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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
London, November 12, 2018 – 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.
• 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
• 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*.
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.”
Alex Colpaert, Head of Offices Research, EMEA, JLL, added: “For investors, flex space offers new opportunities for those who embrace innovation and change, but with no one-size-fits-all approach, it's not without its challenges. What is clear, though, is that it's here to stay and is having a real impact on Europe's office investment environment. Investors should look closely at what's happening and decide on the most appropriate response for them, whether that's adopting flexible providers into their buildings, or adapting their strategies to provide their own flexible solutions.”
*In Europe's 20 largest markets: Amsterdam, Barcelona, Berlin, Brussels, Budapest, Dublin, Dusseldorf, Frankfurt, Hamburg, Lisbon, London, Madrid, Milan, Munich, Oslo, Paris, Prague, Rome, Stockholm, Warsaw.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with operations in over 80 countries and a global workforce of 88,000 as of September 30, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.
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