Flexible Workspace Will Rise Again Post-COVID-19, JLL Says

Growth in flexible workspace had been on a tear before COVID-19 froze workers out of their spaces. But the disease could be what restarts the sector’s roaring engine, according to a new report from JLL.

“The need for an agile portfolio with a spectrum of flexible options has only increased due to the COVID-19 pandemic,” the company said.

Flexible space operators have been hit hard by the coronavirus pandemic, especially coworking operators such as WeWork. Even before the pandemic struck, though, flex’s growth had slowed dramatically.

Going forward, the challenging environment of social distancing will hurt operators whose portfolios lack diversity, according to JLL. For flexible space, diversity means having a mix of short-term spaces with leases of two years or less, spaces with coworking memberships and on-demand workspaces.

With operators struggling, expect consolidation within the industry, JLL says.

“COVID-19 will influence lease renegotiations, and those that cannot come to terms will likely close,” the report says. “In turn, cash-rich, opportunistic flexible space operators and/or investors could take advantage of this market consolidation.”

Despite the challenges posed by the pandemic, people have a new appreciation for working in offices alongside other people in the flesh. But now workers want at least a greater degree of flexibility in where they work.

As workers return in greater numbers, tenants will seek lower density. That’s bad for coworking operators, who rely on high density, JLL said. Tenants also are likely to shed some spaces to reduce expenses. Economic uncertainty will drive that along with social distancing and public health priorities.

As they settle into the new normal, however, some tenants will want hub-and-spoke office models, with the spokes being short term and flexible spaces.

“A mix of traditional and flexible space will be even more important in CRE portfolio strategies in the future, especially as employees will now expect the ability to work at home and be closer to home,” the JLL report said. “Businesses will have a greater need for flexible space to accommodate portfolio expansion and contraction along with crisis support to flex their space needs as necessary.”

Where will all that supply come from to meet flexible space demand? Malls and other barren former retail shops, for one. For property owners, having flexibility within their portfolios, and even within individual buildings, will be crucial, said Christelle Bron, a structural engineer who leads CBRE’s agile real estate practice in the Americas.

The rise of flex space slowed in late 2019 as coworking leader WeWork revised its growth plan. Then the pandemic hit, further crippling growth.

“Flexible space leasing activity in Q4 2019 was down 50% compared to 2018,” the JLL report said, adding that whoever remains standing after the market consolidates will resume the expansion trend.

“In a revived post-pandemic market where flexibility is high on the corporate agenda and the purpose of the office centered around collaboration, flexible space should emerge stronger than ever and growth could quickly return to its impressive pre-COVID rates.”