Will flexible space suit the call for corporate agility in 2021?
What are the prospects for the flexible workspace market in the year ahead? John Williams of The Instant Group is cautiously optimistic
In the years after the global financial crisis of 2008, the flexible workspace industry grew through increased demand from SMEs, entrepreneurs and consultants as the contingent workforce proliferated. The post-crash recession was the point that fired the starting gun on a decade of exponential growth for the sector and its memory is a source of optimism for the future after an incredibly difficult 2020.
Again, the contingent workforce has driven what growth there has been over the past few months. The suburban and rural markets for flexible space have shown remarkable durability while the city centres have lain mostly dormant. Outside the key urban markets, we have seen increased demand and even price increases as workers seek a desk locally away from their homes. However, we also note that supply of space in these markets is limited, to say the least, and will need to expand if demand levels remain at their current level.
But the future of the flexible space market is not dependent alone on SMEs and entrepreneurs – we know that the corporate world is now looking at flex as a critical element of its portfolio strategy in the future.
Corporates in the picture
From our surveys of clients and operators alike, they view flexible workspace as a resilient hedging option, which allows them to retain space despite the lack of certainty in the current market. But this is yet to translate into deals at real volume and the space that is being taken is actually outside of CRE (corporate real estate) procurement channels.
There is an inescapable wait-and-see mood that is understandably prevalent from the client perspective. The corporate procurement process inevitably moves more slowly than that of smaller businesses and the reaction to Covid-19 in CRE strategy terms is yet to really be baked in.
Corporate adoption of flexible workspace will increase in the near future, our research makes this clear, but this will not realistically manifest itself into deals until Q3 or Q4 of 2021.
Agile business strategy
Both business leaders and their CRE colleagues are citing agility as the key quality that their companies need to adopt to overcome the challenges of Covid-19. This means an agile approach to business planning that adapts to the vast challenges ahead of us. On a practical level this means shorter planning horizons, an agile approach to workforce and a portfolio that meets these requirements.
‘A low-risk approach that provides stimulating and diverse environments…’
We are not alone, therefore, in assuming that flexible workspace will provide an opportunity for businesses to place their teams back into offices but to do so on a very agile basis. This will be a low-risk, CAPEX-lite approach to workplace portfolios and one that provides stimulating and diverse environments that provide real purpose for colleagues to meet face-to-face once more. Again, a source of optimism, therefore, for the flex sector but one that will not impact current transaction levels until much later in 2021.
This systemic change in demand is an opportunity to subvert the way that office space has traditionally been procured. This is not the end of the CBD (central business district), nor of leased ‘flagship’ space, but it is the beginning of more choice for end users. Increasingly, landlords and operators will be viewed on equal terms as a part of a supply chain to help develop the choice that matches this new, agile approach to business planning and workplace strategy.
We would caution this by saying that it is also the advent of a more discerning buyer, one that has more experience and will push harder for the perfect deal that works for them. For progressive workspace operators, this is a challenge they will relish but one that will mean a greater need for the best market data and metrics that really expose value for the end user.
In our prior year’s forecasting, we had always anticipated 2020 to be a year of readjustment for flexible workspace after years of robust growth. What we are now living through amounts to a significant reboot with Covid-19 rapidly accelerating trends that were already burgeoning.
With this in mind, we forecast that growth in flexible workspace would be relatively flat in 2020 but that it would pick up in the next year and growth would continue to a new peak in 2023. In fact, the supply of flex space has actually grown by four per cent over the past year.
Our view continues to be that the proportion of flexible workspace as a percentage of total office supply will accelerate from 5 per cent to 12.5 per cent by 2023 – from surveys of both operators and clients alike, it appears that number still seems highly likely despite the challenges the market faces.
Choices, choices, choices…..
Our data suggests there is robust interest in the market – demand is actually up in many of the key global markets on a year-on-year basis. Therefore, it is likely the flexible element of the office sector will proliferate when certainty returns and interest turns into deals.
There will be more options for clients than ever before in the coming months. Record levels of sublet space will hit the market, and landlords will discount to retain their occupiers. But the options that flexible workspace operators can provide – diversity of location, length of tenure, mix of amenities and agility of space – will be enticing for those companies hoping to draw employees back to the office.
One thing is certain, businesses will have to work very hard to bring back the millions of home workers who left their offices behind in March 2020. Flexible workspace will be an important element in this process, and this leaves us cautiously optimistic for the future of the sector.