What Will Persuade Birmingham Landlords To Welcome Coworking?

Flexible working space will grow in the Birmingham office market in 2019, with WeWork leading the charge.

So said JLL in a new report, but as one landlord turns their back on a WeWork deal, what will persuade landlords in Birmingham to open their doors to flexible working?

Serviced and flexible office operators acquired around 12% of the floorspace transacted in Birmingham during 2018, taking 103K SF.

However, research by JLL suggested the market could grow by up to 30% a year over the next five years. 

The figures come as some landlords begin to harden their attitude to WeWork in particular.

WeWork is no longer in talks with developer Marcus Worthington for a 45K SF hub on the first four floors of a soon-to-be-completed 117K SF Manchester speculative office building, PlaceNorthWest reports.

The move was connected with concerns about the leasing structure preferred by WeWork, which involves a special purpose vehicle without a trading history rather than a direct lease with the parent enterprise. It comes as landlords globally begin to push back against the space-hungry coworking giant.

Last year concerns emerged that a WeWork tenancy damages an office building's valuation, in the opinion of some investors. Research by Cushman & Wakefield revealed that investors have been discounting the cap rates of properties with a large WeWork presence.

Some of the landlord push-back arises from concerns that the coworking business model will be difficult to sustain if the economic tide turns.

“A lot of people entered our world because it was cool and sexy and there was a buzz about it, but they don’t know what they are doing and they are not making money," BESpoke Managing Director Jonathan Weinbrenn told a Bisnow event in Birmingham. "When the recession comes their occupiers can just walk away. So my concern is that there will be a lot of fallout, and we may see merger and acquisition activity."

Whilst some landlords have their doubts about coworking, JLL Birmingham warned that they need to embrace a less conventional approach to how they deliver office space.

“With the growth of the digital and creative sector in the city and the high proportion of startups, more traditional lease terms requiring three years’ worth of accounts, equivalent of three to six months’ rent deposit or the ability to sign up to a long lease no longer fits all [tenants' needs],” JLL Birmingham Office Agency Director Kelvin Craddock said.

“Younger businesses and startups have gravitated to the more flexible coworking space as it suits their business needs and attracts the talent they require to thrive. Typically they want a space with a high-spec interior design, telecoms cabling and broadband and they just want to move in, rather than carrying out their own, more costly fit-out.”

Craddock believes landlords are beginning to adapt.

“We’re certainly seeing some conventional landlords waking up to this and developing a hybrid of commercial space, offering a mix of the traditional combined with more flexible space,” he said.

The growth of technology and the shift in workplace dynamics will help convince them, JLL argued.

JLL’s research found that 56% of employees now work from other company’s premises at least once a month. Just less, 54%, work from home, 36% on transport and 34% in coworking space. The gig economy also now accounts for 30% of the workforce, driving a more fluid, on-demand business model.

“What we have come to think of as the office is being redefined, driven by cloud computing, VPN’s and superfast broadband," Craddock said. "With the arrival of 5G in Birmingham, the city is in even more of a position to accommodate top international and innovative companies."

Those businesses are dedicated to disrupting their own sector, but will also disrupt the property sector, Craddock said.

Being told they have to embrace change might not be the kindest way to encourage landlords to embrace WeWork. But the truth often hurts.