Entering the flex office market – the estate advantage

Over the last two months our first Portman WorkWell customers have been settling into their new homes at 29 Gloucester Place and we are thrilled to welcome them to our Marylebone neighbourhood. Portman WorkWell represents the natural next step in the evolution of our office portfolio, offering our tailored response to the growing demand for flexible and serviced workspace. It has been a methodical, detailed and thoughtful route to get here.

The Portman Estate will mark 500 years of history in 2032, but it is the past two decades that have most shaped the experience of our 110-acre estate today.  When the current viscount took control of the estate in 1999, he encouraged a new strategic focus; recognising our commitment to continued long-term ownership, adopting a strong sense of stewardship and driving for sustainable investment in the property assets and the public spaces between them. Our continued overriding focus is on growing income, whilst delivering predictable and dependable cash flows.

We find ourselves at another formative moment within the estate, where the commercial property landscape continues to shift and occupier expectations evolve. Our commercial portfolio provides strong income resilience, but it demands that we preserve the quality of both the physical assets as well as the business model that supports it.

Our Central London portfolio gives us an inherent advantage; sustained demand confirms that businesses continue to choose Marylebone. Yet the onus remains on us to ensure the space we deliver is precisely what today’s occupiers require.

Tenants are, rightly so, ever more discerning, cost-conscious, efficiency driven and focused on running their own businesses. Flexibility, wellbeing and operational simplicity have become central to their decision-making. Smaller office tenants do not have the time for dealing with office management issues; occupiers want to do just that: occupy!

Enquiries for flexible office space have risen by more than 200% compared with pre-pandemic levels. While a notable share of this interest is for larger suites of 20 desks or more, the highest volume of enquiries continues to be for smaller, highly efficient units. While some view those market conditions as challenging, at The Portman Estate we see an opportunity.

Crucially, our portfolio already contains the stock to meet this demand. Our direct let office portfolio comprises over 200 units totalling nearly 450,000 sq ft. It spans everything from distinguished, characterful townhouses to contemporary, well-specified Cat A floorplates, such as our flagship One Great Cumberland Place. Our average unit size is just over 2,000 sq ft.

We offer both diversity and scale, but importantly, room for growth – we can be an incubator for customers choosing our neighbourhood for the long term, scaling up as required as their businesses evolve. More importantly, we can reconfigure and divide space to match the unit sizes and formats that occupiers actually want. This shift gives us the ability to deliver the right product at the right scale, while ensuring the estate benefits from consistent, predictable income and reduced exposure to unforeseen costs.

Historically, the estate could rely on small to medium sized businesses taking 10+ year leases of characterful townhouses, with repair and management obligations sitting firmly with the tenant. That model is proving ever less sustainable.

There continues to be interest in our full townhouse buildings from those seeking smaller headquarter premises, but this can only be one part of our office leasing strategy going forward. The number of these properties being vacated at lease expiry is gradually increasing and demand dynamics, as well as occupier needs, do not encourage me that reletting buildings on full repairing terms is the most viable solution.

We are in an opportune position to be able to redirect our leasing of these properties into a ‘managed’ structure, where we retain management controls and responsibilities. Whilst this can come with an initially high cost and commitment, we are confident that we will see an enhanced income as a result. By taking full operational control of our buildings, we can proactively manage maintenance, deliver consistent levels of service and avoid the unpredictability of end-of-lease reinstatement.

29 Gloucester Place stands as the exemplar of what is possible: ESG-led upgrades such as air source heat pumps, sensor-controlled lighting and hotel-style showers sit alongside open-air terraces and abundant natural light, creating a workspace that supports both wellbeing and productivity. Units are offered on flexible, short-form leases with transparent, inclusive pricing, removing the operational friction that occupiers increasingly want to avoid.

We will bring more buildings into the Portman WorkWell brand. This product alone will soon comprise 50 units, around a quarter of our office holdings. By 2030, on the estate, we anticipate that Portman WorkWell and our other managed solutions will represent a higher proportion of our directly leased office portfolio than the wider market’s expectation of 20% flexible space.

I see this as the right balance for us to deliver long-term performance and ensure a lasting advantage for the estate.