We all know that the 2018 workspace market forecast was positive; growth in flexible office uptake, landlords, technology, and more. Although we’re merely two months in, there’s new research that indicates how the office market is performing in the new year. Let’s take a closer look at the U.S. and the UK markets in particular, and what indications performance can have on how operators are growing their flexible workspace business.
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Serviced office and flexible office uptake in 2018 is being fueled by large corporates and enterprise organizations seeking a new way for their employees to work and the opportunity to work alongside new, innovative companies. For these tenants, the business synergy and collaboration potential are invaluable. There is notable drive, especially among Fortune 500 companies, for workplace real estate strategies to look to Coworking and incubators. Not only does this approach reduce their real estate overhead, but also better positions them to be in the company of cutting-edge startups serving up new and unique business models and ideas.
There is a definite advantage for operators to integrate incubators and accelerator programs into their growth strategies. For example, workspace operator Downtown Works has carved a niche in the San Diego market with their intention to support startups via accelerator programs. Leveraging commercial real estate assets and space offerings in combination with business and community resources and robust yet flexible technology infrastructure, operators can acquire a new class of tenants while staying competitive in the market.
Reciprocal Growth for Workspace Operators and Tenants
A recent study by CBRE indicated that commercial real estate departments across large corporations expect they will utilize more flexible office space over the coming years. Currently, 44% of corporations are already using some form of flexible office solution. According to the results of the CBRE survey, this number is expected to rise to 65% by 2020 in the Americas, demonstrating significant opportunity for providers of coworking and flexible workspaces.
Corporate uptake is driving flexible office uptake and, in turn, flexible workspace is enabling large corporations to grow across markets and expand their own footprint. We’ve mentioned before that flexible office space is being leveraged by ambitious, internationally expanding companies going global. In addition to corporates, a growing population of digital nomads, freelancers and consultants are on the move and consuming flexible office space. Curated workspaces are enabling these remote, constantly on-the-go workers with an end-to-end turnkey office solution. Not only is this being fueled by expanding work options across markets, but by new technologies that are connecting workspaces and enabling workers to book space and consume services on-demand, from anywhere.
The UK stays ahead in the Flexible Office Game
While New York remains the priciest of flexible workspace markets, according to a new study by Cushman & Wakefield, London can be considered the global capital for coworking spaces based purely on numbers. In Central London alone, 2.5 million square feet were leased to flexible workspace operators in 2017, a 190% increase on the previous year. This number accounts for more than 21% of all commercial office leases signed in London during that time. If we’re putting New York and London head to head, London flexible workspace leasing has been at an average of 10.6% of the market versus 2.9% in New York.
While London surpasses New York in terms of both space and number of operators, in 2017 the average rent flexible workspace operators pay rose approximately 10% per square foot compared to the previous year in the UK capital. While growth remains evident, so does uncertainty from Brexit. Uncertainty and geopolitical impacts on the economy and the job market are also a driving force for the workspace industry overall.
Meanwhile in the U.S. Flexible Workspace Market
A recent CBRE 2018 Real Estate Market Outlook projects continued growth of the office market this year in the U.S. 32.1 million square feet of positive net office absorption is projected for the U.S. market, a lower yet more sustainable rate of growth. Increased construction in already concentrated office markets such as San Francisco and New York City reflects a possible increased vacancy rate in such downtown areas. More so, in fact, compared to suburban areas, also an indication that the rent growth rate is expected to drop 0.4% from its 2017 rate of 2.4%. This demonstrates yet another clear advantage for new stakeholders and operators focused on growth and expansion to take up space while rates aren’t skyrocketing.
According to Cushman & Wakefield, the stock of flexible workplaces in key U.S. cities is at approximately 27 million square feet, an increase of 20% over the last two years. Meanwhile, a CBRE report interestingly highlights that long-term leased office space hasn’t substantially waned, however, it has shifted to the realm of “optional” as occupiers opt for shorter-term leases and the ability to lend flexibility and choice to their employees. Piqued interest in flexible office options is indicative of continued growth of the flexible office sector in the U.S.
Suburbia is the New Urban Workplace
In both the U.S. and UK markets, there is an undoubtedly visible reallocation of the population to suburban regions. Sky-rocketing living and entertainment costs in urban zones are increasingly driving folks to more affordable suburbs and transport hubs. With smaller labor markets gaining steam, local chambers of commerce and economic development organizations are taking an increasing interest in bringing shared and flexible workspaces to their communities. Where traditional business centers may have had a long-standing presence in these areas, a lack of modern coworking or shared workspace with attractive amenities are lacking.
There are evident opportunities for landlords to partner with growing workspace brands to bring tech-driven workspaces to regional towns. Food for thought for those contemplating their next new location is served up in recent research and insight from Cushman & Wakefield. They expect regional city expansion to account for 29.63% of growth strategies versus 22.22% of growth in the number of centers in existing city centers.
What this means for Growing your Flexible Workspace
The flexible office uptake in both space and increase in operators is likely to bring additional levels of disruption to the market. The flexible workspace market in and of itself has been susceptible to new models and sectors since its inception. Case in point is the natural evolution of traditional office space leases to business centers and executive suites and subsequently to coworking spaces and incubators. We can’t expect the new era of the office industry to be immune to disruption.
In this way, operators and commercial real estate stakeholders are smart to protect their workspace investments with a sustainable approach to running and managing their operation. Future-forward technology is a must; from robust, scalable infrastructure and a reliable system of record that enables multiple integrations, workflow automation and on-demand access to services. A smooth running, efficient system that enables high-level and granular views of flexible workspace business operation puts operators at an advantage against unforeseen global and political changes and disruptive market dynamics. Bolstering your operation with distinguished technology service delivers added value to your products and membership plans. Among the long-term benefits are members who renew, technology that lends to scalability and growth, and increased profitability.
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