive and spread over the occupancy term.
- Quick entry and exit—Business can move in and out at short notice.
- Fit-out—most serviced offices are furnished to a high, ergonomic standard.
- Hassle-free—Utilities, cleaning and other maintenance overheads are included.
- Community—Other businesses occupy the space, providing networking opportunities.
- Talent retention—Employees enjoy the perks associated with serviced offices.
- Upsize/downsize—Resizing at short notice as circumstances change is easy.
What else will change?
We also expect that the coronavirus pandemic will have a lasting impact on commuting in cities.
Our office consultants are getting more enquiries for offices located on the fringes of cities and beyond as people opt for workspaces closer to home to avoid public transport and busy areas. In July 2020 we published data showing a 45% increase in enquiries for smaller offices outside of the M25 since May, compared with 23% for Central London.
With this in mind, serviced office operators with plans to open and invest in regional workspaces could very well experience a boost. We’ve also had an increase in interest from businesses that want to accommodate smaller dispersed teams in Zone 2 and beyond and those who want to purchase coworking memberships for employees in spaces close to where they live.
Ultimately though, we predict that the serviced office sector could emerge from the pandemic stronger than ever. Leases, on the other hand, will continue to fall out of favour unless they evolve into a more flexible solution.
“We know that the trend in recent years is companies moving away from long leases onto more flexible agreements, using serviced and managed offices,” summarises Nick Riesel, FreeOfficeFinder’s Managing Director.
“However, I believe that the fallout and uncertainty of the pandemic is acting as an accelerator by steering these decisions at a much faster pace.
“It is likely we will see this trend continue for quite a while.”