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Techtonic Shift: Large London corporates embrace startup-style co-working

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Techtonic Shift: Large London corporates embrace startup-style co-working

This is the second installment of a multipart series on the technology sector's impact on London's office market. Part 1 covered changes to office design, development and leasing, while part 3, exploring the growth of London's tech sector beyond its "Silicon Roundabout" home, will follow shortly.

As co-working spaces gain ground in London, the capital's largest corporations are embracing flexible office models once seen as the domain of more nimble tech startups.

SNL Image

While large companies such as Alphabet Inc., Barclays PLC, EY, JP Morgan, KPMG LLP and Wells Fargo & Co. have opted to provide co-working hubs for startups or host them in-house, others are choosing to rub shoulders with tech workers in search of talent, potential acquisition opportunities and flexible leases, ranging anywhere from a month to three years and reduced real estate costs.

Corporate occupiers now make up an estimated 30% of London's flexible office market, which encompasses co-working as well as shared workspaces, according to workspace specialist The Instant Group. A separate study by real estate company Cushman & Wakefield showed that flexible workspace providers accounted for 21% of office space across central London in 2017.

"The low prices relative to the rest of London are a huge factor. It allows companies to keep overheads down," said Anthony David King, co-founder of Rare Seed Capital, an investment firm that backs early stage tech startups.

Although larger U.S. tech giants, such as Amazon.com Inc., Google Inc. and Facebook Inc., have mostly invested in their own office spaces, King added that some of the more traditional B2B software companies, such as Microsoft Corp., have moved some teams or projects into London's numerous co-working spaces.

In tandem, new co-working chains and rival business models have emerged, ranging from free models such as Google Campus and paid services such as SoftBank-backed WeWork Cos. to boutique hotels offering co-working hubs, he said.

SNL ImageWeWork office in London.
Source: WeWork

Demonstrating strong interest from large enterprises, WeWork doubled its number of big-business clients to more than 1,000 members in 2017, generating corporate revenues of $250 million in 2017. This segment was worth roughly a quarter of the company's annual turnover, up from less than 1% three years ago. Larger companies also represented 30% of WeWork's new monthly revenues last year.

With more blue-chip office workers swapping suits for jeans, the "hipsterfication" of London's office culture — initially adopted from the tech scene — is becoming more mainstream, according to Sam Gordon, co-founder of technology executive recruitment firm Gordon & Eden.

"More and more corporates are using shared workspaces, even if it's not their main office. They tend to have these as satellite offices or move individual teams such as engineering there," he said.

For instance, Gordon pointed out that Centrica PLC, a British multinational energy company with a market cap of about $9 billion, has teams from its smart home business, known as Hive, based at one of WeWork's London locations.

"It's all about bringing people together and that [corresponds with] the digital and tech culture way of working, which is much more agile, fast-moving and integrated," he added.

Similarly, insurance giant Aviva PLC moved its tech innovations team into London-based startup incubator TechHub, occupying a space for 30 employees for several months to train them to think more like innovative businesses.

"We've seen interest from corporates who want to create a skunkworks for specific teams that are looking to be more innovative, or who more generally want to better engage with startups and more agile ways of working," TechHub founder and CEO Elizabeth Varley said in an interview.

Telecoms giant BT Group, which established its BT Infinity Lab innovation program in partnership with TechHub, also has a permanent zone in the London hub to host away days, hold meetings and to showcase new technology.

Another factor influencing big businesses to transfer employees to co-working hubs has been the need to remain agile and dynamic in line with volatile market conditions.

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Not only are companies swapping large, underoccupied London headquarters for smaller spaces, but they are also taking on shorter lease lengths to accommodate unpredictable headcounts, according to Matt Bott, head of serviced offices at Colliers International.

"Corporate occupiers with established bases ... are shifting how their real estate model works," he said.

Flexible workspaces allow them to grow aggressively in line with uncertain business plans, Bott added.

Meanwhile, from a developer perspective, traditional office buildings are also increasingly adopting the "We-Work type, playful office interiors," as businesses take on more contemporary working environments, according to Nic Pryke, design director at Oktra, a London-based office design company.

For example, Oktra, which builds around 70 workspace interiors each year, recently designed an office with around 300 desks for a Japanese company with nearly double the amount of employees.

Pryke said: "Initially these flexible work hubs were seen as a more edgy antithesis of office space. This has now become the [go-to] for corporates. That's a big shift."