Sustainability and Challenges in the European Flex Office Sector: Navigating Growth and Return Rates
The European flex office market is undergoing significant changes, driven by economic uncertainty, cautious expansion strategies, and heightened corporate interest in flexible workspaces. Despite a slowdown in the first half of 2023, the sector is showing resilience, demonstrating stable or rising desk pricing levels. Corporate portfolios are shifting, with more companies embracing flex spaces as a fundamental part of their strategy, indicating a positive outlook for the industry. Notwithstanding challenges such as office return rates, sustainability has become a central focus among the operators. This article explores the growing emphasis on sustainability initiatives, office return rates, and highlights key trends and challenges faced by the European flex office sector.
Shifting Landscape and Sustainability Initiatives:
Many companies are committing to net zero carbon emissions, shifting to more sustainable products and services, and reducing waste and water consumption.
One of the noteworthy shifts shaping the industry is the increasing emphasis on sustainability, driven by occupier demands and a commitment to eco-friendly practices. In a 2023 H2 European Flex Office Market Update, it was revealed that companies are increasingly leaning towards flex spaces. There has been a decline in companies allocating less than 10% of their portfolio to flex, and over a third expect to have between 10-50% flex in their portfolio in the next two years. Currently, flex space penetration rates are around 10% in Central London and average 2.5% across major European markets, highlighting substantial growth potential in the coming years.
A significant driving force behind these changes is the growing focus on sustainability within the flex office sector. Flex operators are responding to occupier demands by implementing various sustainable initiatives, such as using sustainable materials, recycling furniture, switching to renewable energy sources, and improving indoor air quality. Transparency and sustainable practices have become integral to meeting client expectations and complying with mandatory reporting requirements. The sustainability focus is not just a trend; it's a necessity for the competitiveness of the flex sector. Operators must consistently engage in sustainable practices, increase transparency, adopt sustainable fit-out and operational strategies, and navigate complex regulations to succeed in the market. Companies are leading the way by committing to net zero carbon emissions, using renewable energy sources, and reducing waste and water consumption.
Key Sustainability Trends:
Several key trends are shaping sustainability in the European flex office sector, including a focus on net zero carbon emissions, data-driven sustainability, a shift towards circular products and services, and collaborative initiatives between flex operators and stakeholders. These trends highlight the industry's commitment to environmental responsibility and transparency. Some of the key trends in sustainability in the flex office sector include:
A growing focus on net zero carbon emissions
The use of data to track and measure sustainability performance
A shift towards more circular and sustainable products and services
Collaboration between flex operators, occupiers, and other stakeholders
Net Zero Commitments: Operators like IWG, WeWork, and Knotel are leading the way by committing to net zero carbon emissions and reducing waste and water consumption.
Data-Driven Sustainability: Use of data to track and measure sustainability performance.
Circular Economy: Shift towards more circular and sustainable products and services.
Collaborative Initiatives: Collaboration between flex operators, occupiers, and stakeholders to enhance sustainability efforts.
Here are some specific examples of what flex operators are doing to promote sustainability:
IWG has committed to achieving net zero carbon emissions across its entire portfolio by 2027. The company has also set targets to reduce waste, water consumption, and energy consumption.
WeWork has committed to using 100% renewable energy by 2023. The company is also working to reduce waste and water consumption.
Knotel has committed to achieving net zero carbon emissions by 2030. The company is also working to reduce waste and water consumption, and to improve indoor air quality.
IWG: Committed to achieving net zero carbon emissions across its entire portfolio by 2027, along with targets to reduce waste, water, and energy consumption.
WeWork: Committed to using 100% renewable energy by 2023, focusing on waste and water reduction.
Knotel: Aiming for net zero carbon emissions by 2030, working on waste and water reduction, and improving indoor air quality.
As the sector continues to grow, we can expect to see even more innovative and ambitious sustainability initiatives emerge.
Market Resilience and The Future Outlook:
Despite a 19% decrease in space leased by operators in Q2, the sector remains resilient, with an 8% increase in stock levels. Flex spaces currently represent about 2.5% of total regional office stock, but estimations suggest this could rise to 10-20% within three to five years due to strong occupier demand. Sustainability efforts driven by client and investor pressure are contributing to a more balanced risk distribution among stakeholders, fostering a positive outlook for the industry.
Office Return Rates Remain Low:
Inflation Complicates Return to Office Plans
Employees’ reluctance to commute, evolving mandates, and a preference for hybrid/remote work are also delaying the process.
Despite efforts to encourage employees back to the office, European return rates remain low. Returning workers to the office presents challenges, including reluctance to commute, evolving mandates, and a preference for remote work. Nearly half of companies report attendance of 40% or lower, with large companies facing more challenges than smaller ones. Only 12% of large companies with over 5,000 employees are seeing attendance rates above 60%, compared with 29% of smaller companies. Sector differences are observed, companies in the Tech, Media, and Telecoms (TMT) sector are more likely to be experiencing lower attendance rates, with 63% seeing average attendance of 40% or below, compared to 42% of Financial and Professional Services (FPS) companies. However, there is still scope for companies to raise attendance from its current level.
The European flex office sector is experiencing rapid growth, accompanied by a strong commitment to sustainability. As companies adopt hybrid working policies, the demand for sustainable workspaces is increasing. Flex operators are leading the way in implementing innovative and ambitious sustainability initiatives to meet the evolving needs of occupiers and invest in a healthier environment. Meanwhile, the challenge of bringing workers back to the office remains a complex issue, influenced by various factors, including company size and sector. As the industry continues to evolve, the sector’s focus on sustainability and adaptability positions it for a greener and more resilient future.