Demand for flexible space transforming office markets
Global Market Perspective, February 2020
Tenant demand for more flexible space options is forcing a dramatic shift in the office market as building owners adapt to occupier needs. In the U.S., the flexible space sector has grown at an average annual rate of 23% since 2010. That compares with just 1% average annual occupancy growth in the broader office market. Industry giants WeWork and IWG control approximately half of the flexible space market by rentable building area, but there are many other flexible space operators worldwide.
Historically catering to freelancers, start-ups and small teams, large companies have now grown to account for approximately 40% of the flexible space industry’s revenue. Fortune 500 occupiers continue to embrace agile work, validating the demand for pre-built, flexible-term, amenity-rich spaces. Flexible space allows these larger companies to respond to the needs of a more dynamic workforce and the requirements of specific project teams. It can also attract specific talent pools, particularly among younger generations, which tend to favour a less traditional corporate office setting. The ability to find move-in-ready spaces available for short commitment periods through a frictionless transaction process has created a disruption in the industry and forced owners, service providers and occupiers to adapt to the changing marketplace. For their part, owners have responded by building more spec suites, partnering with independent operators, and in some cases, launching their own coworking platforms.
Although there have been recent concerns around the financial viability of the business model, we are witnessing an enduring disruption within the commercial real estate industry, and the evolution of lease structures, the procurement process and buying expectations will continue. Pre-built spaces, agile design, technology integration, flexible lease terms and hospitality services will become the norm and continue to transform commercial real estate from a commodity to a consumer product.