Market Trends of Europe Flexible Office Industry
Increasing Demand for Coworking Spaces
Occupiers are increasingly showing interest in both flexible office spaces and those fitted by landlords. This trend responds to the escalating costs of fit-outs and financing and delays in development completions. Opting for these spaces helps mitigate these risks and offers occupiers enhanced flexibility and convenience. Also, the scarcity of prime flexible office spaces in key locations further fuels the demand for landlord-fitted spaces, with some centers reporting full occupancy rates.
Traditionally, smaller tenants have preferred fitted office spaces, with most deals for spaces under 5,000 sq. ft. However, there has been a noticeable increase in the number of fitted office space deals, ranging from 5,000 to 10,000 sq. ft. This trend is particularly pronounced in the City of London market.
In 2022, the City of London doubled transaction volumes for landlord-fitted spaces below 10,000 sq. ft. Landlord-fitted spaces constituted 42% of all office leasing transactions below 10,000 sq. ft in the City of London in 2022, a significant jump from the 21% seen in 2021.
Additionally, there is a rising demand for fully managed spaces where landlords offer soft services. It is anticipated that smaller tenants will continue to prefer fitted spaces, particularly as 'package deals' that include soft services gain traction.
The United Kingdom Dominates the Market
Management agreements are gaining popularity in the United Kingdom, and they accounted for 43% of deals by H1 2023, a significant jump from just 9% in 2019. Currently, 14 serviced office operators in the United Kingdom are actively searching for spaces exceeding 20,000 sq. ft, and an overwhelming 93% prefer the management agreement model.
London's office space market is rapidly expanding, fueled by its thriving start-ups and IT sectors, surging office lease demands, and the emergence of flexible workspaces.
This surge in small and medium-sized businesses is a nationwide trend, while new work practices transcend location and sector boundaries.
These dynamics drive the flexible office market in London, as the region's burgeoning start-up scene is set to fuel its expansion further.
Several key factors are shaping London's office market. These include notable trends such as a surge in completions, shorter lease terms, robust growth in the flexible workspace segment, and an oversupply of prime office spaces due to a persistent preference for quality.
Recent studies from 2023 have highlighted an increasing demand for flexible office spaces in London. As businesses increasingly call for a return to the office, flexible work arrangements benefit both in-person and remote scheduling.
This heightened demand leads to a dwindling supply of flexible offices and a subsequent rise in costs. For instance, in 2022, the rental cost for a permanent desk in a flexible workspace saw a 3.4% quarterly increase, reaching GBP 690 per month (USD 867.19 per month).
