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Turns Out Covid Wasn't The Big Test For Flex Operators. Today Is The Danger Point

The UK flexible workspace sector is about to face its biggest test yet, as long-postponed defensive mergers, sales and collapses begin to take their toll.

The answer could be forgetting the heavily branded approach pioneered by WeWork, and adopting something much less conspicuous.

New look flex space for Newflex

Yesterday NewFlex, owner of Citibase and operator of 'space-as-a-service' solutions at 50 UK locations, was chosen to manage the incubator and innovation workspace community at AXA IM Alt’s 62-storey office building at 22 Bishopsgate, London EC2.

To be known as The Exchange (branded as XCHG) and targeting startups, scale-ups and SMEs, the 14K SF suite on the seventh floor looks like a replacement for the 50K SF workspace Convene was expected to provide (but no longer plans to do (it is just providing meetings and events space).

The Exchange is aiming for something a bit smarter than white-label flex space. There will be media suites for content production, such as podcasts and video recording, streaming and editing, as well as a 60-seat auditorium with a programme of workshops and talks, designed to help businesses accelerate their growth. 

But growth in the flex sector itself is proving fraught. Having survived the coronavirus pandemic and associated lockdowns, the sector is now preparing itself for a wave of collapses, mergers and acquisitions as support measures (and landlord tolerance) falls away.

Cal Lee is the founder and Global Head of Workthere, Savills' flex consultancy, and nobody puts the problem in clearer language.

“Having survived Covid, we’ll now go through a period of two years of mergers and acquisitions, either because operators are struggling, or they are trying to grow faster than they could organically and mergers or acquisitions are the route," Lee told Bisnow.

“I think people have always considered the flex sector to be relatively fragile and the expectation with Covid was that lots of operators would go into administration pretty quickly. The reality has been less got into difficulty than we thought, largely because landlords helped them get through, or they borrowed, or they got rid of hubs that didn’t work. Only now are we getting to the make-or-break moment for many operators. We’ve now got to the pinch-point.” 

Pressures on operators are growing, not subsiding, as the property market (and desk-bound economy) grinds back into life. Landlords who signed management agreements might want the space back to let on conventional leases, or want to see performance on those management agreements and if they have deals they can break, they will, Lee said.

"In the meantime operators feel the pinch on things like utility prices, little things that are all lines in the cashflows. Margins are not often big, and if occupancy dips it will depend on how much capital the operator has, or on their management agreement with the landlord,” he said.


There are still a surprising number of flexible space operators on traditional leases — nobody knows exactly how many, but it is not trivial — and those with high rents and soon-to-expire rent-free periods may face pressure.

Many more are on management agreements of various flavours. A substantial number of those agreements may now be reaching a crisis point, Lee said. There will have been a grace period in which key performance indicators don’t get looked at, but that period will soon be ending. Management agreements are opaque to outsiders, hard to monitor, have no standard terms, and it all adds up to a big unknown. There may be a few dozen hubs at risk — or hundreds.

NewFlex chief executive Steve Jude agreed. “It’s more than plausible that this is the real moment of stress, not the pandemic. We have a risk-light business because Citibase had a near-terminal moment in the Great Financial Crisis of the noughties. We learned that the leasehold model comes with enormous risks if the cycle is against you. There could also be risks in management agreements if landlords see opportunities to let that floorspace on a good lease — and if they can, we’d encourage them to take it.”


Operators’ viability risks are increased by what some see as their ungrounded preference for building up a national network. Dots on a map increase the stress on a business’s management capacity and overheads.

“There is an obsession with scale, and it's driven by the idea or ideology that there is a network effect, so if somebody arrives from London to Manchester, they can drop their bag in your Manchester base," Lee said. "And it looks good on paper, but with flex apps you can do that anyway."

WeWork appears to be thinking exactly this: Last month it signed a global partnership with the Upflex app. WeWork and its members will gain access to Upflex’s fast-growing, aggregated portfolio of more than 4,800 third-party spaces, provided by more than 700 flexspace operators across 80 countries. It saves a lot of time and trouble creating bases in new locations — although WeWork is known to be looking at resuming growth of its UK network.

