Flexible office space set for significant growth in US

25 September 2019 Consulting.us

The US market for flexible office space is set for significant growth in the next decade, even in the event of a recession, according to a new report from real estate services firm CBRE.

Once a niche offering, flex-space has gained in popularity alongside other sharing-based models like Uber and Airbnb. Once only popular with freelancers, remote workers, and startups, flex-space is gaining ground even among large enterprises because of its flexibility, speed, and capital deferral in contrast to traditional leasing.

WeWork is the dominant flex-space operator, with nearly 11 million square feet added to its portfolio since Q2 2018. The flex-space sector currently occupies approximately 71 million square feet – or 1.8% of office space – in 40 US markets.

The market has seen swift growth in the past decade, growing from 9.5 million sq ft in 2010 to reach the 71 million noted by CBRE in H1 2019 – an annual average growth rate of 26%. The firm expects the market to grow to 84.9 million sq ft by year-end 2019.History of flexible office growthThe top five markets by flex-space are Manhattan (15.0 million sq ft), Los Angeles (5.4), Chicago (3.8), Boston (3.7), and Dallas (3.4). The five largest markets by flex-space penetration are startup-heavy San Francisco (4.0%), Manhattan (3.6%), Miami (3.2%), Los Angeles (2.7%), and Austin (2.4%). As such, CBRE’s report concludes that most of the flex-space supply is concentrated in “top markets,” with many being tech hubs.

CBRE projects that the likeliest growth scenario over the next ten years is for US flex-office penetration to reach 13% by 2030 – or 600 million sq ft. Fueling that growth is demand from small business and enterprises that favor flexible space on short-term leases, allowing for easy contraction and expansion of space. Flex-space penetration also has room to grow, with the deepest market (San Francisco, 4%), still well back of international markets such as London and Shanghai, which both have 6% penetration.

A recession, however, could lead to a lower growth scenario, tagged at 6.5% penetration by 2030. That is still a sizeable jump from 1.8% in 2019, however.

The most aggressive scenario plots 22.2% penetration, which would require the conversion of one-third of traditional space as leases expire to flex space. “There are some very bold predictions in the marketplace – with some calling for flexible space accounting for as much as 30% of office space in the future,” said Julie Whelan, CBRE’s Americas head of occupier research. “There is simply not enough available office space to support this supply without even more drastic changes in tenant behavior.”

In 2018, CBRE launched its own flex-space offering, dubbed “Hana.” CBRE created the Hana subsidiary to help property owners meet demand for flexible office space with a range of partner services, including design, build, and facility operation. The first Hana flex location opened in Dallas earlier this year.


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