As old workplace norms give way to modern ways of working and start-ups build thriving local communities, big cities in Central and Eastern Europe are joining the global shift towards flexible office space.
In the last year, more global flex space operators built their presence across the region. IWG, parent company of Regus, recently opened its third branch of the Spaces brand in the region, while WeWork took an entire building in a central Warsaw office complex.
Flex operators are joining a growing mix of private offices with flexible leases, as well as hybrid offerings where companies can settle on their own combination of open and private space.
Across the region, the rise of flex space is driven by increasing demand for amenity-rich, collaborative workplaces and a new generation of workers who prefer a more agile work environment.
“We are seeing an increase in entrepreneurs and small businesses needing flexible space that allows them to quickly hire teams as well as downsize or work on project basis,” says Kevin Turpin, Head of Research & Consultancy CEE at JLL.
Investment into Central and Eastern European technology companies jumped tenfold between 2012 and 2017 – and global providers of flex space are seeing new market opportunities in the region, says Turpin.
In Poland, Central and Eastern Europe’s most mature market for flexible office solutions, the volume of flex space has reached 250,000 square metres – just over 2 percent of office stock – with Warsaw experiencing the highest growth of any European city in 2018.
“The rise of the startup scene has definitely been a catalyst for the flex segment in Warsaw,” says Adam Lis, Flexible Office Solutions Manager at JLL.
International players forging a path
Established flex space providers are starting to impact office leasing markets in big cities across Central and Eastern Europe.
In Prague, a decline in demand for office space under 500 square metres has been mirrored by a growth in flex space, which accounted for 8 percent of total net take-up in 2018. It now has 37 flex space providers with 57 centres across the city.
“Small companies who would previously have looked for a traditional office now have opportunities for flexible leases on ready-made offices. It’s a game changer,” says Martin Stričko, Senior Research Analyst at JLL.
The growth of flexible space is also changing rent dynamics. “The big flexible space players are happy to meet premium rents in order to secure sought-after central locations that are key to attracting freelancers and small businesses,” says Stričko.
Some operators are also leasing spaces away from central zones, but providing more targeted offerings, such as incubator programmes for start-ups or a skills hub in a particular industry.
Impact Hub, for example, operates four spaces in the Czech Republic designed for companies working in social impact, giving these enterprises a foothold in the market.
“The success of major providers provides a proof of concept for the flex space model,” says Lis. “This has encouraged local landlords and developers to create their own concepts or in many cases, partner with established players to operate a space.”
One example is developer HB Reavis, which entered the coworking market with its own brand, HubHub, currently in Czech Republic, Poland, Slovakia, Hungary and London.
Outside major cities, however, the demand for flexible space is less significant, notes Lis, although WeWork and IWG have floated plans to expand to regional centres.
Building a flex movement
Despite a burgeoning trend for larger companies in the region to adopt flexible space, Turpin says that most such companies are currently taking on traditional leases.
“There is still a low level of awareness around flexible space compared to other European markets,” he says. “Yet flex solutions shouldn’t be considered as an alternative to traditional office space. The two are complementary to ensure companies have the right space to meet their needs.”
If more large companies in the region were to embrace the flexible space concept, it would provide the steady revenue streams that make it easier for both boutique and major operators to enter – and expand in – the market.
And a more mature market could benefit companies with space to spare. “Some companies could even operate their own flex solution when surplus leased space isn’t in use,” says Stričko. “With the flex space market growing and evolving rapidly, there are lots of potential opportunities to explore.”
Future market growth
As the demand for flex space steadily rises across Central and Eastern Europe, international and regional operators are set for continued expansion.
“Take the Czech Republic – there is more office space coming onto market and we’ll likely see growth from the big players, including global providers who aren’t in the region yet,” says Turpin. “We expect a period of consolidation, where some bigger groups might enter the market and acquire those that have already been operating for several years.”
Lis predicts that operators will hone their offerings for larger companies, with bigger offices and features suitable for teams of fifty or more. “Providers will commit to more space for single companies, in line with what is occurring in developed flex space markets such as London,” he says.
With flexible space predicted to grow by 30 percent over the next five years in Europe, according to JLL, it’s very much in take-off phase – and for cities in Central and Eastern Europe, it has the potential to bring more choice to office markets as well as supporting growing start-up communities.