A flexible future awaits

Airbnb and co-working space providers have disrupted the hospitality and office markets – and the figures show they aren’t going away. The rise of Airbnb Just as flexible working has evolved at a rapid pace in European markets to become an increasingly embedded part of how office space is used and provided, Airbnb is having an equivalent impact on the hospitality market, writes Damian Harrington, head of EMEA research, Colliers International.  [caption id="attachment_938370" align="aligncenter" width="847"] Airbnb is revolutionising the hotel sector[/caption] Over 2018, Colliers has conducted an analysis of the impact of Airbnb on local hospitality markets across a broad range of European cities, working with Hotelschool The Hague. The story is one of overwhelming growth, despite attempts by some cities to regulate the sector. In six of the cities surveyed, demand-side growth for overnight stays using Airbnb-registered accommodation has been over 50% year-on-year. Edinburgh leads the line with a huge growth rate of 70% – ask anyone where they stayed for this year’s Fringe Festival. The market share of Airbnb as a percentage of all overnight stays has now increased to a point where the European city average is at over 10%, and we expect it to get closer to 14% or 15%. In terms of overall size, London is by far the largest market in terms of overnight stays, with the number of properties booked reaching 100,000+ in 2017, just ahead of Paris, at just over 80,000 properties booked. There is then quite a big drop in scale down to Barcelona and Berlin, where 30,000 properties were booked in 2017, with many other large to mid-sized European cities and tourism hotspots witnessing close to 20,000 units booked. One other interesting trend we’re seeing is the shift in the ‘professionalisation’ of this niche, highlighted by the rise of the multi-listers: hosts with more than three properties. In markets such as Prague, this comprises over 50% of the properties on offer. This drops to only 10% in the Nordic markets of Stockholm and Copenhagen. Multi-listers are often intermediary companies that manage the listing on behalf of the actual owner, but this highlights the increased use of ‘flexible’ accommodation as part of a letting solution for owners of private rented homes. Where do we go from here? As the scale of Airbnb and flexible accommodation grows, the lack of regulation becomes a greater concern. This has resulted in several cities introducing legislation covering Airbnb over the past few years. In Berlin, hosts have been prohibited from offering an entire home for rent on the platform since May 2016. In London, a rule was introduced that enabled Airbnb hosts to let out their home for only a maximum of 90 days per year. Similar legislation was introduced in Amsterdam, but the maximum number of nights was limited to 60.  Madrid and Paris announced new legislation in 2018, but the full impact of these regulations is yet to be seen – despite some headline grabbing stories of non-conforming properties being shut down in Spain. [caption id="attachment_907394" align="aligncenter" width="847"] London limits Airbnb hosts to let out their home for only a maximum of 90 days per year.[/caption] Though local government has set up quite clear rules in these cities, it is hard to enforce them because of the lack of available data and the capacity/resources to do so. Our analysis cannot determine clearly whether hosts adhered to these rules, but it does show that none of these cities were able to limit Airbnb growth in their respective locations. Without forcing Airbnb to become more transparent, local authorities will keep having problems enforcing regulations. It is clear that Airbnb is here to stay, and has become a mature alternative for traditional hotels in many markets. The benefit for cities is that with Airbnb, guests have more options to choose from, and it’s also a cheaper alternative to hotels – especially in locations where there is a lack of good lower-budget level accommodation.  It is also interesting that, despite the growth of the sector, we’re seeing relatively little negative impact on the hotel sector, with hotel markets achieving similar results to last year. In a lot of ways, Airbnb is a different product offer, and one that now benefits from better visibility. If cities are to better manage Airbnbs and their ilk, it needs to be done in a manner which does not limit budget accommodation options across cities, for which there is clear and growing demand. Additional research by Dirk Bakker, Colliers International EMEA head of hotels   A new way to work [caption id="attachment_920499" align="aligncenter" width="847"] WeWork is now London’s largest office occupier.[/caption] The overall flexible offices package offered by cities and regions is becoming highly competitive thanks to the need to better accommodate the changing needs of business. In recent years, a wide range of factors have caused a significant shift in the demand for greater flexible space/working arrangements, including: ■ Major changes in terms of the structure of employment during this economic cycle, with recovery and subsequent growth driven by the ‘tech/gig’ economy. This has seen part-time/temporary and ‘agile working’ positions overtake contractual full-time employment. ■ Europe’s working population continues to age, and self-employment is an increasing trend among those aged over 45. ■ Companies seek to maintain flexibility to be able to respond to business change. ■ Increasingly, millennials and fresh talent view companies offering well-designed/’cool’ flexible space as increasingly desirable to work for. ■ Governments are increasingly supporting and funding start-ups and SMEs, to stimulate economies and growth via flexibility and innovation. The result of all these factors has been significant growth in the number and size of serviced and flexible working providers operating across a range of major European cities, but it is clear that cities are at various stages of the flexible evolution.     