WeWork Might Dominate The Headlines But It’s Only A Teeny Tiny Part Of The Booming Flexible Office Market

WeWork only has to sneeze to grab the headlines — it is one of the most talked-about companies in global real estate today.

But it makes up only a very small proportion of the London and U.K. flexible office market.

In fact, according to a new report, big names like IWG, WeWork and The Office Group make up a far smaller part of this growing market than you might imagine, as is the case in other major markets like the U.S.

Small, independent flexible office space operators make up 83% of the London market, according to data from Instant Group. For the U.K. as a whole the figure is 88%.

WeWork manages just 2% of the flexible workstations available in London, Instant said, although this figure will grow as it opens the offices in its large leasing pipeline.

IWG has the biggest London market share with 8%, followed by Workspace with 6%, London Executive Offices with 3% and The Office Group with 2%.

The sector is growing rapidly. Instant said the number of flexible offices in the U.K. grew by 10% to 5,230 in the last year, equating to 824,000 new desks available. There are now more than 2,800 companies that offer flexible workspace as part of their portfolio.

In London the flexible office sector has grown by 25% in the past two years and now totals more than 20M SF across 1,300 locations.

“There are two key trends in our market data: the continued diversification of the flexible workspace offer from a growing number of operators and the large increase in corporate demand for flexible options,” Instant EMEA and U.K. Managing Director John Duckworth said.

Tenants are being presented with more choices and are becoming more demanding about securing different types of space that fit their business requirements, Duckworth said.

“This is rewarding the smaller, more nimble operators that can tailor their space to more specific client needs or those that are big enough to run larger spaces that can satisfy the 20-plus and 50-plus desk requirements that are dominating the market.”

Some investors are scenting an opportunity in this proliferation of smaller operators. Earlier this year Blackstone, which is the majority owner of The Office Group, said it expected many smaller operators to rush into the market late in the cycle, providing an opportunity for consolidation.

And last year IWG Chief Executive Mark Dixon told Bisnow the sector would favour larger operators who can achieve economies of scale.

The growth in corporate demand referenced by Duckworth is highlighted by the fact that deals for 20-plus and 50-plus desk requirements rose across London and the U.K. by 12% and 19% respectively in the past 12 months. As a result flexible office operators have been looking to increase the scale of their locations rather than the number of centres.

“These types of requirements are from companies that want to retain their own corporate branding and are location specific — there are relatively few operators or even conventional landlords who are able to cater for these demands," Duckworth said. “This is a real pinch point in the market where demand is intensifying but there isn’t the requisite supply of space.”

In terms of overall demand, 83% still comes from enquiries from firms of nine people or fewer.

In spite of the sharp increase in supply of flexible workspace, there is more than enough demand to match this, if one key piece of evidence is taken into account — the average price of flexible workspace is still rising, Instant found. The average desk rate rose 17% to £690 in 2017.

That rise was not spread evenly among London’s various districts. Central London saw solid growth of 5.6%, while North and South West London saw stellar rises of 20% and 13%, respectively. On the contrary, average workstation prices fell 0.3% in South East London and dropped a whopping 14% in North West London.

The same dynamics were not present in the U.K.’s regional cities, where Birmingham was one of the few regional cities to see growth in the average price of a workstation, with a 4% rise. Brighton saw the strongest growth outside London with a 36% increase.

Average workstation prices dropped by 2% in Manchester, 20% in Milton Keynes and 15% in Edinburgh.

In terms of how the U.K. market compares to other markets, it is far less concentrated than the U.S., where the top 10 operators make up 34% of the market, compared to 14% in the U.K.