Steve Jude’s latest Thought Leadership column published in Property Week23/09/2016
Agility and flexibility are now the norm.
The growth in the UK flexible office sector has been phenomenal over the past ten years, and I can only see demand accelerating as the appetite for the short-term contract grows. Not only does this type of work environment remove the lengthy financial commitment, but it is also the preferred option for firms seeking to concentrate on their own business activities and leave the peripherals, such as reception, IT, cleaning and maintenance, to someone else.
When the EU referendum result arrived, sterling plunged alongside the value of many FTSE-quoted property firms and I believe Brexit will give added impetus to the workspace revolution. The leave-vote lightning bolt to the UK employment market has fast-tracked the realisation for thousands of businesses that flexibility is the key to success and traditional long term leases are a thing of the past. The OUT-vote has created a completely new way of thinking, where every decision is questioned – and if you think Brexit has caused uncertainty, just imagine what a Trump presidency would do!
Over 90% of firms have told us they do not want a long lease as businesses crave agility over stability – the average length of lease is now 4.5 years, down from 21 in 1991. Figures from Citibase back this up – take up grew massively for short term contracts in the period leading up to and after the referendum. In May, June and July this year Citibase saw the largest volume of business across its UK portfolio, in nearly a quarter century of trading, with a 50% increase in the value of contracts signed.
Since Brexit, we have been approached by numerous landlords with under-utilised office buildings. Many property owners are scratching their heads – they cannot find tenants willing to sign for the long term that may have been easier to come by in previous times. ‘The world of work has changed forever’ is a mantra I’ve been saying for some time now and many enlightened landlords are now waking up to the benefits of having flexible occupiers in their buildings. Citibase is helping landlords reap the rewards as they understand that there are literally hundreds of thousands of cost conscious SMEs in the UK who don’t want to take long leases.
Businesses do not know how they will develop in the future and we have seen many SMEs grow rapidly in a very short space of time. Start-ups, whose initial requirements will be for a small amount of space, can quickly evolve and require a larger working environment. This is when flexible working is crucial – it could be crippling for a small business if they are tied down to a long term contact in a space that has become unsuitable.
And if all this isn’t enough proof that agility and flexibility are the new normal, in accounting terms, leasing is currently treated as an off-balance sheet activity, having no impact on net assets. From 2019, however, changes in accounting requirements will mean rent and lease payments will have to be listed on balance sheets, increasing a company’s liabilities. Firms will have to look for new inventive ways to save money and reduce liabilities – but how? You’ve guessed it – flexible office providers are the knights in shining armour thanks to their agility and cost-effectiveness, helping them lead the way in a post-Brexit world.
Read the article on propertyweek.com
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