Hybrid Working Plus Value For Money Prompt A Flex Office Profits Revival
The transition from online working to hybrid working has created space for flex operators to make profits from value-for-money-conscious occupiers.
Figures from Savills showed that profit margins of flexible offices have recovered to pre-pandemic levels. In its latest Flexmark report, Savills' flexible office specialist Workthere said that 87% of UK operators are profitable, with 63% of providers reporting profit margins above 15%, which is 50% higher than the figure recorded in 2021.
The Savills numbers come amidst a wider cultural retreat from the very online existence of 2020. According to Kantar's Entertainment on Demand research, as many as 1.66 million streaming video subscriptions were cancelled in Q2 2022. It follows 1.55 million cancellations in Q1. The Kantar figures suggest that streaming is no longer regarded as an essential, but as a luxury, with money-saving given as the main reason for cancellation, BroadbandTV News reported.
The world of very online business is also under threat, although the data is not so transparent. Zoom's business customer base has fallen off a cliff. Business subscriptions rocketed from 82,400 in 2019 to a mighty 470,000 in 2020 before slumping back to 191,000 in 2021. The 2022 figure is more likely to resemble 2021's and than it is the pre-lockdown year of 2019.
But Zoom's cloud is a silver lining for flex operators: As many as 55% of global providers have a profit margin greater than 10%, and the proportion of spaces with profit margins above 15% has increased to 48% (up from 34% in 2019).
A rise in demand helps explain the improved profit margins. Private office occupancy has increased from 68% to 81% globally, just shy of pre-pandemic levels. Shared office occupancy has recovered from 56% last year to 69% this year, better than pre-pandemic occupancy. UK figures are strong, with higher utilisation of space averaging 78% desk space.
However, despite occupancy levels being increased, Workthere reported that 71% of respondents to its Flexmark survey said that their office space is not being used to maximum capacity.
Value for money could be at the root of the revival in profitability in the UK serviced sector, with corporate occupiers seeing flex floorspace as a value alternative to long leases. In the UK, the number of corporates occupying flex space today is 24%, up from 7% in 2021.
“The growth in profitability has undoubtedly been driven by an increase in demand for flexible offices across the globe," Workthere Global Head Cal Lee said. "We have seen occupancy recover to pre-Covid levels and desk prices internationally driven up by 7%, compared to a drop by 6% in last year’s survey."