It is fair to say that a decade or so ago the serviced-office industry wasn’t the most exciting property sector.
Providers were merely offering occupiers fairly bland-looking office buildings on large business parks or in the central business districts of major UK cities. Today, the sector could not be more different.
The number of providers has risen by a quarter since 2004, according to Deloitte Real Estate’s Business Footprint report. In London alone the serviced-office market has grown by more than two-thirds in the same period, with serviced offices now accounting for circa 5m sq ft of space across central London.
The nature of these offices has also radically changed. Whereas historically serviced offices tended to be fairly one dimensional in terms of design and location, today many are the envy of traditional office tenants and can be found in a huge range of locations, including London’s trophy skyscrapers and characterful historic buildings. Serviced-office providers have also upped their game in terms of the fit-out of their buildings, with some companies creating ‘cool’ workspace environments to rival tech giants such as Google.
And this isn’t just a trend being played out in London. Serviced-office providers are increasingly looking for opportunities outside the capital, setting up shop in secondary and even tertiary regional towns. So what is fuelling this growth and which operators are expanding where?
According to the Serviced Office Review 2015, which was compiled by serviced-office provider Instant Offices, the number of serviced offices across the UK rose 3.6% in 2014. While the serviced-office sector in London continues to outperform other markets across the country, nearly all the largest regional cities experienced growth in serviced offices.
Except for the North East, where the number of service-office centres fell by 3%, all of the regional markets saw workstation numbers increase in 2014, with areas including Aberdeen, Belfast, Bristol, Cambridge, Glasgow, Edinburgh and Manchester posting the most impressive growth.
Tim Rodber, chief executive officer of the Instant Group, says the company has continued to see a resurgence in demand from the regions throughout 2015. “Enquiries for flexible workspace in the regions was up nearly a quarter on the previous year and a lot of this demand was driven by one to two desks, which is indicative of start-ups,” he says.
To try and better understand the source of this demand, the company carried out an assessment of Companies House data to assess where start-ups were blossoming across the UK.
“We saw a huge level of growth in the UK’s second cities, such as Nottingham, where new-company registrations were up 68% compared with 2014,” says Rodber. “The increase in new companies was particularly evident in the Midlands. Other key cities that saw growth in 2015 - judging by Companies House data - were Bristol and Birmingham, where registrations were up 40% and 39% respectively. In contrast, London’s growth in new companies was relatively limited, at 21%.”
In light of these figures, it comes as no surprise to hear that a number of national and regional serviced-office providers have ambitious expansion plans in the pipeline for regional towns and cities. For instance, Mantle Business Centres, which currently operates business centres in Stansted, Chelmsford and the Cambridge area - is adding 5,800 sq ft of space to its central Cambridge location in March next year and 28 new offices at its Duxford site in January.
“We are planning to extend three of our centres over the coming two years - Cambridge, Stansted and Chelmsford - as they are all fully occupied and the demand is there for more space in all locations,” says Maya Bullen, group manager at Mantle.
Flexible workspace provider the Office Group is also looking to add more space to its Leeds site in the first half of next year and assessing where there might be opportunities in the regions.
“In 2016, London will continue to be the focus of our expansion given the surge in demand for flexible workspace in the capital,” says Charlie Green, co-chief executive officer of the Office Group. “However, with demand for co-working office space also rising in regional locations, we will consider further expansion outside the capital if we find the right buildings in key locations such as Birmingham, Manchester and Edinburgh.”
It’s a similar story at Regus. Richard Morris, chief executive officer of Regus UK, says the company’s current network of UK offices stretches all the way north from Aberdeen down to Plymouth and west to east from Swansea to Norwich, and that it plans to fill any voids in between to build up a national network.
’“Our coverage is broad, but not surprisingly to date it’s around the main regional towns and cities. Now, we are opening up more locations in tertiary markets,” says Morris.
Indeed, it opened 60 new centres in 2015 and, he says, will continue to build up its network steadily over the coming years. “We have national coverage today and not surprisingly it’s slanted slightly towards the South East and the south of the UK, but the focus over the coming years is moving out of major cities into smaller, medium-sized towns that we think are under-served,” he elaborates. “So if you look at the places where we’re opening this year - places such as Hull, Bradford, Ashford, Halifax and Wakefield - if you think of towns and cities in that bracket, we think there is an opportunity to broaden our network.”
Richard Pearce, chief executive officer of TCN, which operates offices in a number of different UK locations including Bristol and Birmingham, is also on the hunt for new space. “The problem for Bristol and most regional cities is the availability of appropriate space - namely close to transport and bars, affordable, flexible and with other similar businesses,” argues Pearce. “Bristol and Manchester have led the charge for regional cities since the depths of the downturn and in the last 18 months, we have seen increased demand in other core regional cities such as Birmingham.”
This demand is now starting to filter down into some of the UK’s secondary cities as well, he adds: “Change is slower in these areas due to a lack of innovative investors who are all focused on the core cities. However, the occupier base is experiencing all the same dynamics as above.
Our recent acquisition of Kiln House, a tired 1970s building comprising 80,000 sq ft of office space in the centre of Norwich, is testament to our belief that demand is growing for this type of space.”
The good news for businesses such as Regus and TCN is that as the serviced-office sector in the UK continues to enjoy rapid growth, it is becoming easier for providers to secure new space to fulfil their expansion plans.
“We’re seeing more and more property owners coming to us and asking to partner with Regus because they want to participate in this growth industry,” says Morris. “We enable them to plug their building into the Regus network and effectively we become manager of their building, providing a high-quality, convenient place from which people can work.
“We expect them to draw users into that location from the local community, but also national and international companies that want to quickly create a branch network across a wider geography.”
This latter point is becoming increasingly important for serviced-office providers. Although historically they have been primarily aimed at small businesses, a growing number of large companies are taking advantage of this type of space as they look to reduce their fixed cost base, and respond more swiftly to peaks and troughs in demand for their products.
“There is a misconception that only smaller occupiers take space in serviced accommodation,” says Richard Lowe, associate director at Savills. “We have been involved in a number of transactions where larger occupiers have required flexibility and have chosen to locate to quality city-centre serviced space, some taking upwards of 60 desks.”
He cites the example of travel site Travelzoo, which took space in a serviced-office centre at Spinningfields, in Manchester, earlier this year.
“We have helped a number of regional, national and international occupiers make their first move into Manchester city centre by taking serviced space during their initial recruiting phase, then returning to us to look at conventional space once their headcount stabilises and they wish to present less of a transient image,” adds Lowe.
Regardless of whether it is a large corporate looking to grow its geographic reach or one of the growing number of regional UK start-ups looking to take space, judging by current figures the outlook is positive for the nation’s serviced-office providers.
“It’s interesting to note that while enquiries for flexible space were up 21% for the UK in total and 39% in the regions, the growth in non-flexible office enquiries was up only 15%, which suggests that many of these firms want space to grow, but are not ready to commit to leased offices as yet,” says Instant Group’s Rodber.
This presents an opportunity for the new, improved serviced-office sector to continue to grow in the future, believes Giles Fuchs, co-founder and chief executive officer of Office Space in Town. “As the face of corporate UK changes, with a surge in growth companies, the rise of the tech and creative industries and the remote working options mobile technologies offer, companies are demanding greater flexibility, from day offices to co-working spaces and high-end luxury offices to more bespoke configurations, and serviced-office groups are best placed to meet this demand as their stellar growth illustrates,” says Fuchs.