Entering Flex 3.0 : Formally An Alternative Leasing Option...

Entering Flex 3.0 : Formally An Alternative Leasing Option... 

Now the norm in any building leasing strategy.

So let's talk about the flex industry as a whole.

To the uninitiated, 'flex' is the dynamic version of traditional CRE and most importantly, flex is on the front line to respond to changes to the workplace, enabling more traditional landlords to predict the future of the office.

For those Landlords looking at long-term asset strategies, flex is the very best vehicle to enable flexible asset solutions for an ever-changing tomorrow.

But before we can understand Flex 3.0 we need to be aware of the new buzzword of the moment in the occupier community: 'Industry 4.0' - which is the digitilisation of our supply chains and infrastructure - and the new challenges this presents.

We saw a similar seismic shift after the financial recession of 2008. ‘Co-working’, ‘the start-up’ ‘googlification’ & web2.0 were trends which transformed the future of workspace design and CRE. This was a period where headlines were dominated by some key operator brands. We can refer to this period as the rise of 'Flex 2.0' and a period of disruption to the norm.

Flex 2.0: From Emergence to Establishment in Leasing

Back in c.2010, with lower barriers to entry, the role of flex filled the void where most landlords couldn’t react fast enough to the change in workplace design. A modern breed of operator created varied workspace products with heightened design, services and technology, to service customer expectations on flexible terms.

We saw the growth of the flex operator into normal leasing activity fueled by venture & private equity capital.

So how will this new period of change effect the Landlord? It took ‘Flex 2.0’ a little over a decade to become a sector norm in traditional CRE.

It was in 2019, the tipping point when flex deals overtook traditional at sub 5,000sqf absorption.

Despite market industry growth, the challenge in the UK and for most of EMEA was finding the right space. The desired 30 - 50,000sft floor plates are hard to come by. Interestingly, 80% of leasing deals are sub 10k here in London. Add in saturation of competition and increased cost basis – and this creates a perfect storm to find the right deals for operators to sustain their growth appetite. Those whose deals weren’t favourable meant many models have a low tolerance to occupancy sensitivity with tight margins for error. We saw the worst-case scenario during Covid cause havoc for many. Driving a flight by the occupier to reputation, maturity and also relationships direct with the Landlord to ensure future business continuity.

At the end of this period of growth, the flex spectrum has evolved to a plethora of office products, underpinned by three key drivers:

1.     Landlord Flex | Since 2019, there has been a shift in Landlord delivered flexible spaces and consumer willingness for adoption. This is set to be one of the biggest growth areas over the next 5 years. The Landlord entry triggers a maturity & evolution into specialist products and solutions that focus on bespoke asset solutions with flexibility rather than operational efficiency.  

2.     Generation Flex | There’s the first generation of modern high growth businesses who’ve graduated from serviced environments, who want to retain the same serviced nature, but in their own mature independent space. The basis for a demand for CATB, CATA+, let ready, tenant ready to managed suites that’s dominating secondary space markets at present.

3.     Operator Diversification | In the quest to maintain growth, operators too are constantly evolving to create a competitive advantage - be it specialist niches like meeting rooms or amenity offerings, through to enterprise and now remote work access passes and different sectors. When that doesn’t work M&A activity has increased to enable platforms to service occupiers wherever they locate their services. Few now offer a one size fits all approach as they’ve refined to their customer base.

So what’s Next: Flex 3.0

Post Covid marks a new period of growth for the industry - Flex 3.0 is how the conversation is evolving from space to a more holistic offering around user experience & ancillary services to the workplace. The application and layering of technology and future solutions will become easier to deploy and integrate into space and service solutions to the end user. Enabling Landlords to react and respond quicker to market demands and challenges thus marking the onset of a new wave of Flex 3.0, which we are seeing develop every day.

If you are interested in better understanding how to respond, I’ve discussed how best to respond to Flex 2.0 - here. I'll be publishing content on the development on Flex 3.0 as we see it shape from the front-line.

I form part of the operational arm of a wider cross functional Flex team at CBRE whose goal is to enable end to end offering of specialist disciplines and market insight. We support our investor, occupier and operator clients to achieve success.