February 6, 2018
The rise of coworking means providers must differentiate to stay aheadContact
The concept of coworking – sharing an open office space between independent workers – is not new by any means. However, from a sheer growth perspective, the sector came of age last year. By any measure, the coworking market experienced a remarkable 12 months in 2017 – particularly in the UK.
According to figures just published by Cushman & Wakefield in its Coworking 2018 report, demand for flexible workspace across the UK saw record growth last year. In Central London, 2.5 million sq ft of lettings for flexible workspaces were signed, more than 21% of all commercial office leases in the capital. Elsewhere, the sector accounted for 17% of all office leasing activity in the UK’s nine largest cities in 2017. For some time, London has led the world in this respect and it appears the rest of the UK’s regions are also showing significant growth.
There were also winners and losers in 2017. The sector’s major disruptor WeWork announced that it received a massive $4.4 billion investment from SoftBank Group and SoftBank Vision Fund creating a stratospheric valuation of the business which can no longer be called a start-up. Elsewhere, global flexible workspace leader IWG – formerly known as Regus – issued a profit warning blaming Brexit amongst other factors and subsequently became the focus of a takeover bid. From an investor perspective, Blackstone took a majority stake in The Office Group, valuing it at £500m.
There was also increased competition as FTSE 100 company British Land launched Storey, a new brand providing flexible workspace for ambitious and growing businesses as well as larger organisations seeking additional space on flexible terms.
So clearly from all aspects, coworking has become an established part of the commercial real estate market with corporates, landlords, tenants and – crucially – investors understanding and embracing the opportunities.
However, while the numbers make a compelling case for the sector truly transforming where and how we work, further challenges await as it makes the transition to the mainstream.
With increased awareness, competition and differing business models, comes the need for differentiation in the battle for tenants. There are a number of larger scale providers now on the market in the UK and the test of success will be how these companies portray their offer in a way which stands out.
The long-established sector incumbent Regus (IWG) based its global success on the fact that customers could expect a reliably uniform product no matter where in the world you encountered their office space. It is ironic that the likes of WeWork – which arrived as a disruptive, fresh voice and has grown exponentially – now too needs to tell a clear, consistent and nuanced brand story so tenants understand what they are getting whether they are in Manchester, Munich or Manhattan.
For many other providers – small and larger scale – the building itself is a key part of the marketing, often drawing on its heritage or that of the immediate area. This is a good selling point but it needs the overlay of a parent brand which communicates what to expect in terms of service and added extras inside. Price will always be a key selling point but value is critical too. No one wants an office where the broadband is intermittent for example.
The last 12 months have taught us that the battle for proof of concept is now won when it comes to coworking. However, in the war for ultimate supremacy, providers need to clearly communicate their brand promise to potential tenants articulating what else they get other than a desk, funky lighting and a chance to mix with like-minded pioneers.