Investment, consolidation and employee power: the flex market today

Office Freedom present a roundup of the latest trends in flexible workspace, coworking and the serviced office sector

The flexible workspace sector has come on quite a journey over the last 20 years. While flex space has always appealed to start-ups and SMEs, corporates and enterprise are finally embracing the sector. Increasing competition has raised the bar, and early deficiencies such as lack of capacity, overt branding by providers, inadequate IT provision and low-spec space have increasingly been addressed to make it a viable and competitive alternative to traditional leasing.

WeWork can be held up as a prime example of this revolution. Arriving on the scene in 2010, they are now the biggest tenant in Central London and Manhattan and are reportedly heading for an IPO of $40-50 billion. Regus, the early pioneers have now branded as IWG which includes Spaces and No.18 among other brands and an avalanche of additional investment in relatively new arrivals such as Fora, Labs, Knotel, Industrious, Convene, Common Grounds, Mindspace, Serendipity Labs, Venture X and Novel.

Even the most established property institutions in the UK such as The Crown Estate, British Land and Land Securities have all created flexible brands. This recent growth has seen the North American market – which had been lagging behind – catch up to the UK and other worldwide regions.

All of this is good news for the end user whose choice is now more extensive than ever. Today’s flexible workspace provides a habitat that supports staff wellness and welfare, helping companies become happy and productive places of work. As a result, the flexible workspace industry has attracted large corporations, and the market continues to evolve and thrive. At the moment well under 10 per cent of the office real estate market is flex. By 2030 up to 30 per cent of office space occupied by the corporate sector is expected to be flexible workspace.

Record coworking levels

May 2019 saw the coworking industry at record levels.  The number of coworking spaces worldwide in 2018 was 16,599 and it is on track to reach 18,287 by the end of the 2019. This reflects a record number of 2,188 space openings, around 1,000 of which were in the USA. Reflecting this expansion, Office Freedom’s own global business centre inventory grew by 45 per cent in the last year alone. The rate of year on year growth is predicted to slow somewhat to 9.5 per cent compared to 15.2 per cent in 2018, with new space openings in 2019 forecast to drop by around 22 per cent compared with 2018.  This is a result of established operators now focussing on increasing occupancy and profitability rather than large wholesale expansion.

However, although the rate of growth overall has slowed there has been a trend in growth per capita in less populated countries and states (e.g. Luxembourg, Singapore and Ireland) where demand for coworking remains strong. Latest forecasts suggest that global flexible spaces will soon cross the 20,000 mark and look set to reach 25,968 by 2022.  This represents 56 per cent growth on 2018 and reflects an average increase of more than 2,500 new spaces every year since 2015.

2018 saw a shift in market trends with more corporate clients looking for flex space.  Research indicates that up to 40 per cent of individuals working within flexible spaces are part of larger organisations and this is predicted to grow to 60 per cent by 2022.  Consequently, we predict a shift towards more hybrid spaces, offering private space as well as traditional coworking.

Forecast based on estimates from Emergent Research/GCUC for the data until 2017. Data projections until 2022 are from Coworking Resources’ data and are based on the average growth in 2018 and 2019.

Investment, consolidation and employee power

2019 is expected to see high growth in some markets whilst others mature.  We predict greater investment leading to more consolidation from large scale providers, with smaller independents carving out niche sectors and sustainable business communities. Rate trends will continue to vary by location with certain markets witnessing a short-term dip in rates due to over-supply.

Aside from market investment, a recent global industry study of 15,000 businesspeople highlighted a material power shift towards employees who are demanding more flexibility.  In the survey 50 per cent of employees are working outside of their main HQ for at least 2.5 days a week.  85 per cent said that productivity has increased as a result of greater flexibility and 80 per cent of employees stated that, given two similar employment offers, they would turn down the one that didn’t offer flexible working.

Two thirds of new space openings globally are new businesses entering the market the remainder are established operators, large chains and franchises.  Therefore, whilst the established space operators are thriving, most new space openings are coming from businesses entering the market for the first time. Last year Office Freedom recorded a 32 per cent increase in new operators in Central London.

Top Cities for Global Coworking Growth

Source: Coworking Resources

A new coworking space opens in London every 5 days and in New York City every 7.5 days.  Fast growing American tech hubs like Austin and Denver also make it into the top 5.

Other key European cities rank as follows; 12th Berlin 21.9 days, 20th Paris 28.5 days, 25th Barcelona 31.7 days, 36th Lisbon 40.7 days.  Other major global cities outside of Europe and the USA ranked as follows; 13th Sydney 23.8 days, 15th Kuala Lumpur 23.8 days, 16th Bangalore 23.8 days, 17th Singapore 25.9 days, 19th Cape Town 25.9 days.

Secondary City Growth

Recent industry studies suggest that the growth in flexible workspace is set to expand into new markets throughout 2019.  As growth stabilizes in more mature cities, demand is growing outside of the primary global city-based markets. Evidence suggests that the broader societal trend towards relocation to less expensive areas, with shorter commutes and higher quality of life is an influential factor.  Employees’ desire to have shorter commutes away from global cities coupled with high city real estate costs and low vacancy rates in office buildings are central to this trend.

Europe is expected to provide c.255M sq. ft of additional flexible office space in 2019 with 70 per cent available in smaller secondary cities.  In Europe, Manchester, Lile and Frankfurt have seen supply grow by more than 15 per cent in response to strong demand.  In the US the states of Kansas, Nebraska and Oklahoma have all reported 20 per cent + flexible space growth in the last year.

Sources:  Office Freedom data, GCUC, Co Working Resources, IWG Global workforce survey

Richard Smith is an entrepreneur and the founder and CEO of Office Freedom, the first property consultancy to specialise in the serviced office sector.