How Flex Space Will Thrive in a Hybrid World
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Companies worldwide are grappling with a sea change in the labor force. Employees appear to have a strong desire to retain a significant level of flexibility in how and where they work in a post-pandemic world. In turn, companies are exploring new support structures around that shift to attract and retain their talent.
Flexible office space (flex) may be one thread that will help us weave the tapestry of what work will look like in the future. The flex market didn’t emerge from the pandemic unscathed, but it certainly fared better than most had expected. Indeed, flex providers have remained agile themselves and actively shifted their strategies to meet customer demands in a post-pandemic world.
Flex Space Rightsizing
Between midyear 2020 and midyear 2021, flex office supply in the U.S. fell by 9.2% after growing for nearly a decade. During this time, flex providers largely stopped acquiring new locations and focused on closing underperforming locations and renegotiating leases, management agreements or partnerships on others. Overall, 144 providers collectively reduced their footprint by 10.1 million sq. ft. (gross) in 529 locations across 40 cities since mid-2020. The leading flex markets of Manhattan, San Francisco, Los Angeles and Washington, D.C. accounted for 50% of the reduced flex supply. Despite this rightsizing, some flex providers modestly expanded during this period, tempering the net effect of closures. Some even took over locations that competitors vacated. Partnerships between landlords and providers have increased and flexible office suites are becoming the norm.
Figure 1: Flexible Office Supply – U.S. & Canada
Source: CBRE Research Q3 2021.
Demand Drivers Positive
As flex space providers were focused on building resilient operations during the pandemic, demand for their offerings was growing as companies rethought how space will play a new and improved supporting role to employees. CBRE has identified the four following demand drivers of flexible office space in the years ahead:
01 Employees want choice in where they work
Of the 10,000 global respondents to CBRE’s Workforce Sentiment Survey at the height of the pandemic in 2020, 85% said they prefer to work remotely at least two to three days a week in the future. Working remotely does not mean only from home, but from anywhere other than the workplace their employer previously provided. More than 40% of survey respondents indicated that they would consider working from a satellite office closer to their home one to two days a week if it were available. This sentiment was even greater for employees who had relatively long commute times and want to preserve a work/life balance between the home and the office. Some companies are considering flex space to provide employees with an office closer to home, while some employees themselves are engaging directly as flex space users. To meet this demand, many regional and national flex office providers are offering on-demand, pay-by-use memberships or subscription-based services.
Figure 2: Sentiment toward working at a company-provided location closer to home
Source: CBRE Workplace Sentiment Survey, 2020.
02 Sentiment toward flex use for enterprise companies is growing
Nearly 70% of large companies that participated in CBRE’s Spring 2021 U.S. Occupier Sentiment Survey list flexible space among the top three office building amenities that they desire. Flex space currently accounts for less than 2% of office space nationally, signaling there is room for growth. Additionally, 56% of recently surveyed CBRE clients currently use flex space (most for less than 10% of headcount needs), with 43% of them foreseeing a need for more flex space in the future. These companies signal a desire for flex space to reduce capital expenditures, test new models of working in a changing environment and enter new markets as talent migrates and location desires shift.
Figure 3: What will be the most in demand building amenity of the future
Source: U.S. Occupier Sentiment Survey, CBRE Research, Spring 2021.
03 Small companies desire the office more but are less likely to focus on real estate
CBRE’s U.S. Occupier Sentiment Survey also found that 45% of small companies vs. 7% of large companies anticipate having a mostly office-based workplace policy in the future. Even those small companies that do anticipate a more hybrid working approach desire more time in the office than their larger counterparts. These same companies are less likely to navigate changing workplace design standards or enhance technology and wellness features in the workplace because their focus is on growing the business, not actively managing the real estate. They are prime candidates for flex space that can grow and shrink with their business needs and outsource all real estate management while keeping employee experience in focus.
04 The overall office market is on the path to recovery
Nationally, the office market is showing signs of recovery. New leasing activity in the traditional market remains below pre-pandemic levels but is ticking up, even despite the delta variant surge over the summer. Anecdotal evidence suggests signs of recovery for the flex market is also picking up, with some providers reporting record sales in recent months. As demand for office space returns, occupiers are expected to increasingly consider flex options.
The Future is Bright
The pandemic may have been just the thing needed to make flex office space a viable and integral part of the commercial real estate industry today and beyond. Only time will tell how drastically different office space demand will be as a result. But flex providers are in a good position to meet the demands of office occupiers that have emerged from the pandemic more nimble than ever.
Richard Barkham, Ph.D.
Global Chief Economist, Head of Global Research & Head of Americas Research
Senior Vice President, Global Head of Occupier Thought Leadership & Research Consulting