There has never been a better time to offer flexible workspace.
A recent article in the Financial Times confirmed that the UK has the largest flexible workspace market in the world. According to a report by Capital Economics last year, the market is worth an estimated £16bn. What’s more, they estimate that its value could rise to £62bn, or even as high as £126m, within 10 years.
If that is even close to being accurate, a huge number of new flexible workspaces will open in the UK in the next few years. Many of these will be co-working spaces as more and more businesses, even law firms, buy into this so-called ‘disruptive’ model.
Whatever type of centre you are opening, you want to give yourself the best possible chance of success. Here are our five tips for opening flexible workspace in the UK:
Every successful operator defines its brand at the outset. It knows the product it is selling, the values it represents and its target audience.
WeWork, for example, is a brand, not a property company. It sells not just space but a working lifestyle, allowing it to generate additional ‘sticky’ income from its clients.
What differentiates your product from your competitors? Is it the quality or design of your space that sets you apart? Or, are you selling solely on price?
Property’s best-known adage is as true for flexible workspace as it is for the rest of the sector. Two other factors are just as important though: connectivity and good coffee.
Let’s start with location. The flexible space market is always evolving and the areas in demand constantly shifting. We’ve seen operators struggle in a location because although their instincts were right about its potential, they were there too early. Similarly, there’s a risk of entering an established area that is already saturated.
There are practical issues, too. We know of one BCA member that set up ahead of the pack in an upcoming fringe area of a major UK city. One of its attractions was the availability of local parking but as the area’s popularity has grown it is now impossible to park.
Other usual property rules apply when choosing a location. In town or out of town, access to transport links and parking, proximity to shops and other amenities, the cost of business rates (a hot issue right now) plus the local demographic.
The other essentials for occupiers are super-fast internet connectivity and great coffee. Despite one co-working space offering prosecco on tap, its absence isn’t yet a deal breaker for most occupiers!
One of the first questions operators ask when opening new flexible workspace is “how big is the market?”
If you are offering high-end co-working space you will probably be interested in the local creative and high-tech economy. For lower cost space, the biggest driver may be the number of local start-ups.
You should also consider the local economy. Projects such as Crossrail or HS2 and regional investment programmes can have a big impact on an area’s future growth.
In Leeds’ South Bank, for example, the existence of 36 hectares of brownfield development space close to the planned HS2 station offers significant potential opportunities for operators. Another example is the ‘Midlands Engine’, which provides a workforce of over 5.3m people and a staggering 24.5% of the UK’s economic output.
Local competition is not necessarily a bad thing. A number of providers in the same area can create a thriving nucleus for businesses in the same sector – the Sheffield tech hub is a perfect example of this.
You need to be careful, though. You wouldn't want to spend capital on a new centre only to find your biggest competitor is opening better quality premises next door. Work out who your competition is, what their product is and what they are charging before you commit to a new location.
Most centres are held in one of four ways: a freehold/owner occupier, a traditional lease, a profit share lease or a management agreement.
Operators need to be aware of the strength of their covenant when negotiating traditional leases with landlords. They should also take expert advice on the terms they agree, as these will have a huge impact on their upfront expenditure, the centre’s profitability, and how marketable it is if they sell.
An alternative is a profit share lease under which the landlord only receives an income once a centre becomes profitable (although there can be a low base rent element).
The third type of arrangement is a management agreement. Here, the operator agrees to provide flexible space under its own brand within the property owner’s premises. Initial and ongoing costs are managed by the operator but are ultimately shared between the two. This reduces an operator’s risk especially as they will often charge a management fee of between 10 to 20% before a profit share is paid out.
Douglas Green is a director of GKRE, the specialist flexible office agent. Please contact us at email@example.com if you have any queries in connection with setting up a flexible office centre.