WeWork’s troubles are not indicative of the state of the UK and European flex office space which continues to see strong occupancy on the back of recovery in demand post-Covid, according to Eric Lim, real estate partner at global law firm Goodwin.
‘This US bankruptcy filing does not point to a wider drop in demand for flexible working space, at least in the UK and European markets, where occupancy rates are consistently higher than in their US counterparts,’ Lim told PropertyEU, adding that the bankruptcy filing only affects WeWork’s US and Canadian businesses.
‘Insofar as Europe and the UK are concerned, WeWork has announced that it is operating as usual,’ he noted, ‘although I expect the firm could seek to terminate, restructure or renegotiate some of its leases in Europe to try and ease pressure for the wider business.’ The company lost $696 mln (€653 mln) in the first six months of the financial year to 30 June.
WeWork’s European locations are said to be enjoying materially higher occupancy rates than the US, with a spread as wide as 10%. ‘This itself is a reflection of a disparity between the US and the UK office markets,’ Lim said. While the US flexible office demand in early 2023 dipped slightly, the UK market continues to see strong demand, with the average price per private office desk in the UK rising 15% in the first half of 2023 and UK enquiries growing 12% YoY. Occupancy levels in London are at 88%, according to a report from advisor Savills.
Flex offices remain a viable product for occupiers and investors alike. ‘For any occupier that is looking for up to 100 desks, or up to 10,000 ft2 of office space, there is a break even point around 3 to 5 years, where it could make sense to consider a flex office solution over committing to a longer term conventional office lease,’ Lim pointed out.
In the UK, operators like the Office Group, Orega and Spacemade remain active and in an expansion mode. Orega plans to nearly double its UK portfolio size in the next two years to reach one million ft2, in particular seeking new space in Edinburgh, Newcastle, Aberdeen and Cardiff, while also increasing its presence in London, Birmingham and Manchester. Spacemade is also rapidly increasing its market portfolio, with a goal of opening 50 locations across the UK by 2024. Other examples of flexible operators that are expanding include x+why, Cubo and Venture X, according to Savills’ report.
Looking forward, Lim believes flex space could be more attractive to occupiers looking to hedge against near-term macro-economic volatility. Lim: ‘In tandem with flex office, there is potential demand growth for providers of high-end meeting and event hosting solutions that allow office tenants to reduce meeting or event space footprint within their conventional office space. These specialist solutions provide elevated functionality with the only limitation being non-exclusive use.’
Goodwin for instance is moving its London office to Paternoster Sq in St Paul’s, where it is taking around 90,000 ft2 in a seven floor building owned by a joint venture between Greycoat and Mitsui Fudosan. It is the same building where Convene, a global hospitality company that designs and manages premium meeting, event, and flexible office spaces, announced it will open a new 45,000 ft2 meetings and events venue.