Flexible Office Space Poised for Growth, but Facing Challenges

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The market for flexible office space in the United States has room to grow after being pared down during the coronavirus pandemic, but it still faces a tough road ahead, according to a report from CBRE.

During the pandemic, 144 flexible office providers across the U.S. cut their footprints by a whopping 12.2 million square feet over 669 properties — with the biggest losses in Manhattan, San Francisco and Los Angeles, according to CBRE. But tenants are starting to have more need for flexible office space as they adapt to a new normal of hybrid work.

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“Flexible office space is really becoming an important amenity that many tenants are asking of their landlords when they engage in a building,” Julie Whelan, CBRE’s global head of occupier research, said during a press conference on Monday. 

Occupiers are growing the amount of flexible office space they have in their portfolio. While flexible workspaces only represent 10 percent or less of 76 percent of office tenants’ total footprints, half of those occupiers surveyed by CBRE expected to increase that percentage in the next two years, according to the report. Having the option of a shorter-term lease is enticing to businesses still reeling from the pandemic, Whelan said.

“This demand is not expected to fade; occupiers have desired flexibility since the first long-term lease was signed,” Whelan said in a statement to Commercial Observer. “And now, the era of flexibility is giving them more options than they’ve ever had. Once occupiers learn how to implement agile strategies to truly create a nimbler portfolio, they will not want to trade their newfound flexibility.”

That demand is showing up for companies like WeWork and IWG. Those two firms — which represent more than half of the flexible office supply in the United States, accounted for 48 percent of the square footage lost since mid-2020 — have started to attract new customers, with IWG signing more than 2 million new users and WeWork growing its membership by 24 percent in 2021, according to CBRE. Another coworking company, Industrious, saw desk sales increase 150 percent in the third quarter of 2021 compared to 2019.

A recovery for the sector, however, is not without its challenges, Whelan said. Tenants don’t have a lot of experience using flexible office space, making it a big shift for those accustomed to the traditional office. Plus, some flexible office spaces don’t provide the kind of privacy that some companies need, Whelan added. 

But because of the huge upheaval the pandemic presented, the market can only get better, Whelan said. 

“Though the flex market has been challenged, it also has proven resilient,” Whelan said in a statement. “As we emerge from the upheaval of the last two years, we are certain that the demand for flexible office space is strong and that the end user is becoming more sophisticated. There is nowhere to go but up from here, especially now that providers rightsized their portfolios where necessary during the depths of the pandemic.”

Celia Young can be reached at cyoung@commercialobserver.com.