Property group British Land, one of Europe’s largest publicly listed real estate investment trusts, has reacted to continued demand for serviced offices and coworking by launching a new flexible workspace brand in the UK.
According to the Financial Times, British Land will “become the first of London’s leading landlords to develop its own flexible offering rather than leasing space within its buildings to a third-party provider.”
Naturally, this presents a significant competitive challenge for existing operators within the UK’s flexible workspace industry, especially as other property groups are now sure to follow British Land’s lead. That said, such a move has long been expected.
However, it also spells opportunity for our sector.
British Land is a dominant and highly influential brand within the property industry. At the time of writing, it has more than £19billion worth of assets under management, owns almost £14billion worth of property and controls 28million sq ft of floorspace. Their entry into the flexible workspace market hasn’t been taken lightly, and it represents a very significant mark of confidence in the industry.
Plus, British Land will undoubtedly flag the benefits of flexible workspace to new audiences. As they say, a rising tide lifts all ships.
As for the specifics, British Land expects to launch its new brand by the end of June 2017. Initially focusing on London, it is targeting businesses that employ between 20 and 70 people along with departments of larger groups that are already tenants of British Land buildings.
It is currently fitting out 80,000 sq ft of flexible office space in London with possible plans to develop more buildings solely for flexible space. It has already completed at least one agreement of 25,000 sq ft.
British Land is not the first to go flexible
As pointed out by Property Week’s Guy Montague-Jones, British Land is not the first traditional property company to enter the flexible office space market.
“Land Securities launched a serviced office brand called Landflex in the early 2000s offering flexible lease terms, as well as on-site services such as catering and business support. It didn’t last, not because it was a bad idea, but rather because it was “too far ahead of its time”, according to one veteran of the serviced office sector.”
He added: “Given the remarkable growth of the serviced office sector in recent years, it is surprising that it has taken so long for a traditional property company to resurrect Land Securities’ idea.”
He notes other ways in which property companies have capitalised on flexible workspace, including partnership and profit-sharing agreements. However, British Land’s bold move into the shoes of flexible workspace operators – which enables it to “cut out the middleman”, as Montague-Jones puts it – will therefore allow the property giant to benefit directly from growing demand for flexible space.
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It will also, as we have come to see from operators that provide a mix of coworking, serviced and managed offices in their centres, allow British Land to establish relationships with smaller firms and accommodate their growth into larger, more profitable spaces and longer-term leases over time.
A case of good timing
With a company like British Land, its decision to launch its new flexible product now is no coincidence.
FT reporter Judith Evans commented that flexible office providers are now a “major force in the London office market,” adding:
“The expansion of US group WeWork and its rivals in London has helped to transform the once-mundane world of serviced offices into a fashionable offering complete with networking events for tech companies and start-ups.
This has caused landlords to question whether they should try to capture themselves the higher rents that providers can charge for short-term leases.”
More pertinently, the UK and London in particular is experiencing a period of flux as the UK navigates its departure from the European Union.
The Brexit vote is widely believed to have triggered greater demand for flexible workspace, largely due to a great deal of uncertainty over the future of the country and its trading position with other EU countries. The UK is scheduled to leave the EU in March 2019, yet most government deals over trade, freedom of movement, business legislation and workers’ rights have yet to be confirmed.
Managing Director of Regus UK, Richard Morris, recently commented that Brexit has in some respects helped boost demand: “Businesses more than ever want to remain agile … More so now as the economic climate looks so uncertain.”
Therefore it’s highly likely that British Land, which itself suffered a temporary setback following the Brexit vote, has chosen to launch its flexible product during this period of transition to capitalise on the current mood.
The property company’s bold entry into the flexible market will be closely watched by workspace operators across the UK – and other countries too. Ultimately however, those who scrutinise their actions the closest will be their own clients. Flexible workspace is a service industry, and British Land will be competing directly against operators that in some cases have more than 30 years’ experience on their side.
Successful workspaces are supportive, they form communities and connect people, and the ability of a workspace to meet those needs is where members and clients are won or lost. This could well be the deciding factor over whether this new venture goes the same way as Landflex, or whether it succeeds. In so doing, this is a direct challenge and an opportunity to our industry to adapt, learn, build, and move with the rising tide.