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Northern California Bay Area flexes its workspace muscle

February 06, 2019

“Flexible” office space (think coworking facilities, incubators, accelerators, shared space and flexible-term workspaces such as spec suites, month-to-month and subleases) has grown dramatically in popularity in the U.S. over the last eight years.

Prior to 2010, there was less than 8MSF of such space to be found around the country. By the end of last year, that space had grown to 68MSF. In 2018 alone, our recent report shows that flex space made up nearly 66 percent of all occupancy gains in the office sector.

Look for that rate of growth to continue. Though flex work space is currently less than two percent of the total office inventory in the U.S., JLL expects the sector to grow to almost 30 percent by 2030.

Bay Area markets poised to lead flex space growth

The Bay Area has become ground zero for much of this growth according to an article in The Investor. San Francisco and Silicon Valley rank second and third, respectively, among markets where JLL sees the greatest potential for the future growth of flex office space. Oakland, a logical market for San Francisco’s ‘spillover effect’, ranks eleventh.

Why? A big factor in the appeal of flex space in the Bay Area is that office market fundamentals are strong, meaning there are increasingly limited options for tenants looking to expand because space is both hard to find and relatively expensive. The Bay Area is also a major innovation hub and companies here know how to innovate in all aspects of their business, including their workspace.

What are the benefits of flexible space?

Flex space has several obvious benefits for companies. It can provide immediate plug-and-play space when companies need to be most nimble and expand quickly. Utilizing flexible space on very short-term leases can also be a great way for companies to “try out” locations and markets. Then there’s the convenience factor: since operating and managing real estate is not a core business for most tech companies, why not have someone else take care of it for you? Finally, for some companies – those needing space for 24-36 months - it may be a cheaper option than a long-term direct lease.

Are there downsides? Sure. Short-term leases or coworking memberships offer flexibility and convenience but they don’t bring certainty. If someone is willing to pay more for the convenience of taking that space – or conference room – you may be out of luck. Plus, companies that know they are going to need space for more than 36 months likely will find a better deal in “traditional’ office space.

It’s important to remember that coworking in itself is not a real estate strategy but could be a part of a strategy for some companies. The good news for office users is that there is now a suite of workspace options available to them, so it’s critical to find the right mix to align with business strategy, talent requirements and corporate growth. Using more freelancers and 1099 employees because you are operating fully in the gig economy? Then flexible space in multiple might be high on your list within your real estate strategy. Looking to attract engineering talent and grow your business in a new market? You may want to define and brand your own space and plant a long-term flag in the sand to do it.

One thing is crystal clear: the flexible space movement is growing and that means there is strong demand among companies for greater flexibility in planning for their real estate needs. Ultimately, that’s got to be good for everybody.

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