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Ambitious Thinking

Flexible space has been growing at an average annual rate of 23% since 2010.

After more than nine years of economic growth, employers are having a tough time finding talent and occupancy growth is slowing. With that, the flexible space/coworking sector has emerged as the primary growth driver within the office market. Expansion from this sector claimed more than a quarter (29.4 percent) of the total U.S. office absorption over the past 24 months (18.1 million s.f.).

No segment of the market has demonstrated more overall growth than the coworking industry, and WeWork has been expanding at a rate in excess of 1 million square feet per year. Given the massive amount of venture capital that’s being poured into the sector, this aggressive growth rate shows no signs of slowing.

That’s why we expect flexible space to remain one of the office market’s primary growth catalysts for quite some time.

"Companies both large and small are utilizing flexible space arrangements to better manage their liquid workforce."

Flexible space growth from 2010 - 2017

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A flexible space revolution is on the horizon

* Under 5% of current U.S. office inventory is controlled by independent, third-party flexible space providers (spanning all operator types, from traditional executive office suites to coworking to incubators). Given industry shifts, flexible workspace and shared amenity spaces are projected to encompass approximately 30% of the office market by 2030.

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Risks and considerations for tenants

1.

Understanding the value proposition

Although flexible space is often the most simple and affordable space option for individuals and small groups, as users achieve scale and accrue more time at a single location, the per-square-foot occupancy costs of flexible space arrangements may exceed traditional lease models.

2.

Protection of intellectual capital

In addition to cyber-security risks, the open design of most flexible space locations could inhibit the safeguard of intellectual property.

3.

Employee productivity

Although a group of employees working together within a flexible space environment could stimulate collaboration and the structure could enable enhanced supervision over a mobile workforce, companies must be mindful of flexible space's impact on productivity.

4.

Cultural and strategic fit

Companies must assess whether flexible workspace is attractive to their culture and compatible with their broader business strategies, especially as it relates to recruitment and retention of talent.

What’s on the horizon for flexible space?

Corporate demand

Large-block corporate leasing will become more prevalent

Geographic reach

Operators are expanding to the suburbs and covering more international markets

Operator failures

Future market volatility will test commodity players, with only the strong surviving

Freelancer demand

Continued growth will supplement the rising share of enterprise users

M&A within industry

Acquisitions are helping to add scale and enhance operators' global reach

Industry profitability

Margins are compressing given rising costs and increased competition

* Image courtesy of Convene