Affordable Workspace - What is it, why is it important and how do we do it at Meanwhile Space?
by Emily Berwyn, Executive Director, Meanwhile Space
7th August 2023
A couple of months ago, I was invited to speak at Avison Young’s breakfast seminar exploring affordable workspace. With a really strong panel of Robert Hume from Landsec, Pippa Gueterbock from Haringey Council, Martyn Saunders and Patrick Ransom of Avison Young, over 200 people joined from public and private sectors across the country to hear how we are all managing to deliver affordable workspace projects, from strategy through to direct operation. It was a very informative and honest discussion from all of us around the challenges we all face, and the reasons we are still passionately driving forward projects. We ran out of time, and didn’t manage to answer the many questions, so it is clear this is a topic that continues to be at the forefront of priorities in many locations. Below we explore what affordable workspace is, why it is important and how we do it at Meanwhile Space.
For many London businesses, particularly for emerging businesses and space hungry uses such as the creative industries, access to affordable space has become almost impossible in London. Average office rental values have increased by >42% over the last decade and industrial rental values have increased by >122%, partly fuelled by permitted development changes of use from commercial to residential, which in turn has reduced the stock and helped fuel price rises. This has pushed out many of the small creative and social business that ensure vibrancy and diversity within London neighbourhoods.
As result of these rises, over the last decade many London local authorities have introduced affordable workspace policies to try to tackle the challenges of accessing affordable space for specific sectors and demographics in need. However, there is limited consistency on what affordable workspace actually is. The most widely accepted definition is space provided at a discount to market rent, but this is problematic as there is no universally agreed reduction (in Tower Hamlets the policy for new build s106 spaces is 10% discount, and in neighbouring Islington the policy is 100% discount). In some areas 10%, 20% or even 50% off market rate is still unaffordable for those it is trying to help. Typically, it is space that is dedicated to particular sectors (eg social, charity, cultural, tech or creative/maker), disadvantaged groups that may be looking to start a business, or businesses that deliver job creation, community cohesion or other social value. The goal is to support these businesses to take their passion or skill and develop, test and grow their business. This, in turn, supports the local economy, as well as the diversity and distinctiveness of the neighbourhood each workspace is located in. There are many other factors that also affect affordability, some of which are as important to some businesses as below market rent, including:
Rent free periods or laddered rent
Flexible lease terms (easy in/easy out mechanisms)
All inclusive rents
Turnover or profit share rents
Fit out support
Unit sizing – smaller units are by definition more affordable
Business rates and whether small business or discretionary rates relief can be applied
Responding to the needs of specific sectors and contexts, this means affordable workspace for us can be anything from retailers and retail incubators, to office or studio space for more standard creative, digital or social businesses, through to light manufacturing, textile makerspaces, food and beverage start-ups, bakeries, leisure uses or community kitchens. Other operators have also brought complementary uses such as wet labs, incubators for green industries or food growing. Where it is designed to be accessible and respond to local need it will bring something positive to the area.
We typically work in local neighbourhoods, primarily in zones 2-5 of London where regeneration is underway and we can support more disadvantaged communities to access space, grow their capacity and inform future uses that may grow into the longer term offer. We have spaces in Wood Green, Willesden Green, Brixton, Loughborough Junction, Rotherhithe, Elephant & Castle, Old Street, Weston-super-mare and Hastings.
As an established affordable workspace provider, and also a social enterprise, the landscape for delivering affordable workspace is looking incredibly challenging for us, as it is for many other workspace operators. The margins on affordable workspace are extremely tight, with rental income from tenants at below market rate, this often just covers the running costs for the space and a management fee. Often the management fee is also required to incorporate social impact delivery which requires additional resources. So, the income is less, but the resource commitment is greater than a standard workspace provider. In addition, many landlords expect some form of fixed rental income, even if this is reduced in return for social impact delivery, but this is increasingly unworkable if we want to preserve affordability.
Covid, Brexit and the cost-of-living crisis has resulted in enormous increases in the costs to setup and run properties, as well as increased staff and services costs. While the GLA reports this also reduces tenants’ ability to pay rent for the same reasons with 30% living precariously and just about managing, and 46% of Londoners struggling to meet financial commitments or falling behind. This has pushed a number of our already marginal affordable workspace projects to an unviable position, and we are seeing this repeated across the landscape of other affordable workspace providers.
With such risky projects, having strong supportive partners is essential or they fail. This works best when it takes the form of a collaborative approach so when inevitable challenges are faced, a true partnership rather than commissioner vs delivery organisation will pull together in the same direction to overcome challenges and achieve collective project goals.
Typically, this can manifest as regular project board meetings to find ways around the barriers and risks, sharing in the rewards (profits) as well as the unexpected hurdles (deficits), business rates policies that support affordable workspace, and not tying operators into restrictive leases with fixed rents. Most of all it is about managing expectations around the financial support these projects require, and not expecting a commercial return on assets. Time and again, we’ve seen the key ingredients of trust, respect and ability to take risks as the route to successful partnerships.
The benefits can be plentiful when projects are successful, and can include nurturing new or at-risk industries, placemaking, support to particular demographics or those traditionally excluded from entrepreneurial opportunities, increased community cohesion and bespoke services and facilities that meet local demand and needs.
The Avison Young seminar concluded we need to be looking ahead as we reach the second wave of affordable workspace policies, and as a number of London LA's look to review and update their policies. How can we inform policies that are flexible enough to respond to the local area’s needs, while also arguing the case for more social value-oriented policies? We are all feeling the pinch, local authorities included, but affordable workspace is an investment in the long term economy of local areas that few can afford to wait for the market to deliver.