Coworking and flexible workspace providers are taking a bigger bite out of the mainstream office market. The niche that first gained a foothold with entrepreneurs and fast-growing startups has seen demand explode across a spectrum of small and large space users ranging from the likes of Adidas to IBM.
Industry research shows accelerating growth over the past decade and more expansion ahead for coworking and flexible office space. According to the 2019 U.S. Flexible Office Workspace Outlook Report published by Colliers International, flexible workspace accounted for one-third of office leasing in the 18 months prior to the January publish date.
A new research report from JLL estimates that recent growth is even higher. Flexible office space providers have been leasing space at an annual rate of 23 percent since 2010, and in 2018 flexible space accounted for nearly two-thirds of the country’s office market occupancy gains. JLL is predicting that the flexible office market will comprise approximately one-third of the leased office market by 2030 compared to less than 5% today. The report also noted that the biggest players driving that growth include WeWork, Regus and Convene among a host of other new entrants.
“The world’s top companies recognize there is no one-size-fits-all flexible approach, just like there’s no one type of worker,” said Doug Sharp, president, JLL Corporate Solutions, Americas. “Flexible space options allow workers and teams to select the right space to perform work each day in a location that will help realize their company’s mission and their own ambitions. This is one of the reasons we see so much runway for flex space in U.S. office markets—it addresses several core needs for employers and employees alike.”
Demand is being fueled by an expanding base of users. Coworking that started with a core base of entrepreneurs and startups looking to move out of home offices, basements and coffee shops now includes a wide variety of small, mid-size and even large corporations that are attracted to the creative energy, collaboration, efficiency and convenience of flexible space that is often fully equipped and highly curated.
“I think it is really important to note that flex space has been around for a long time,” said Steven Kurtz, managing director in the Valuations & Business Analytics Services practice at BDO. For example, Regus was founded nearly 30 years ago with a model that offered turnkey office suites for rent to individuals and small businesses. What is new is that flexible office space providers are doing things very differently with a bigger emphasis on delivering a workplace experience and services, ranging from providing gourmet coffee and a selection of microbrews to coordinating networking events.
Expanding from less than 5% to more than 30% in a little more than a decade is an aggressive forecast. However, it is a nod to the disruptive change that coworking and flexible space providers have had on a very traditional industry. Companies are now thinking about how they use space differently, and they have very different expectations about the workplace experience. Many companies want space that offers more flexibility, allowing them to size up or down or move in and out of geographic markets as needed. Meanwhile, their employees want more workplace services and amenities than just the traditional desk and company break room.
A recent report on co-working published by DBRS pointed to the rapid rate of “normalization” of coworking in today’s workforce. The report highlighted a number of advantages that are behind the growing demand that is transforming where and how people choose to work. Notably, coworking space provides a “flexible and cost-effective alternative to what is an otherwise inflexible and expensive office model.” Other benefits noted in the report include accessing space in central locations, which can be key for attracting young, urban-based talent in a highly competitive labor market.
What the new flexible office space companies have done really well is address the pain points for office tenants, noted Kurtz. “The technology that has been brought to the space has showed traditional landlords all the things they have been doing wrong in the modern marketplace,” he said. Occupying office space by going through a flexible office space provider saves time, reduces the intellectual capital cost involved in procuring real estate and allows companies to be more nimble in adapting to changing space needs. “Both small and large companies have found a lot of value in those savings,” he added.