The co-working sector, which has evolved out of the more widely known serviced office market, has grown tenfold in London over the last three years and is now catching on in the regions. But what is behind its popularity and is its growth sustainable?
Serviced offices are by no means a new concept. They originally evolved as a response to the inflexible nature of the traditional commercial property lease, which many start-ups and small businesses feel is incompatible with the needs of a growing business in a volatile world. Generally companies rent space by the desk on a weekly or monthly basis, with the ability to add on extra services on an on-call basis. Some offer more of a club-type arrangement where you pay an annual fee to use any of their centres globally. Others, such as WeWork, offer a memberships model where as well as space, members have preferential access to third-party providers and advisers, events and networking opportunities.
The flexibility co-working offers comes at a price. Some operators charge ten times per square foot more than the going rate for traditional office space on a traditional lease. But for young businesses in particular, the ability to choose whether to occupy the space on a month-by-month basis, plus the additional community and culture many co-working models offer, is an increasingly attractive reason for paying these higher costs.
The timing of the rapid growth of co-working also has a lot to do with a change in the way we work and the economic cycle. Economic downturns have always stimulated a boom in start-ups, however, the most recent cycle has seen an explosion in the growth of SMEs and the rise of the entrepreneurial culture. According to Companies House 608,110 businesses were started in 2015, the highest ever annual level and a 5 per cent rise on the previous year. Creativity and flexibility are becoming increasingly valued and aspirational, and the co-working sector has naturally grown to service the needs of this new generation of businesses.
So, what’s next? While some question the exponential growth of co-working, it is clear it has tapped into a need. In London it grew from around 1 per cent of the office market in 2005 to 10 per cent in 2015, while in the top nine UK regional cities serviced office businesses only accounted for 1 per cent of the office leasing activity in 2015 and 2016, showing there is room for growth.
Co-working will undoubtedly continue to evolve to match the economic and business cycle, and the rising uncertainty in the market since the UK’s vote to leave the EU may well increase the demand for such space as businesses require more flexibility in confusing times.