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Flexible workspace sector calls for government support

Author: ICAEW Insights

Published: 28 Nov 2022

Amid uncertainty that government support for businesses will run beyond the six months currently stated, the flexible workspace sector is lobbying for more long-term support.

Providers of flexible workspaces have expressed concern that they have been overlooked by government support packages to help businesses weather the current economic storm and the cost-of-doing-business crisis.

The UK could see many flexible workspaces disappear due to the economic pressures they face – at a time when demand for flexible workspace is exploding following the COVID-19 pandemic. There are more than 6,000 flexible workspaces across the UK, between them providing homes to tens of thousands of SMEs, according to Instant Group UK. The sector also contributes over £800m in business rates annually to the UK economy.

Calls by businesses in this sector for extended government support to deal with mounting economic pressures have fallen on deaf ears. “The Autumn Statement was silent on whether there will be any support for business beyond the six months initially set out,” said Suresh Aggarwal, Director of flexible office space company Airivo.

“Businesses still face a cliff-edge scenario in Q2 2023. I understand that there will be some announcement next month and I really do hope that there is support announced for all businesses as this is so important for the economy.”

Aggarwal is concerned that the sector may be “largely overlooked” for government support as he believes it was during the pandemic. He also feels that the emergency price cap misses a lot of flexible workspace providers because it’s only for six months and a lot of companies in this sector have energy contracts running into the new year.

“Airivo is already in fixed contracts on electricity and gas that will run for the next 6-10 months,” added Aggarwal. “On top of that, our energy consultants have said our electricity costs, if they increase in line with current expectations, could see an increase of over 200%.”

Are flexible workspace providers shouldering the price increases?

Laura Beales, co-founder of flexible workspace business Tally Market, said that rising business rates are currently being absorbed by the flexible office space providers as opposed to passing on the cost to customers, “but we don’t expect this to continue in the long term. Now is a good time to be thinking about plans for the next year or two and locking these current prices in.”

This is also true for Airivo, as they know passing growing energy costs onto their customers during difficult times risks losing business altogether. “It’s very difficult to pass the increases on because our tenants have entered into agreements with us and this could be a 12-month contract,” Aggarwal said.

“With the likely reality of a recession it means that businesses are already struggling. If we were to try to pass on increased costs, then our concern is we could have voids. And at the moment there aren’t huge numbers of people looking for office space, so it’s the balance that we have to always be mindful of, but we also have businesses to run.”

Instead, Airivo is working with its clients in terms of how they manage their energy usage. For example, there are many times when clients heat their offices with the windows open or don’t switch the air conditioning off at night when they leave.

“We have to start preparing now and encourage a behaviour change on considerate energy consumption – if that doesn’t work perhaps, we may have to introduce fines or penalties,” Aggarwal said. “Traditionally, people were used to consuming serviced offices in a way where they did whatever they wanted in their demise, and nothing was an issue. But we’re now in a time when we’re going to have to start taking action.”

Aggarwal believes that a two-year package of government support would enable businesses to better plan ahead and successfully navigate the crisis.

Beales shares this appetite for certainty so businesses can plan for the future and help to rebuild the UK economy. She has seen “an increase in enquiries where customers are looking to move from non-managed to fully serviced spaces so that they know their future costs are fixed and do not have to take on the risk of increasing rates.”

At the moment, the sector is benefiting from the energy price cap, but it is painfully aware that the scheme will only be in place for six months. Jane Sartin, Executive Director of the Flexible Space Association, said: “This is not a long enough period to make plans for the future, and there is anxiety as to what will then happen. Flexible workspace is a service industry, and was significantly hit during the pandemic, when people were instructed to work from home wherever possible.”

Sartin did note that business rates support was extended for the hospitality and retail sector, but not extended to the flexible workspace sector in the Autumn Statement.

“The energy cap plans are due to be reviewed, and we hope that it will be recognised that the vital service provided by flexible workspace in supporting the UK economy means the sector should receive ongoing support in meeting higher energy costs,” she added.

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