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The change in the behavior of tenants of office space leads to revolution "flexible" offices

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21.12.2017

The relevance of the format of the flexible office is the result of drastic changes in the approaches of corporate tenants to make decisions in the field of commercial real estate and will open new opportunities for property owners, capable of responding to current changes in market conditions and adapt to these changes. We published some trends of pan-European report "Agile revolution" (The Flexible Revolution) CBRE, a leading international consulting company in real estate.

Over the past decade the global market for flexible concepts of office space grew by an average of 13% per year. The growth rate in Europe (except UK), middle East and Africa (EMEA) and Asia Pacific (APAC) averaged about 20% per year, while in the older and major markets flexible offices in the UK and USA the average growth was 10% per year over the same period. Among the major European cities such as Berlin, Paris and London, the steady growth of the market for 12-21% in the period from 2016 to 2017, which coincides with the situation in the markets of new York and San Francisco, where the concept of flexible office space has existed for a long period of time.

The main factors of growth segment of the "flexible" offices steel technology (application software), development trends of the economy (growth of the self-employment rate), behavioral changes (the emphasis on flexible working practices, flexible portfolio, the need for more rapid strategies to market). In addition to violations of the sustainability and business development overall, the above factors cause a change in the approach of corporate tenants to make decisions in the real estate sector, which in turn leads to the increased need for “flexibility” in its services.

The largest market, of course, is London, where there are more than thousand service centers and coworking centers. This is the largest market not only for European growth but on a global scale.

The reasons for choosing London include the timing and relative inflexibility of the British lease agreements, for which "flexible" offices can provide best solution for tenants.

On the Central London market has seen a diversification in the type of tenants, including a marked increase in the amount of space rented by operators for the use of the premises as a "flexible" working space. In the UK the demand for "flexible" space caused by an increase in small businesses after the recession (22%) and increased political and economic uncertainty. Today this demand remains consistently high, and some operators report a one hundred percent employment of the individual centres.

New entrants succeed in London. Global coworking startup entered the market in 2014 and since then has expanded to more than 2 million square feet, covering all major London sub-markets. Most of the offices are located in the Eastern part of London technology cluster in Silicon Roundabout. Other operators focused on coworking (many who have only one or two co-working centers) that aim to meet the local demand of technology start-UPS, including special centers, which operate on the basis of the cafes, for example, the Forum of Shoreditch and on the basis of the hotels, for example, The Curtain in the same area of the city, which brings together the membership and co-working space. Not remained aloof and traditional owners: in 2017 the company British Land has developed the brand "flexible" use of spaceStorey, which will operate within the existing facilities of London.

From the perspective of the investor, the growth in this sector opens new opportunities and poses new challenges associated with market access and its evaluation. Market adapts to changes as soon as tenants occupy the office space, and formed three main models that investors can use to access the flexible office market: classic tenancy model, the platform model or a model of distribution of profits/income.

Stuart Smith, managing Director of the Central London division of consulting and transaction management, commented:

"The rapid growth of the sector "flexible" workplace to explain fundamental transformations in technology and the economy, which changed accordingly to the behaviour of tenants. Each of the tenants contributes to a structural change in how companies approach their solutions in the field of real estate. The concept of "flexible" office is and will be relevant, because it speaks to the basic needs of the tenant".

This report concludes that in the future may have to move away from the traditional model of fixed office locations that are leased in accordance with the standard terms of the lease. The new development will initially include the "flexible" elements of space in new buildings, where space is initially designed for the purpose of organizing a "flexible" working space, along with health services and other additional services. This hybrid model represents a typical model of business growth the 21st century – from design through long-term lease of real estate corporations in the world, providing owners with the possibility of long-term cooperation with tenants.

Georgi Nikolaev, the Director of the Department of project management, Global Workplace Solutions, CBRE Ukraine, commented:

"In Ukraine, the strategy of flexible office space originated not so long ago. However, it should be noted that large international companies, in corporate strategy which is a comfortable working space and working conditions for the employees to acquire the key values that form the vision for their offices according to modern standards and innovative technology solutions. More and more companies perceive space as a functional technology environment, comfortable to humans. Now a highly valued employee, part of the team – the person who holds this office most of the time. Functional solutions such as flexible meeting areas, hot desking, drop in areas, cloud communication solutions are either already implemented, or are implemented at the Kyiv offices."

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