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6 June 2018, Germany | Corporate Finance | News

Flexible Workspace

New office space supply – between hype and disruption

Which of you has more than a physical office space? Besides your actual office space, do you have a desk at home, in the train, in the airport lounge, in the café or in a bar? This shows: nowadays, you can work (almost) anywhere. The boundaries of living, working, shopping etc. are becoming increasingly blurred. Post-modern forms of working are colliding with a relatively rigid form of services in so-called office buildings, mostly manifested with three, five, seven or ten-year lease contracts.

But a first change in this evolutionary phase came with the appearance of so-called satellite offices in the past years – especially in large, internationally active companies. Currently, this form of working is often called coworking, though working in open spaces, as associated with this term, is only a part of the flexible working environment, as seen when taking a closer look. Next to this, there are shared offices and business centers, the predecessors of coworking, as well as a hybrid model, which connects both forms. No doubt: the disturbance of the classic, long-term office rental contract has not yet structurally reached the European office markets. However, the large potential of this development is based on both relevant attributes of the post-modern society: pay-per-use and flexible forms of working. This dynamic can be characterized with “only pay what you use and, in ever changing markets and societies, retain the possibility to be able to act flexibly”. And then you have the “community” – a society, which is included in the new working environment and offers group activities such as sports, wine tastings, theatre, help for beginners in the world of independence and even memberships in office networks across locations.

In the new market tracker “Flexible Workspace – new office space supply – between hype and disruption”, Catella Research shows the disruptive potential of this development, which may alter the European office markets. Following aspects are important:

  • A dynamically increasing part of this is the so-called GIG-Economy (gig = performance), a part of the modern perfor­mance establishment in the labor market, where smaller con­tracts are given to independent freelancers or minor employees.
  • But also, corporates, so larger companies, are helping themselves to the available supply. More and more, these companies are finding the interaction with innovative start-ups useful and therefore outsource single departments into flexible workspaces.
  • Regarding geographical locations, a strong localization in the central business centers, with a spatial focus in and out of so-called trendy neighborhoods, can be seen. Operatively, these providers can be found in new-build spaces as well as existing premises.
  • At the beginning of 2018, there were approx. 14.500 flexible workspaces, of which 20% are in Europe. During the last years, there was a strong expansion of spaces related to flexible forms of working.

In 2018, we estimate the share of flexible work space in Europe (EU 28) to be at around 2.1 million sq. m. Compared to the total European office market of around 275 million sq. m., flexible workspace only amounts to 0.76%. Based on the change processes and driven by steadily rising investor demand, we expect a strong increase of flexible workplace centers, as well as several extensions. As a minimum area size – the base of the economically relevant management – we estimate approx. 2.000 sq. m. Most of the expansion is led by internationally active companies. Regarding object types, the focus is clearly on the hybrid model, as an increasing demand for private office space also exists.

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