Take-up of flexible offices has slowed considerably across Europe in the light of the coronavirus pandemic, but the same crisis should bring a boost to the sector in the medium term, according to new research from Savills.
A market report shows that the share of flexible office take-up last year was at 9.5% of the total across Europe, but dropped to just 5% of the sector in the first quarter of 2020.
The report's author, Eri Mitsostergiou, believes that demand for flexible office space will continue to fall in the short term, but that interest is likely to recover in the medium term, 'as in times of uncertainty, occupiers will be looking for flexibility'.
The sector has witnessed rapid expansion in the last three years, with a typical burst of new players emerging and the first rounds of consolidation. Despite the high-profile financial woes of sector flagship, WeWork, flex offices largely boomed from 2017-2019, with an average annual take-up of about 800,000 m2 or over 8% of the annual total on average across the 12 markets monitored by Savills. WeWork has been driving at least one-third of that activity.
In 2019, the share of flexible office take-up was at 9.5%. The city with the highest share was Paris (inner city) at 25.6%, followed by London City at 23%, Barcelona at 18.1% and London West End at 15%. In all the remaining cities the share was below 10%.
Pre-Covid-19, the average market occupancy was around 83%, dropping to as little as 20% during lockdown. Savills predicts this could steady to around 71% by the end of May.
In Q1 2020 (data up to mid-March), flexible office demand has slowed significantly, with the share of flexible office take-up at about 5% of the average total.
Overall total Q1 office take-up also dropped by 19% year-on-year on average, reflecting the persistent shortage of quality available space, as well as early concerns about the spread of coronavirus, which had already emerged in Asia.
'We believe that Q1 results do not yet fully reflect the impact of the lockdown due to the pandemic, but they mostly demonstrate that the flexible office sector has reached a level of maturity, with the larger players slowing down their expansion,' Mitsostergiou said.
'However, next year we expect demand for private offices on flexible lease terms to bounce back,' she added. 'According to Workthere, 62% of flexible office providers globally are optimistic about the prospects for the sector over the next 12 months. In times of uncertainty, flexibility will be a sought after solution, as businesses might avoid long-term leasing commitments.'