[Skip to content]

FM World logo
Text Size: A A A
25 September 2018
View the latest issue of FM
Sign up to FM World Daily >
ADVERTISEMENT
FM World daily e-newsletter logo
ADVERTISEMENT

ADVERTISEMENT
.

MORE WE, LESS ME: THE RISE OF  CO-WORKING

Co-working has become a global phenomenon that is challenging conventional thinking about workspace and facilities management professionals, reports Serena Ralston.

Russian_dolls
Russian Dolls

04 September 2018 Serena Ralston


London is the global leader for co-working workplaces, easily outstripping New York City. According to commercial property agents Cushman & Wakefield, demand for flexible workspace across the UK saw record growth in 2017. The firm has reported that, last year across Central London alone, flexible workplace providers took nearly 20 per cent of office space. 


US giant WeWork, with 24 spaces in London, is the largest taker in the capital over the past five years, with just under 2.6 million square feet of space, ahead of Google and the likes.


Co-working in the UK originated in Shoreditch, London, serving tech businesses and channelling a hipster vibe. But it would be a mistake to think that just sticking in a distressed leather sofa and a ping-pong table makes an office a co-working space. The magic ingredient is community – most spaces run on a membership basis with a community ethos (see p54 for flexible working operators’ revenue streams).


Natasha Guerra, CEO of co-working provider Runway East, whose spaces exclusively host high-growth start-ups, says: “The companies working from Runway East are members rather than clients or tenants. We see ourselves as custodian of a community of equals and not merely as a landlord or office space provider.”


Co-working space members are often start-ups, freelancers, SMEs and the self-employed. They are some of the biggest drivers for demand and they make up a growing demographic – the number of self-employed increased from 12 per cent of the labour force in 2001 to 15.1 per cent in 2017, according to the Office of National Statistics.


Flexibility and sociability for this group are major draws. Short-term space, flexible pricing and month-to-month billing rather than contracts allow small businesses to scale up or down to suit their needs. Social space is usually on offer along Friday beers, knowledge sharing, and networking over coffee and cake.


The FM is having to adapt to this different world. Philip Tidd, principal and head of consulting, Europe at international design firm Gensler, says co-working means that the FM role is no longer about building maintenance, catering and cleaning, but about service.

Emma Potter
Change in central london flexible workplace stock
Change in Central London Flexible Workplace Stock

FMs are curators of space

“FMs need to focus on the experience, and they have a very important role,” says Tidd. “Co-working spaces are chosen for the experience. The FM world has a lot to learn from the hospitality world. The best hotels connect with you in a special way and make you feel welcome so you want to go back. It’s all about the service and the people. The FM role in co-working is ‘Keeper of the Community and Culture’. The FM can curate who is in the space and its personality.”


However, FMs should be careful not to dictate too much. “Service should be seamless but there are plenty of examples of overprescribed spaces such as those that have a ‘creativity’ or ‘quiet’ room,” explains Tidd. “Human beings are not wired to function like that and FMs need to understand how people tick. The best co-working space is looser – authenticity is important.”


Gensler has designed co-working space since the phenomenon emerged about seven years ago, including two spaces in London, The Hub and The Nest. What is crucial about these spaces is a sense of community.


Consequently, Tidd says design should be with a small ‘d’. “The risk, otherwise, is that co-working spaces start to look the same – all antique wooden dining tables and exposed brickwork – the Shoreditch vibe”.


FMs are also having to meet and manage increased expectations from occupiers. The Instant Group recently ran an occupier survey on what services provided greater value. Head of marketing John Williams says: “The leading driver of value was for 24-hour access to a building and space, a trend we can link directly to individuals’ changing work/life habits. Gyms and outside space also ranked very highly.”


The research highlighted features such as childcare facilities and onsite healthcare services as growing priorities. These again point towards a changing relationship that occupiers expect to have with their space and the potential facilities that landlords, providers and FMs will need to consider. 

Expected growth strategies
Expected Growth Strategies

 Shift from resources to experience

Robert and Jak Ollett are co-founders of workspace management software Habu. They also view the FM service model as needing to evolve from a resource-centric approach to an experience focused-approach, one that pays close attention to health and well-being, and services and shared resources, while supporting both work and social needs.


Fast fibre connections and community apps are now the norm and FM tech is evolving fast. The WeWork app that lets members connect and work virtually with other members around the world is a major part of its success.


Habu recently launched a major update, enabling members to engage with their workspace in a different way, from making bookings and changing plans, through to a community discovery tool to help members connect and learn more about each other.


“Technology plays a huge role in enabling co-working spaces to become more efficient, grow faster, and offer an altogether rounded, excellent experience to everyone using the space,” says Robert Ollett. “And the tech that facilitates this is both software and hardware. Up until about six years ago, it was only large corporate offices that could afford the enterprise-level FM tech that enabled some of these benefits.”

Proportion of central london multi-let buildings let to flexible workplace operators
Proportion of Central London Multi-Let Buildings Let to Flexible Workplace Operators

Disrupting markets

Co-working space is disrupting the leasing market. Real estate services company JLL says that, as the footprint of flexible office providers grows, it will increasingly be competing directly with traditional leasehold office space.


