The concept of a traditional property company launching a flexible workspace brand isn’t entirely new.
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.
Fast-forward to today and British Land is getting in on the act - with plans to launch a branded flexible workspace offer. 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.
That’s not to say the potential of the sector has gone unnoticed. Others have sought to capitalise in different ways. For example, Brockton Capital is looking to invest £100m to grow new entrant Fora over the coming years and Derwent London has a profit sharing agreement with The Office Group at its 2 Stephen Street scheme.
Cut out the middle man
However, there’s a lot to be said for British Land’s approach. Rather than letting space to a serviced office provider and watching them benefit from the growing demand for flexible space, it allows British Land to cut out the middle man.
The company can expect to earn a rental premium and establish relationships with small companies that could turn into the big companies of tomorrow and become large, long-term tenants.
Having its own brand also gives British Land the opportunity to control how the flexible space in one of its schemes fits in with the rest of the development in a way that would be impossible with a third-party operator.
Furthermore, with the outlook for the occupier market in the London office market looking increasingly uncertain, the timing of the launch could turn out to be fortuitous. There are already signs of weakness in the London market, particularly the City, where CBRE recently estimated that typical rent-free periods stood at 21 to 24 months in the first quarter.
It looks likely that the market will swing further in favour of tenants as the year progresses. Deloitte Real Estate is forecasting that more London office development will complete this year than at any time since 2003. Much of this new space is pre-let, but even so, it’s hard to see vacancy rates doing anything but rise.
This week’s announcement from JP Morgan of its purchase of an office building at Dublin’s Capital Dock campus with room for 1,000 staff - 500 more than it currently has in the Irish capital - is also a reminder that Brexit remains a threat.
The US bank awkwardly managed to avoid the B-word, saying instead that the “new building gives us room to grow and some flexibility within the European Union”.
If tenant demand does take a dive, British Land’s flexible workspace brand could prove a useful weapon in its armoury in the battle to attract occupiers - and something others might seek to emulate. However, getting the execution right is all important. British Land will be competing with specialists who have been in the market for years. That will be no easy task.