Flexible Workspace Leasing Activity Doubles
Leasing for flexible workspace accounted for 4.4% of the total square footage leased in the first half of the year.
Culture shifts in office and workplace culture and the expectations of employees have been the primary drivers of flexible workplace leasing activity. “Leasing activity is directly linked to an evolution in thinking by occupiers, who are increasingly seeking agility in their real estate portfolios, and thus increasing the demand for flexible space,” Andrea Cross, head of office research of the Americas at CBRE, tells GlobeSt.com. “We have seen Fortune 1000 firms and other major occupiers evolve from ‘I might want to take flexible space’ to “flexibility or agility will be a portion of my total footprint.’”
This leasing activity not only illustrates growing demand from users but also acceptance from landlords. Office owners have been slow to sign leases with co-working operators for fear of volatility; however, that is changing. “As major occupiers have begun to incorporate flex space as a meaningful component of their real estate strategy, landlords have evolved in their thinking and are actively exploring opportunities in this space, whether that’s providing a flex space offering directly to tenants or working with third parties,” explains Cross. “As they determine their strategy in this space, long-term security/risk continues to be an important consideration for property owners.”
Flexible workspaces have actually become an additive to the market rather than a replacement for direct leasing spaces, and in some ways, it is an amenity for companies to offer employees alternative workspaces. “The share of major leasing activity from traditional business services firms, like consulting, accounting, real estate, has remained relatively stable at around 9% to 10% since at least 2013, even as the share of co-working leasing activity has increased markedly,” explains Cross. “However, in Manhattan, for instance, the percentage of lease deals 5,000 square feet and below has diminished as flexible office space has grown. These smaller deals are still happening, it’s just that they are happening within the flexible space world and therefore not directly accounted for in the market statistics. Occupiers are still moving to new locations and growing or shrinking, but the absorption is masked by the initial lease-up of space by the flexible space providers.”
The leasing activity has been concentrated in class-A and class-B spaces, as well as adaptive reuse spaces. “Anything that can give these operators a unique vibe is usually a positive as long as the consumer base is there,” says Cross. “The submarkets that have been most attractive are those with dense populations and live/work/play environments. As millennials age, I do see the suburbs as ripe for growth in this space.”