As we enter an uncertain economy since the UK Brexit result, it’s a time when UK organisations need to adopt a more creative thought process and adapt their business models.

We reported in the run-up to the EU referendum that demand for office space was still high in Q1. It remains to be seen how industries and the economy will fair in the coming years as we leave the European Union, but what’s certain is the need for strategic thinking.

In particular, research published by JLL in April the tech and Media (T&M) occupiers were abundant, and more specifically start-ups. And it’s not just tech and media. There are many entrepreneurs in design, creative, and recruitment, building up small businesses within the UK. This will only grow in years to come and naturally, these companies have much smaller headcounts than traditional and often established businesses.

In a crucial and influential time for landlords and fit-out companies, this is the perfect opportunity to challenge the traditional letting mythology. To analyse how the industry is changing not only now but in the future. It’s a time to consider how these changes can, in fact, be beneficial to current letting methods.

T&M Facts

  • There are now 45,000 more tech businesses in London now than there were four years ago
  • Between 2013 and 2015, T&M companies leased 7.9m sq ft of London office space – nearly double the amount of space taken by T&M occupiers in the three years to 2012.
  • That said, in 2012 – 2015, the amount of space T&M companies signed up for reduced significantly. Media companies took 22% less space on average, and tech companies took 44% less space.

In the last figure, the reduction in space being occupied has been driven by smaller tech companies and start-ups looking for smaller offices and greater flexibility. Companies like Wework have driven that change, and it’s up to landlords to tap into the market as co-working spaces and more flexible ways of working begin to shape the future for many businesses.

Global giants like Google and Facebook have much larger head counts, but as mentioned previously that volume of space isn’t as necessary for companies starting out, and long leases are an unnecessary risk to small companies whose future development is uncertain in the earlier stages. That doesn’t mean that start-ups don’t crave the community feel though that gives them an opportunity to mix with other small business in the spirit of collaboration. It’s shared spaces like Bethnal Green Ventures and Wework who are bucking the trend for shared space, and the smarter landlords are tapping into this trend.

The future of Incubator space

The capital is already seeing growth in tech incubator/accelerator office space introduced to the market, in addition to the co-working space.

Examples include Canary Wharf Group (CWG) who set up Level39 three years ago on one floor of Canada Square. It was so successful that the concept was rolled out to two further floors with approximately 200 start-ups occupying around 80,000 sq ft.

Up and coming plans to deliver an 110,000 sq ft FinTech incubator space in Wood Wharf are also in progress. John Garwood group company secretary at CWG, says that the company launched the space to try to diversify the occupier base at Canary Wharf that’s been traditionally frequented by financial services companies.

Garwood believes the secret of its success is the campus ethos it embodies.

“What it offers is a community, a community where you can start out as a little idea and grow into a company,” he elaborates. “As your company grows you can go through the different layers of the facility that we offer and end up with an office space.” These layers feature a range of different options including hot-desking or fixed desks, with prices starting at £325 a month for a hot desk membership. “Flexibility is key with young start-ups,” He explains.

“They can’t commit to long leases because they don’t know what the future is going to hold. As a landlord, we can offer them a smooth transition from one bit of space to another so that they can grow at Canary Wharf.”

Up and coming London areas

Serviced office provider TCN based in Brixton’s Piano House – a 40,000 sq ft Victorian warehouse in Brixton is another creative hub that offers a range of options from a single desk in a co-working environment to grow and larger, more traditionally sized offices.

“For the past ten years, demand in Brixton has been predominantly for space for two to 10 people, with less demand for spaces of more than 2,000 sq ft,” says Richard Pearce, chief executive officer at TCN.

“As the tech revolution has taken hold in the last two years, demand has been for larger spaces for growth companies. “We believe this is down to the changes in working trends driven by tech, along with the expense of central London offices, lack of suitable size and the style of space.”

At Piano House, TCN holds break-out spaces, a café and restaurant facilities, and is also offering tenants the chance to get involved in events and collaborative opportunities that enable them to network and grow as businesses.

This kind of mentality is something we expect forward thinking landlords to be providing in the future and will begin to migrate out into other areas of London, outside of the capital.

The tech, media and creative industries have been pro-active regarding flexible working arrangements and finding new ways to utilise space. Landlords are beginning to be more relaxed too, offering flexible desk lets. We see this flexible approach as an important step in utilising larger buildings across the capital where floors may be sitting empty.