According to Cushman & Wakefield, the new lease accounting standard (IFRS 16) is likely to boost demand for flexible workplaces. Leases or licences shorter than 12 months can be excluded from IFRS 16, which could increase demand for flexible workplaces as there will not be a requirement to capitalise the rental liability on the occupier’s balance sheet (see IFRS 16 Summarised on p54).


IFRS 16 also provides a new definition of a lease for accounting purposes, which seems to suggest that flexible workplaces are likely to fall outside the scope of regulation. In a Cushman & Wakefield survey of UK landlords, a third believe that the proposed change in lease accounting standards would definitely drive demand from traditional leased space to flexible workplace, with the remaining two thirds stating that it was likely to result in a shift in demand. No one thought it would have no impact on future demand. 


Guerra says: “We see a lot of potential for landlords and co-working operators to work in joint venture partnerships similar to those that commercial landlords have become accustomed to when working with large hotel chains. Property companies manage hotel properties through joint ventures with brands such as IHG and Hilton, providing prime space, outsourcing the management of the property to the brand, and splitting the income. This is a potentially highly effective model for co-working.”


Regional markets

Co-working is now spilling into the regions. Take-up of flexible workplace in the UK’s largest regional cities increased from 2 per cent of all city centre lettings in 2016 to 7.5 per cent of take-up in 2017, according to Cushman & Wakefield. 


This increase was largely driven by the rapid expansion of companies WeWork and Amsterdam-based Spaces, which were responsible for more than half of the year’s take-up of co-working space across the UK. WeWork opened two spaces in Manchester last year and now has 30,000 members in the UK.


Runway East, which has three spaces in London and expects to open two more in the capital, opened its first space outside London, in Bristol, this summer. It is looking to expand into other UK cities and create a nationwide network and community through its co-working spaces. 


Cities such as Bristol that are home to numerous start-ups and tech businesses already have a well-established, independent co-working scene. The Funky Spaces website, which showcases alternative, community and affordable workspace in the UK, lists 40 spaces in Bristol. 


What’s next? Co-working appears to be moving away from its independent roots. According to a study by property group CBRE, as many as 95 per cent of UK landlords think that flexible office space will soon become mainstream. Traditional corporates are moving into the territory, making flexible workplaces a part of their real estate strategy.


According to Tidd, corporate occupiers of space are thinking differently about their portfolios and how the primary aspect of co-working – sharing – is being reflected in ‘more we/less me’ space.


Cushman & Wakefield predicts that in future, every large multi-let building will have a proportion allocated to flexible workspace as landowners look to take advantage of growing demand and meet the needs of potential occupiers.


However, limited availability of space could curtail growth. And, as Guerra comments, the market will consolidate because it is overcrowded. But at the same time the share of the top 10 operators by size will decrease as smaller players join and look to provide more diverse varieties of space.


Niche or specialist space will serve targeted markets and groups. The Ministry – the world’s first co-working space exclusively for music industry professionals – this summer opened a building in London a few metres from the original Ministry of Sound club.


Another trend is the growth of hybrid space – a combination of private offices and co-working areas. And then there is space for those who have outgrown co-working. 


British Land last year launched Storey, a brand providing flexible workspace, created to fill a gap in the London office market. Storey provides offices for companies employing between 20 and 70 people who have outgrown co-working space and whose needs have evolved.


It is clear that, while the FM role is evolving beyond traditional facilities management, FMs, as the curators of experience, are crucially important in this new working world.  

Income streams from flexible workplace operators
Income Streams From Flexible Workplace Operators

Income streams from flexible workplace operators


Landlords say the optimum proportion of total floors pace to let to the co-working sector is estimated at around 20 per cent. It is currently at 17.5 per cent. (Cushman & Wakefield Research & Insight).


Real estate for flexible workplace providers accounts for 40 per cent of opex – significantly higher than for a traditional corporate. (Cushman & Wakefield Research & Insight).


Benchmark ambitions: A profitable operator will aim for 80 per cent of revenues from rental/membership fees and the rest from services such as meeting or conference room bookings, IT and telecoms services, events, beverages and food services. (Cushman & Wakefield Research & Insight).


IFRS 16 summarised


  •  The International Financial Reporting Standard (IFRS) takes effect in on 1 January 2019;
  •  It was issued by the International Accounting Standards Board (IASB) in January 2016 and replaces IAS 17.

It requires a lessee to:

  • Report lease transactions and helps “assess the amount, timing and uncertainty of cash flows arising from leases”;
  •  Recognise assets and liabilities for leases longer than a year;
  • Recognise a right-of-use asset for the leased asset and an obligation to make lease payments (right-of-use assets are measured like other non-financial assets);
  • Recognise depreciation of the right-of-use asset and interest on the lease liability.

Measurements calculated:

  • Lease assets and liabilities are measured on a present-value basis; 
  • They include non-cancellable lease payments and payments during optional periods assuming the lessee will extend the lease;  
  • As with IAS 17, IFRS 16 has the lessor “classify its leases as operating leases or finance leases, and to account for those two types of leases differently”.