Repositioning flex: why second-hand space is the new opportunity for operators
A key theme emerging in London and across the UK is the strategic repositioning of existing flex space. This includes both ex-operators’ released stock and non-performing space previously run on behalf of landlords now ripe for conversion or reactivation under new flex management. In this article, G8’s Douglas Green examines the opportunities this offers for flex operators.
With existing flex space coming back onto the market either from operators releasing stock or nonperforming space previously run on behalf of landlords, a new opportunity is emerging for operators. Rather than developing from scratch, operators are increasingly focused on reactivating space where much of the upfront investment has already been made. This pragmatic, cost-effective path to growth reflects a maturing sector.
A compelling opportunity for operators
For operators looking to grow without overextending financially, this kind of space offers a compelling opportunity. The capital expenditure required to bring flex space to market such as fit-out, tech infrastructure and amenity upgrades is already sunk. In many cases, the space simply needs modest rebranding or light touch refurbishment, rather than the heavy upfront investment required for a full-scale conversion of conventional offices.
One clear example is the gradual release of former WeWork locations in London. When the company restructured its UK lease portfolio, it exited a number of sites that had already been fitted to their high specification. These included buildings such as Shoreditch Exchange and The Bower, both of which are currently being run by smaller independent operators, Oneder and infinitSpace.
Other iconic buildings, such as British Land’s 8/12 Broadgate, were vacated by WeWork and have since been repositioned as a Huckletree flex operation. In all these cases, new providers are stepping in to take advantage of the infrastructure already in place (HVAC, soundproofing, meeting rooms and high-quality amenity and end of trip), reducing the time and cost required to bring the space back to market.
Repurposes regionally and in outer London
This trend is not limited to former WeWork sites or core London locations. Regionally, I have been directly involved in a number of repositioning transactions, including George Square, Glasgow to The Boutique Workplace Co, Argentum House, Bristol to Wizu Workspace and Central House, Finchley, to Cubix. These transactions involved replacing incumbent operators with new platforms on improved, balanced agreements. These new operators were incentivised to step into underperforming or stranded flex assets and turn them into viable, profitable workspaces using established operational know-how. Without exception, all three have seen immediate and improved returns for both parties.
Improved EPC ratings and lower capital expenditure
Another factor making this stock attractive is the drive to improve EPC ratings. Much of the ex-flex space already includes energy-efficient lighting, smart heating and cooling systems and the kind of agile floorplates that lend themselves to sustainable fit-outs. Retrofitting this space to meet future environmental compliance standards is often far more straightforward than upgrading older, cellular office buildings.
There is also opportunity in the changing dynamics of landlord sentiment. As leasing risk increases and demand for conventional long-term tenancies softens, landlords are more willing to hand space over to specialist flex operators either leased or under management agreements or joint ventures. The reduced upfront cost for operators makes these deals attractive, especially when there is a viable business in situ.
Flex is a maturing sector
What we are seeing is not a downturn in flex, but a rationalisation and in many ways, a maturation of the sector. Rather than pushing for rapid growth at any cost, smart operators are carefully selecting opportunities where much of the groundwork has already been done.
London, as ever, is the bellwether for this trend. Its large supply of previously fitted-out flex space and a landlord base increasingly open to improved, more market-driven operational partnerships make it the ideal testing ground for this next wave of flex repositioning. According to the Financial Times, as much as 10% of central London’s office space (comprising 28.2 million square feet) is made up of flex space, indicating that there are significant repositioning opportunities for operators on non-performing or end of lease space.
For investors and operators alike, the message is clear: in today’s market, second-hand doesn’t mean second-rate. With the right expertise and a selective approach, repositioned flex space offers a low-capex route to high-quality, revenue-generating product and an improved return from your assets.