Landlords in London have the opportunity to repurpose buildings and offer more flexibility to increasingly more flexible companies in development. And while this change may require a level of initial investment and more strategic planning – what landlords can gain in return is hugely beneficial.

Shaun Simons, director in the city fringe team at Colliers International, explains:

“We encourage landlords to put serviced office or co-working businesses into their buildings,” says Simons. “If you’ve got ten floors in a building, it’s seen as a positive among tenants to have serviced office or co-working space because that gives tenants growth space within a building. Tenant behaviour has changed and as a result, buildings have had to adapt. Everyone is trying to do the same thing, but the buildings that are the most authentic are the most successful.”

We believe, there is a huge opportunity for landlords in the rapidly growing tech, media and start-up sector. An opportunity for those who offer the right type of space and level of flexibility to ensure all office space is fully utilised. As specialists in workspace analysis, Rapport’ work with landlords and organisations directly within multi-occupied office space.

If you’d like advice on your current or future workspace projects, you can contact us on – 01252 712590 or email us at; info@rapport-solutions.org.uk

View our full portfolio of work.

Rapport’s business blog; shortlisted in the 2016 Surrey Digital Awards.

2016 Surrey Digital Awards

A new report and industry analysis by global real estate advisor CBRE show that demand for office space is still high in the first quarter of 2016. In fact, 3.1 million square feet of office space was leased by commercial organisations despite the possibility of the UK leaving the European Union.

The largest deal in that period saw Thomson Reuters acquiring 315,400 square feet in Canada Square in the Docklands.

Data from the report shows the current amount of office space under offer remains unchanged from the previous quarter at 3 million square feet. This figure is above the ten-year average of 2.8 million square feet since the beginning of 2014.

Other findings concluded;

  • Development has so far tracked with demand
  • Supply has increased by 2% over the quarter to3 million square feet. 17% below the 10-year average

Emma Craw, head of Central London Leasing at CBRE said: 

 ‘Between a weak outlook for global economic growth and an upcoming vote on EU membership, businesses have had to contend with a heightened level of uncertainty.  

‘That demand for office space has remained so resilient speaks volumes for London’s ongoing attractiveness as a global hub for those companies hoping to lay down roots or expand their footprint in the capital.’

Although the high level of space under offer is particularly encouraging, we anticipate a more subdued second quarter as the referendum vote gets closer. We will be on course for a rebound in leasing activity in the second half of the year provided the UK votes to remain in the EU.’

UK’s South East office market also makes strong start to 2016

When looking at the UK’s South East office market, there’s been a strong start to 2016 since 2008.

Latest research the latest M25 Offices report from Knight Frank since 2008 the report found the following;

  • Overall take-up in the South East Office market increased by 30% in the first quarter of 2016
  • 973,000 square feet of space was let or acquired during the quarter, 10% above the ten-year The high level of take-up ensured that overall supply remains historically low with availability across the South East markets 25% to 30% below the long-term trend.
  • Following record investment in 2015, the first quarter of this year has recorded £494 million of investment, which is consistent with the ten-year
  • The £325 million acquisition of SEGRO’s 972,000 square foot office portfolio in Slough by AEW was significant, not only the largest transaction in the South East market for two years, but also evidence of overseas purchasers becoming more active and widening their UK focus beyond Central London.

With stock levels improving in the second quarter of 2016 Knight Frank predict an increase in transaction volumes from the middle of the year and expect investment volumes to be close to £2 billion by the end of the year.

Emma Goodford, head of National Offices at Knight Frank, said that overall take-up in the first quarter has been encouraging, particularly set against increased market anxiety relating to the forthcoming referendum on the future of the UK in the European Union.

‘Although, some decision making will clearly be deferred until after the vote, we continue to see interest rise from a diverse array of occupiers with active named demand topping 6.6 million square feet. With this in mind, we are predicting strong rental growth in key locations, particularly where new development is accompanied by infrastructure and amenity improvements,’ she explained.

According to Tim Smither, head of National Offices Investment at Knight Frank, the weight of capital targeting opportunities in the South East remains robust.

‘While some investors pause to await the outcome of the EU referendum, others are seeing opportunity. In particular, high yielding, asset management opportunities remain keenly sought after, supported by a strong rental growth outlook for the region,’ he said.

 

If you are interested in working with Rapport’ you can contact us on – 01252 712590 or email us at; info@rapport-solutions.org.uk

View our portfolio of work.

Rapport’s business blog; shortlisted in the 2016 Surrey Digital Awards.

2016 Surrey Digital Awards