Flex space: the Advent Capital Investments Ltd view

The growth of the flexible workplace has been inexorable with approaching 10m sq ft of lettings across Europe last year. Despite this, co working accounts for only 5% of total European office stock with the greatest penetration in Europe, in Amsterdam (7.1%) and London (6.7%). In contrast, major European cities such as Berlin, Frankfurt and Munich have only weak penetration (source JLL).

In the UK, there are four types of business model in this market segment. The traditional model is served by Regus, Landmark and LEO whilst the hybrid model, a mix of lettable and coworking space is served by WeWork, Spaces and The Space. The pure coworking model has operators such as Huckletree, Brew and Second Home. A further variation is the propco/opco model with major property owners operating their own flexible space concept. Myo, managed by Landsec is an example of this whilst British Land’s format is branded Storey.

This change in working environment is in response to the influence of technology, demographics and workplace design on office functionality. Flexible working is now a strong feature of the UK market with a number of operators now expanding into the regions. Despite attracting the headlines, WeWork has accounted for only 18% of all flexible office lettings since 2003.

However, whilst the format is here to stay, we believe the market is now in a period of consolidation. There is evidence that increasing supply is leading to a reduction in the average monthly desk rate. Meanwhile, WeWork is set to IPO and has arranged $6bn of debt. At the same time, the founder and CEO Adam Neumann has reportedly sold about $700m worth of stock. This is hardly an endorsement of confidence in the long term future of the company’s long term viability on public markets. The valuation of WeWork is put at $47bn, 12 times the valuation of IWG (Regus).

At Advent Capital Investments Ltd, flexible working is a key theme. We are wary of unproven covenants but we see positive benefits in buildings with flexible space representation providing increased attraction to other occupiers in multi-let properties.

This is a market trend that we are continuing to monitor closely.

James Thornton 
CEO of Advent Capital Investments Ltd