For all the buzz around WeWork, you could be forgiven for thinking the American giant had invented the concept of flexible offices.
However, London-based Workspace has been quietly providing similar services for years. Its brand may not have WeWork’s cachet, but it has not made WeWork’s eye-watering losses, either.
Workspace operates 64 properties in London housing more than 3,000 different businesses, which typically sign leases of about two years, with an option to leave after six months. Crucially, Workspace owns the freeholds. The company made a pre-tax profit of £137.3m last year.
Flexible office providers thrive in a market where a steady stream of businesses are starting up and growing, but the flexibility that attracts start-ups (not to mention the ubiquitous fake grass and beer fridges) can quickly become a handy escape route for occupiers looking to cut costs in a downturn.
And that is exactly where some analysts think the London office market is heading, particularly if a disorderly Brexit pushes us into recession. Workspace reported a 16% increase in rental income last week — a healthy rate, but down on the previous year’s 21% increase.
During the financial crisis, Workspace suffered a 15% hit to its rent roll, says Peel Hunt analyst James Carswell, who reckons it will be better placed to cope with a drop this time because it has invested in superior buildings that have attracted more established businesses.
Reassuringly, Workspace’s outstanding debts are worth just 22% of its assets, so it is positioned prudently, too.
What could be a bigger problem is that the big boys of the office market, such as British Land and Land Securities, are starting their own flexible working businesses.
Imitation is the sincerest form of flattery, but with both companies keen to cut their exposure to the retail market, it will be a key focus in the years ahead.
Well-regarded chief executive Jamie Hopkins stepped down last month for personal reasons, after more than trebling shareholders’ money in his seven years.
Interim boss Graham Clemett, who joined as finance director in 2007, looks a safe pair of hands, though, and the belated entry of larger rivals is a sign that this market has plenty of growth to come. Plus, scary as it sounds, forecasts say London’s population will jump by almost 9% to 9.54m by 2026, a supportive long-term trend for Workspace.
With shares having drifted in the past few months to 867.5p, a £1.6bn valuation, it feels like a good time to buy.
