Europe’s flexible office space to grow by up to 30% per year over next five years, says new JLL research

Leading, global real estate consultancy JLL has today published Disruption or Distraction, a report delving into the growth of flexible office space across Europe. This sector has more than doubled in size since 2014 and is set to grow by up to 30% per year over the next five years*.

November 07, 2018
  • New report, Disruption or Distraction, investigates the flexible office space sector and the challenges and opportunities it presents for companies, real estate investors and developers
  • Over 7 million sq m of stock to be added in Europe by 2023, pushing the total market size to 10 million sq m
  • Market share in central business districts likely to exceed 15% in the next five years

JLL’s research unpicks the main drivers of the sector’s boom – including evolutionary changes in how, when and where people work, shifts in lifestyle, and rapid advancements in technology – and provides unique insights into the risks and rewards for both companies and real estate investors in Europe.

Key findings include:

  • Globally, the amount of flex space in the 20 largest flexible office markets grew by 30% in 2017 – equivalent to around 1 million sq m.
  • Flexible office space will account for 30% of some corporate portfolios by 2030.
  • The market is split into three types of flex space user:
    • Conservative: low percentage of flex space in their current portfolios; zero/limited expansion planned
    • Experimental: low to moderate percentage of flex space in existing portfolios; up to 10% and beyond in next 3-5 years
    • Visionary: significant usage of flex space; clear and ambitious plans for widespread adoption, reaching upwards of 20% of portfolios
  • Barriers to flex space adoption include concerns around brand dilution, cost, security and confidentiality. But similar risks are associated with non-adoption, around staff retention and attraction, as well as being perceived as stale.
  • With over 700 flex space providers in the industry, consolidation is inevitable and a downturn would accelerate this process. The well-capitalised and experienced providers with geographical diversification will flourish, as well as innovative and niche operators providing a next-generation offer.
  • Investors who need to balance the need for stable long-term income with occupiers seeking flexibility face a number of challenges, from understanding how flexible space will impact asset valuations and market transparency, to the effect on supply and demand dynamics, lease lengths and yields.
  • In response, some landlords and developers will consider establishing their own flex space concepts; collaborating with existing providers; and looking at M&A. Landlord-initiated concepts are burgeoning in cities such as Amsterdam - where they account for 25% of all flex space - London and Paris.

Dan Brown, Head of Flex Space, EMEA, JLL, commented: “The rise of flex space is resulting in one of the biggest shifts across the real estate industry that we’ve ever seen. The consumerisation of real estate, which we’ve already witnessed in hospitality and retail, is reshaping business models and investment strategies alike. Our research shows how different markets and different companies are moving at varying speeds, and as the dramatic growth showing no signs of slowing, companies, investors and developers must keep on top of the evolution to understand what this means for their specific business ambitions.”

Neil Prime, Head of Central London Offices and UK Office Agency, JLL, added: “In order to compete in today's digital age, including attracting and retaining skilled people, the flexible office trend is challenging aspects of the established office leasing model. Comprising a small stock but rapid growth, flexible office space in London has more than doubled since 2014, representing 20% of total takeup. Investors and developers need to adapt to the rise of flexible space by introducing new concepts, especially as buildings with a high percentage of flexible space are increasingly seen as viable investment options.”