“For proof that a national network isn’t necessary look at The Office Group, almost all of whose UK offices are in London," Lee said. "And they’ve been very successful, they haven’t needed to sell a national or international network to sell their floorspace in London. The idea of scale has value for a Regus or a WeWork but chasing a network for the sake of dots on a map is an interesting strategy,” he said, choosing his words with care.

“Operators need to be more selective about where they deploy capital so the business is more sustainable, and not just expand for the sake of it.”

Jude agreed — indeed, his business model requires that he should. “It is not that there isn’t a network effect, it is just that it works for big global clients like BP who might want hubs in London, Dallas, Baku and Singapore, and the whole hub-and-spoke idea is a thing. But it needs rethinking.”

He suggested smaller operators will not gain as much from a network as perhaps they hoped. Jude’s empire is explicitly linked to landlord needs, not to dots on a map as a virtue in their own right. “We’ll go anywhere our landlord clients want us to,” Jude said.

But as long as tyro flex operators make an expanding network a priority they expose themselves to much greater risks.


Both small (but ambitious) operators, and the consultants who advise them and their occupier clients, recognise the stresses identified by Lee and Jude. They too suspect the next 12-18 months will mean a bumpy ride.

Mark Gregson is chief executive at Impact Working. His business opened its first coworking space in Bristol in November 2021 and is now looking at eight to 10 further locations (four of them already in solicitors’ hands).

Gregson is looking to buy smaller operators, and his private equity backers will want to cash out at some point, meaning Impact Working will one day be on the market in some form or other.

“We have a full lease on our Bristol base, although another company in our group owns the building," Gregson said. "Of the six new bases we’re talking about today, three will be leases, three management agreements with profit share on a base rent, and we’ll come up with 100% of the capex, because if I was a landlord I wouldn’t be happy with a risk-reward profile where the landlord pays for the fit-out.” 

Gaby Hersham, chief executive and co-founder at Huckletree, said she is very conscious of the need “not to do a WeWork” by overstretching her commitments. “A lot of smaller players are going through a really tough time, and maybe had had enough and want out, which I totally understand, but there is potential there,” she said of her own expansion plans.

Agents also suspect a clear-out is coming.

“It will be interesting to see who survives. It wouldn’t surprise me to see some fail, and it will be interesting to see who lifts their portfolio from 140K SF to 1M SF,” Colliers Head of Regional Flex Space Patrick Kennedy said.

Kennedy said landlord interest in flex space is as strong as ever, but their appetite for the compromises it has so far involved may be waning.

“Lots of landlords still want to talk about the structure of the deal, and nobody feels too comfortable with management agreements," he said. "They want to look for ways to share risk with the operators, to look at partnerships, and they only get comfortable when they know the operator is taking on some risk, too,” Kennedy said. This means operators contributing capital upfront. This gives ambitious large-scale operators like Industrious an opportunity.

Amy Taylor, head of flexible office advisory at Cushman & Wakefield, is more cautious about predicting a major market restructuring. “Lots of smaller operators didn’t survive 2020 and 2021, and because we’ve already had a market sorting, I hope that’s done. Touch wood,” Taylor said.

“But the harsh reality is that one big occupier pulling out may mean an operator has to close a whole hub.” 

If there is a shakeout then the big players will be the winners, she added. “IWG have been quite clever about acquiring smaller operators, which gives it a further grip on the market, and different grades of floorspace. It makes it a one-stop shop.”


The eventual outcome of the looming shakeup might be that flexible workspace operators learn that they, too, are expected to be flexible. In particular, pinning your future on a branded solution might be hoping for too much. Better, surely, to be the inconspicuous white-label provider plugging the gap between big rigid landlords and small footloose occupiers?

Jude said this is the future, and he’s already living it. “What flex operators have to learn is that this is not about you, it is about them — your landlord clients, and occupier tenants. We are 100% not trying to build our brand,” he said.

“At 22 Bishopsgate this is about what is right for AXA. If we hadn’t put out a press release nobody would know it was us. We are just the guys in the middle and this could be the way the market goes, operators will have the same role as hotel operating companies, who then get badged as Hilton because that is the brand the visitor sees.”

Cal Lee sees it much the same way. “Landlords deliver the space, operators deliver the service. There is a role for both, because I’m not yet confident landlords can deliver the same quality operation themselves.”

The future is going to involve some upsets and some rethinks. But it could generate a flex workspace business model that really works for everyone.