Supply and demand within the flexible work market

In quick-fire succession, Savills recently released three studies depicting the landscape of office costs, whether it be for flexible work spaces, buying or leasing. The London-based real estate company discovered that office renters are facing a 10% increase in fit-out costs, as fees in a number of key markets around the world, namely Dublin, London, Dubai, and Berlin, have continued to climb along with inflation. Though fit-out cost inflation varies by region, it stands at an average of 14% year-on-year within Europe, the Middle East, and Africa. According to Savills, the rising energy costs and the overall increase in consumer goods are often factored into service charges for rented offices. Worryingly, these rising costs have shown signs of slowing down development and refurbishment activity for many office buildings, which in turn has created a shortage of prime, sustainable spaces. Savills described this phenomenon as “a green rental premium”, and it currently stands at 10% within the European markets. Nevertheless, Savills along with its flexible office specialist Workthere, speculate that, in spite of rising costs and green options, Europe’s flex office stock will make up around 20% of its total office stock over the next 10 years. According to Savills’ latest research, flex office demand accounted for 5% of overall take up across European cities during H1 2022, an increase of 3% during the pandemic, which remains on a steady recovery to its pre-pandemic 8-9%. While the two companies believe this is the trajectory office working is taking, they have acknowledged that it vastly depends on location and work culture, as interestingly, the definition of what is considered ‘flex’ broadens. As we watch inflation grow in size by the decimal point, office leasing data from within the City of London this year suggests that total take-up will double that of last year. Savills has also seen an uptick in searches for ‘City of London’ and ‘Central London’ for locations with over 50,000 sq ft of space, which implies that the campaign to get people working from the office has convinced many to return. As office leasing activity was some of the strongest seen all year during the month of September, Savills expects total year end take-up to reach 5.5 million sq ft, exceeding the 2021 annual total of 4.9 million sq ft, and staying in line with the five-year-long term average of 5.9 million sq ft. Savill’s data suggests that around 70% of deals deemed ‘under offer’ are on recently or comprehensively refurbished spaces in what the company has called an ongoing ‘flight to quality’ among office occupiers. Grade-A spaces also account for 89% of all office lettings to complete in the city until the end of 2022. Although working from home is popular across Europe, the energy shortage is shaping up to be a crisis for both employees and employers for different reasons. Within London in particular, certain firms have shown a keen interest in owning their own office spaces again as encouraging employees into the workplace becomes a top priority, but they shouldn’t jump in too quickly without assessing what’s to come.

Supply and demand within the flexible work market

As flexible work spaces are seeing a 10% increase in fit-out costs, will it drive companies to extend their remote working or will businesses look to outright buy their own office spaces to save on rent

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