The flexible workspace market is growing and changing. Instant Offices has just released the 2018 flexible workspace review. Here are the key highlights from their report.
In this article:
1. Increased Supply and Secondary Markets = Stagnant or lower desk rates
The US is a big market with a diversity of cities. Each region has developed at a unique pace. While NYC has continued upward slope in pricing, this year we’re seeing a dip in pricing thanks to increased supply outside of metro areas. This is an indication that supply has increased across the board in secondary regional markets and even the suburbs. Whereas cities like Dallas, Austin and San Francisco that continue to see increased desk rates reflect the strength of those markets to attract business.
2. New Terminology: Niche-ification
According to the Instant report, market competition is driving independent operators to capitalize on customizing workplace interests by occupier desires. They note design and amenities provisioning, but we’re also seeing a massive tendency towards lounge, clubhouse spaces catering to social and work needs, women-focused workspaces such as The Wing and Riveter, and luxury workspaces like No18 starting to tap the market.
In local markets, independent operators can capitalize on specific types of occupiers, regional characteristics, or local economic motivations to tailor the flex space offering.
3. Inverse Relationship between Hybrid and Serviced Office Growth
Flexible workspace has traditionally meant executive space and serviced offices. When grassroots coworking began to turn heads, and the standard serviced office operator began integrating coworking into the business model, the result was what Instant calls Hybrid and Coworking spaces. This model has grown 4% since last year. Meanwhile standard serviced office models have decreased by 4%.
Their data shows that serviced offices still account for the majority of the market, however, the mixed model of private and flex coworking space is on the rise, heading towards the norm in the office sector.
4. Flexible Workspace Enables Freedom in the Office Sector
Michelle Bodick of Instant Offices notes the increase in rolling contracts, SMEs opting for month-to-month contracts and larger occupiers seeking longer leases in flex space. The diversity and freedom that flexible workspace options offer to businesses of all sizes are indicative of the positive absorption in a broad market, which also validates market growth and increased supply.
5. De-risking Landlord Participation in Coworking
Despite a slight increase in the profitability of coworking spaces documented by Deskmag’s Global Survey this year, this factor remains a key hindrance to landlords when it comes to integrating flex space in their portfolio. The inhibiting element is that short-term coworking leases fail to offer a limited long-term guarantee or valuation for asset holders.
In light of hesitation, landlords acknowledged the need for diversification of static, traditional commercial portfolios. Asset holders are pressed to mitigate short-term demand of flexible space while in parallel avoid getting stuck in the outdated long-term leasing structure. This situation has opened the door to operators with proven flexible workspace business models to remove obstacles and de-risk portfolio diversification for landlords, while in parallel claiming expansion opportunities. We can expect to see more of these partnerships in the future.
Based on landlord responses to Instant’s survey, we can expect greater participation by CRE asset holders, due in part to a perceived opportunity to attract corporate tenants, interested in longer, yet flexible leasing terms.
6. Continued Growth in the US Flexible Workspace Market
Instant predicts more growth in the US market and contributes it in part to entrepreneurs who are running flexible workspaces. The broad-scope attraction of flexible workspace models and the extension into secondary markets are giving entrepreneurs an opportunity cater to local and niche markets. With CRE stakeholders and angel investors onboard, these entrepreneurs are well-positioned to establish workspace brands that can scale.
7. Workspace Technology a Priority
According to a survey conducted by Instant, occupiers ranked ultra-fast internet as the most important amenity to consider in a workspace. Anyone with a stake in flexible workspace market knows that internet is more than an amenity. After all real estate considerations, Internet connectivity is the most essential factor of a workspace. Without it no one would be able to move their business forward.
More than coffee shops, funky designs, bike rooms or common areas, occupiers demand reliable internet. Landlords taking a more practical risk-averse approach to integrating flexible workspace into their commercial real estate portfolios will implement enterprise-grade workspace technology for a scalable solution that meets tenant needs while also enabling them for growth in a competitive market.
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