The traditional office space is undergoing a dramatic transformation as the development of high-quality, affordable communications technology combines with a global drive to cut costs, offset increased price pressures and counter competition.
“Technology used to mean you could never be quite as productive away from the office, however much you tried,” says Andrew Brown, group communications director at business centre provider Regus. “The introduction of tablets, smartphones, WiFi and laptops is changing all this. The technology is easy and cost-effective to use. When combined with other factors such as a desire for a better work-life balance, improved cost savings and environmental concerns about travelling to and from the office, you have a perfect storm for creating new ways of working.”
The right approach?
Businesses adopting flexible working arrangements range from small start-up and self-employed concerns to major international firms.
One company that has taken this route is UK directories specialist Yell, which cut its fixed sales office count from 35 to 20 in 2004-05. It made this decision following analysis by the firm which revealed that the growth in employee use of mobile phones and laptops had led to an overall 25% downturn in the use of its office space. With its properties still costing the same to run, it first trialed the use of flexible business lounges for sales consultants before taking the decision to almost halve its fixed sales office space. As a result, Yell estimates it has made initial annual savings of about £1.5m ($2.38m).
“Whereas previously the sales team would spend more time stuck in traffic and held up at motorway black spots, they can now touch down at any of the 40 office locations or have meetings wherever it best suits them,” says Simon Taylor, head of property for Yell.
It is not only well-known brands that are looking for flexibility. The rise in the number of people joining the ranks of the self-employed in many economies is also feeding this demand for non-fixed workspace. In the Polish region of Pomerania, for example, the growth in the number of workers choosing to go it alone is nearly double that of the previous economic downturn in 2003.
“Nowadays, being self-employed is seen as a positive way to survive the economic crisis, especially among young people,” says Wojciech Tyborowski, an FDI specialist at Invest in Pomerania, an initiative that assists foreign investors in the region. “Start-ups are usually looking for flexible ways of working or flexible usage of office space, such as office per hours or renting a desk. In Pomerania, such solutions are offered by business incubators, which are partly financed by local governments and EU funds.”
It is a trend being repeated elsewhere in Europe. According to Jeremy Bates, the director of UK regional offices at property adviser Savills, economic uncertainty is a compelling reason for the popularity of flexible office space. “Serviced centres and flexible space tend to perform better in uncertain times as people are unwilling – and in some cases unable – to make long-term commitments to both their future and also size requirements,” he says.
“Those occupying flexible solutions/serviced offices space aren’t determined by size, with many international corporates having an increasing percentage of their portfolio in flexible workspace. This is likely to continue until the return of greater economic certainty and general business confidence. In the longer term, this way of working may be counter intuitive as cost savings will be ultimately delivered through consolidation and implementing workplace efficiency measures to reduce net floorspace requirements.”
However, Bradley Baker, head of central London tenant representation at property services group Knight Frank, says: “Companies not prepared to make a long-term commitment are not necessarily taking short-term commitments either. A lot of firms are sitting back and waiting to see what happens at the moment.”
The roll call of organisations offering hot desk and incubator business centres is growing internationally as firms clamour to capitalise on the new trends in how people do business. For example, in 2011 French rail operator SNCF agreed a deal with Regus for the business centre provider to install drop-in business hubs across its station network to cater for the growing demand for mobile working facilities. The first centres will open in Paris, Le Mans, Bordeaux, Nancy, Amiens and Lille Flandres, with the scheme extending to other locations across the country later.
Although the trend towards flexible and mobile working might suggest a drop in overall demand for premises, values are holding up well in many locations. Savills’ December 2011 UK office market report reveals that supply continues to fall with the overall vacancy rate dropping to 9.4% from its peak in 2009 of 15.3%. The firm predicts this lack of availability will help compensate for the subdued demand heading into 2012 and 2013.
“The supply story is an encouraging one across the board with average years of supply at 2.9, down from the peak of 3.3 in 2009,” says Mr Bates. “While the recovery in the UK office market is not going to be a quick one, the continued lack of development will cause a shortage of grade A stock. This will help offset the weaker occupational demand and drive prime rental growth.”
According to the firm, Cambridge and the M25 (the motorway encircling London) are perfect examples of where this is already happening. “In these markets the shortage of grade A stock combined with improving occupier demand have helped rents rise between 10% and 18%,” says Clare Bailey, associate director in Savills’ research department.
Other pockets that are recording strong performance include the east London hub known as Silicon Roundabout. “While it may sound a little obscure compared with California’s Silicon Valley, what we are seeing is a significant increase in demand from media and tech companies, resulting in rents being pushed up [in this location],” says Mr Baker at Knight Frank. “It’s perceived as a hub where like-minded organisations want to be together.”
Savills warns that demand will remain muted throughout 2012 as corporates continue to act with caution in the face of European economic and political uncertainty. “There has always been and will continue to be regional disparities,” says Mr Bates. “The current muted market caused by political and economic uncertainties means overall transactional volumes are down and prices are subdued. But in prime areas such as central London, continued demand has meant pricing has remained stable. There is an increasing disparity between prime and secondary values.”
The situation in Poland is similar, following its record-breaking year for property in 2008. “Four years ago, Tri-City [the urban area consisting of the three Polish cities of Gdańsk, Gdynia and Sopot] saw a record take-up volume of more than 60,000 square metres. Since then, take-up has decreased, dropping below 30,000 square metres in 2010. Last year saw a recovery with a take-up approaching 40,000 square metres; this figure is expected to be exceeded in 2012,” Mr Tyborowski tells fDi. “Take-up volume fluctuations are reflected in the supply of new office space. The bottom came in 2010 with the volume dropping below 25,000 square metres. However, in 2011 to 2013 the average annual supply of new office space will vary between 30,000 square metres and 40,000 square metres.”