The rapid growth of the serviced office industry is shaking up the traditional office market. Once home only to start-ups, entrepreneurs, creatives and tech firms, increasingly, large companies are now taking space in serviced office centres.
A trend first sparked by political and economic disquiet, now, many serviced offices are proving to be a preferred alternative to conventional office space. In such a fast-changing market, how can traditional landlords adapt to stay ahead of the game?
London has a thriving serviced office market with take-up surging by 176% in the first half of 2017 and it now accounts for 7% of all current West End office stock. This fast growth is widely believed to have been triggered by the Global Financial Crisis in 2008 which was compounded by further economic and political uncertainty when the country voted for Brexit. Businesses wanted to be more agile, enabling them to adapt in line with the changing economic landscape, whilst many individuals that were made redundant began working for themselves. As a result, they were not able to commit to the tie-ins of conventional office space. Serviced office providers were able to respond with short term leases, many offering bespoke, tailored packages and leases in accordance with the needs of each tenant.
Modern occupiers have also been inspired by the work culture that serviced offices facilitate, including enhanced collaboration and workplace wellbeing. More than ever, businesses are recognising the benefits of providing a work environment that engenders a young and forward-thinking brand image. A wealth of amenities, from lounges and cafés, to gyms and running tracks are just some of the features that have helped serviced offices to lead the way in this area. Shared spaces among companies are attractive to employers. They create opportunities for staff to connect with like-minded people outside of their firm, stimulating new ideas and business connections.
Above all, it is the serviced office sector’s drive towards customer experience that has been critical to its success. Even the language has changed – leaseholders are customers, not tenants or occupiers. All touch points between the customer and landlord are carefully thought through and enhanced where possible. Signing up for serviced office space is often a frictionless process that can happen quickly and with minimal legal expense. There is no additional cost for fit-out, no complicated dilapidation liabilities, and essential infrastructure, such as phone lines and internet, are already in place.
Serviced office space has responded well to the evolving world of work and traditional landlords must adapt in order to compete. Already, we are seeing landlords take a more flexible approach to lease length; those that were hesitant to agree a term of less than five years straight, are now, more often than not, offering tenant break options in the third year.
Signing a lease for serviced accommodation can take a matter of hours, whilst conventional leases are currently taking several months to sign. This delay results in higher legal fees for both occupier and landlord. This has prompted some landlords to make it easier and quicker to sign an agreement; Derwent London is already piloting short-form leases which can be drawn up and signed within days.
Gone are the days where bike storage and showers were seen as a luxury, these are now viewed by occupiers as standard fixtures in any new office development. Landlords now have to be more creative with their provision of amenities.
Aviva Investors, whilst developing 8 Bloomsbury Street, created a ‘club room’ in what was the building’s former lift motor room. This is a bespoke boardroom with terrace access and kitchen facilities which can be booked by all tenants on an ad-hoc basis.
Drury House, a well-located building in Covent Garden, transformed a section of their basement space to create a small indoor football pitch. Whilst this space could have been let as offices or storage, by choosing to turn this into an amenity, space in the vacant upper floors became more attractive to prospective tenants.
People want great places to work. Conventional landlords must embrace change and modernise their processes to ensure such creative work spaces are provided, and research has shown that inspiring environments where creativity and happiness can thrive, increases productivity. While serviced offices are increasingly popular, traditional offices still retain the majority of the market and by looking to the future, they can offer an equally attractive model for success.
Notes to editor
Harry Theakston is a chartered surveyor working in the West End Office Agency team.
The posts on this blog are provided ‘as is’ with no warranties and confer no rights. The opinions expressed are the author’s own and do not necessarily represent those of their employer.
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