London leads the flexible working evolution The flexible/co-working scene across London has been evolving rapidly over the past four years, ever since WeWork established their first facility at London’s South Bank at the end of 2014. As of mid-2018, the London market has moved into the third phase of the flexible working evolution.  The initial ‘getting established’ phase was quickly followed by a ‘rapid expansion’ phase, which saw WeWork become London’s largest office occupier. This has created structural change in the occupation of office space, driven by an appetite for shorter lease lengths and demand for flexibility. More and more occupiers – particularly those with weaker covenants, such as start-ups, and those wishing to avoid excessive capital outlay – are moving toward a more flexible office product. By mid 2018 sub-5,000 sq ft transactions represented 78% of total deals – up from 69% in 2015 – the third year in succession that numbers have risen, as tech start-ups and scale-ups continue to grow.  The third phase London now finds itself in is characterised by a firmer response from conventional landlords and owners to the flexible phenomena. The likes of British Land (Storey); Brockton Capital (Fora); Carlyle (Uncommon); HB Reavis (Hubhub); and the Crown Estate are now offering, or are set to offer, a flexible product within conventional office hubs. They are also adopting a more flexible leasing approach, in terms of both length and incentive packages. German big seven There has been an enormous increase in flexible working in Germany, accounting for roughly 5% (around 200,000 sq m) of total take-up in 2017 – a fivefold increase year-on-year – with H1 2018 activity making up almost 7% of take-up at 120,500 sq m. Co-working space providers were initially focused on Berlin and Hamburg but are expanding their efforts on Munich (H1: 43,000 sq m) and Frankfurt (H1: 28,400 sq m). Large co-working providers like WeWork, Mind Space, Regus Space are competing for prime space in CBD locations. Paris The first co-working site saw the light of day in 1996, but development has really sped up since 2011. Since then, at least 20 new sites have opened each year, with 238 co-working spaces in situ at the end of 2017 – 80% of which opened in the last five years. WeWork, which was not present in France two years ago, is experiencing strong growth with eight sites in Paris comprising a total 80,000 sq m, and it is planning further openings in the coming months. Amsterdam In Amsterdam a clear shift is visible from business centres to co-working spaces. The take-up volume of flexible concepts has been around 10% of total take-up volume for several years, indicating how strong this market is growing. Meanwhile, a certain split is visible within the type of flexible concepts being made available, with many co-working spaces using branding to draw a certain type of user to a specific building. This results in both budget and high-end concepts. [caption id="attachment_901523" align="aligncenter" width="847"] Regus is the largest operator in Denmark.[/caption] Copenhagen Regus is the largest operator in Denmark, with 18 locations, but there are signs that other international operators are beginning to take an increasing interest. Technopolis, a major Scandinavian developer, has recently opened a 2,000 sq m location in the heart of Copenhagen. Market intel suggests that WeWork is also targeting the Danish market. Paying more for less? What’s interesting about flexible/co-working space is the premiums being charged relative to traditional prime space across a range of locations. Although taking on traditional space will result in a larger capital commitment, it will clearly work out to be more economical over time. That said, the flexibility of taking on a short-term commitment is clearly of benefit to many companies. Although there are concerns over the covenant strength of some flexible/serviced office operators– and potential market over-dependence on them as primary demand sources – the latest shift into the third phase of the evolution points to an acceptance that flexible working represents a longer-term shift in how business space will be used and configured. For traditional landlords and investors, being able to offer flexible space options and benefit from the premiums available suggests this growing niche can become more economically sustainable.  While London is clearly a leading global market and at the forefront of this evolution in Europe, more and more major markets are following suit – evolving in their own way and at their own pace – with a range of flexible/serviced office space becoming an embedded part of the overall city offer. Additional research by Peter Leyburn, Colliers International EMEA director of client services