Derwent Creates Flexible Office Offer As Management Weigh Changes To The Way We Work
Derwent London is expanding a flexible office offering aiming to capture demand from smaller tenants that will want more flexibility in how they rent workspace, particularly in the wake of the coronavirus pandemic.
Derwent’s move follows large London office owners like British Land, the Crown Estate and Landsec in setting up a flexible office service, to sit alongside its traditional offer and space it rents to coworking operators.
Derwent Executive Director Simon Silver told the audience of Bisnow’s Rethinking Real Estate webinar last week that it would not be offering coworking desks, but would provide flexible space for small companies that wanted their own office, without the onerous elements of traditional leases.
“At Derwent we’re now working on an initiative that we’re calling ‘furnished and flexible,’” Silver said. “This is not a coworking model per se, but will give smaller companies an office with their own front door, where they can sign a shortened type of lease, move in literally on the same day, and most importantly, without any capital expenditure.
“We think there will be demand among smaller office users, who are finding current times difficult, who might be moving into smaller offices or reconsidering, and it’s something we’re quite excited about.”
Under the initiative, Derwent looks at any suite smaller than 5K SF and decides whether to fit it out speculatively and offer it to tenants on a “plug-and-play” basis or offer it for leasing in the traditional manner.
It has 11 suites in its portfolio, four more under construction and a further 10 under review. They are spread across its London portfolio, with clusters in Fitzrovia and around Old Street.
Derwent offers leases starting at 12 months, but most tenants are signing up for three years at least. The lease for these spaces is a standard tenancy, but the lease document itself is just six pages long.
More generally, Silver said that the coworking and flexible office market will continue to see demand, but some operators will be better placed to capture it than others.
“At Derwent we have never involved ourselves directly in the coworking world,” he said. “We’ve taken on tenants, but never directly involved ourselves. I personally don’t see this trend [for flexible space] ending, but sadly some of the smaller operators may disappear, with all of the problems that are going on at the moment. Larger operators like The Office Group will undoubtedly be changing their model, and could actually end up with a greater proportion of market share.”
The webinar saw Derwent Chairman John Burns, fellow co-founder Silver and AHMM Director and founder Simon Allford discussing the future of the workplace, in the wake of the coronavirus and beyond. The discussion was led by Charles Russell Speechlys partner Fiona Edmond.
On getting people back to the office now lockdown is being rolled back, Burns said: “People will be nervous going back. It’s our duty to rebuild their trust. We don’t know what the end result will be, but we have to build that confidence.”
Silver said he felt that tenants would have about 10% to 15% of their workforce working from home at any one time, and the density of their office space would reduce. The net result would be occupiers taking about the same amount of space as they do now.
“I think the changes to the office could be the unseen elements,” he said. “IT, and making buildings more intelligent, and air quality, bringing in fresh air. Our engineers are going to be ever so important, doing things that are perhaps unseen, and the design of offices, we’re still going to go about the process of trying to find attractive fixtures and fittings that tenants want, and a lot of the changes will be going on in the background.”
Allford added that in general, the way we use offices as a result of the coronavirus would accelerate a process that was already ongoing in the London market before the pandemic.
“One thing the last 12 weeks have shown is that businesses can survive outside the office, but it’s hard to mimic online that social interaction,” he said.
“What the office does is create a space for different people in different places in life, whether they have kids or no kids, older or younger, to come in and interact. All the things that were happening at the best end of the market are addressing the issues that we have today. And as the memory of this recedes, those things will carry on regardless.”
Burns and Silver also picked out the highlights from their storied careers, which has seen Derwent outperform all of its listed real estate rivals over the past 35 years.
Burns cited Derwent’s £1B January 2007 deal to buy fellow listed developer London Merchant Securities as the best deal he had ever done. It was done at the top of the last cycle, but he said Derwent is still profiting from it today.
“LMS was a game-changer,” he said. “We had good stock between us, a pipeline of good developments — we’ve just gone to practical completion on 80 Charlotte Street, that’s evidence of what a good deal it was. White Collar Factory was an LMS site too.
“But there’s also an immense pleasure in individual buildings, like Angel Islington, that was one of the first very green schemes.”
Silver reminisced about some of the buildings Derwent had built or redeveloped.
“Building the White Collar Factory was certainly a high, but I could go back years and years ago to building Broadwick Street with Richard Rogers and a delightful man called John Young, who sadly retired recently.
“Then as far as buildings with character are concerned, it’s got to be the Tea building [in Shoreditch]. As we speak Simon [Allford] and I and a team of people are working on it, we’ve created a new entrance at the Tea building.
“The wonderful thing about these old buildings is they keep on reinventing themselves and offering us new opportunities. So these big old industrial buildings, which are actually hard to find these days, are a wonder if you can get hold of them.”