Concerns over ‘excessive growth’ and a perceived destabilising impact of the flexible workspace sector on the broader office market are overblown according to global real estate advisor Colliers International, whose latest research shows only a small proportion of city office space across Europe is taken up by flexible workspace, suggesting there is significant room for growth in the ‘Flex’ sector across all European cities.
The number of flexible workspace operators across Europe has grown 135 per cent over the last four years, with the number of flexible workplace centres increasing by 205 per cent. This activity has caused the real estate industry to warn of excessive growth in the sector with concerns over the impact it could have on the broader office market.
However, according to Colliers’ Flexible Workspace Outlook Report 2019, as of end 2018, flexible workspace accounted for only 1.5 per cent of total office space on average across the 22 major European cities surveyed, with the highest proportions recorded at just 5 per cent in London and Amsterdam.
“The shift towards ‘space as a service’, and not just a commodity is probably going to be the biggest driver of growth in demand for flexible workplace going forwards,” adds Tom Sleigh, Colliers’ Head of Flexible Workspace Consulting, Occupier Services - EMEA. “Customer centricity is at the heart of this and is likely to see flexible workplace options rise to 10 per cent of all office space in major European cities in the years ahead, from around 1.5 per cent (on average) as of end 2018. This could be significantly higher at closer to 20 or 30 per cent, especially in cities comprising a higher proportion of agile tech and media firms.”
Colliers’ report reviews the most significant flexible workspace operators and highlights there are a number of active participants, but not all of these participants are active across a range of city markets. In fact, the majority of flexible workplace operators tend to stick to a few big centres, or to national borders, outside of the major global and European players.
Colliers’ review of ‘Operators by City’ illustrates just how different European cities are in terms of the flexible workspace operators in situ.
- Amsterdam and London are the stand out markets in terms of the proportion of take-up and physical office space that flexible workspace accounts for – at around 10-15 per cent of take-up and 5 per cent of total office stock at the end of 2018.
- At the other end of the scale, flexible workspace in Stuttgart and Dusseldorf accounted for only 1 per cent of take-up and office stock at the end of last year.
- London and Paris are the most mature markets, and both have seen more established operators develop their presence, in addition to IWG and WeWork. Despite this evolution, both cities are dominated by a small number of operators, with other domestic, local players playing a significant role accounting for over 60 per cent of activity.
- Amsterdam, Warsaw and Munich show that IWG and WeWork have relatively equal positions. In Amsterdam and Warsaw this is muted by the role of significant other local players, in Munich much less so.
- In Copenhagen, Budapest and Frankfurt IWG is the dominant player - accounting for between 25 and 35 per cent of activity. In Copenhagen and Budapest, local players – both significant and others – take up the remainder of the market. In Frankfurt this differs, with international operators accounting for a sizeable amount of space.
- In Berlin, there is a far greater internationalisation of the flexible workplace offer, with international operators beyond IWG and WeWork accounting for over 40 per cent of space operated.
- In Milan, the reverse is true, and aside from IWG the majority of space (over 40 per cent) is run by local (Italian) operators.
“The EMEA flexible workspace market is very diverse and predominately made up of operators with only one or two locations. This provides huge choice for occupiers but also an opportunity for established operators to expand across the region via M&A activity,” said Damian Harrington, Head of EMEA Research & Forecasting, Colliers International. “There is a risk that the new flexible workplace operators that have entered the sector in the last two years do not have the real estate knowledge, service offering or economies of scale to compete and survive”.
Damian Harrington, concludes: “It is difficult to consider this niche as a huge threat to the market, even with the prospect of economic cooling and diminishing levels of employment growth in the years ahead. Any upcoming economic contraction will really test the flexible workplace market for the first time, but there’s a strong chance that the peaks and troughs of older occupational and economic cycles will be smoothed out by the shorter lease-length options provided by flexible workspace operators. The economic commitment is far more manageable than that for conventional space as flexible workspace desk costs have diminished, just as lease lengths across the conventional market have been reduced in order to compete.”