As expected, flexible space operators sharply curtailed office leasing in Q4 2019, largely a result of WeWork’s decision to slow its growth after its failed IPO in late Q3 2019. Preliminary data shows leasing by flex operators declined to 1 million sq. ft. in Q4 from 4 million sq. ft. in Q3 (Figure 1).

Figure 1: Flexible Office Leasing

MarketFlash_Figure1

Source: CBRE Research, Q4 2019.
Note: These numbers include only flexible office leasing and do not include retail leasing numbers or owner-operator led take up (Novel)

In addition to WeWork, other large flex operators curbed their growth in Q4. The pressure on them to narrow the gap with the largest competitor in the field has ceased for the moment. Spaces, WeWork, Industrious and Knotel remained the largest lessees of new space in Q4, but all except Spaces leased significantly less space than their quarterly totals over the past year (Figure 2). WeWork’s leasing activity fell more than 90% from the previous quarter. This represents a significant drop for an entity that has leased 2 million sq. ft. per quarter over the past two years.

Figure 2: Top Flexible Office Leasing by Operator Q4 2019

MarketFlash_TableChart-Figure2

Source: CBRE Research, Q4 2019.

Historically, the largest office markets captured the most leasing activity by flex operators. Preliminary Q4 numbers show a significant drop in flexible office leasing activity in these major markets (Figure 3). Manhattan retained the top spot although activity was significantly muted compared with the four-quarter average. Los Angeles, Boston and Chicago saw similar declines. Meanwhile, Dallas/Ft. Worth and the smaller flex-office markets of Phoenix (86,000 sq. ft. leased in Q4), Washington, D.C (48,000 sq. ft.) and Detroit (47,000 sq. ft.) rounded out the top five most active markets for flexible leasing activity in Q4.

Figure 3: Largest Flexible Office Markets by Leasing Activity

MarketFlashFigure35

Source: CBRE Research, Q4 2019.

Landlords are now entering the market in response to occupier demand for flexibility—a structural shift that has not waned. Strategies they are employing include joint ventures and management agreements with third-party operators, privately branded and operated labels, and pre-built suites.

SIGN UP FOR UPDATES

Get the latest perspective and insight on Agile Real Estate straight to your inbox.
SUBSCRIBE

Recommended

Q3 2019 U.S. FLEXIBLE OFFICE FIGURES

Let's Talk About Flex in 2020

SURVEY: TOP TALENT IS DEMANDING MORE FLEXIBILITY IN THE OFFICE