The meteoric rise of the flexible office space market is one of the most unexpected new developments of this real estate cycle. Flexible space operators accounted for a record 13.4 million sq. ft. or 7.6% of total office square footage leased in 2018. Leasing activity by flex operators so far this year indicates that 2019 could surpass that record. As of midyear, flex operators have leased almost 7.1 million sq. ft. of the total office square footage leased in all markets tracked by CBRE, equating to about 8.5% of all leasing activity nationwide.

Figure 1: Flex Operator Leasing as a % of Overall Leasing

Rise of Flexible Space Operators Intensifies Competition-F1
Source: Q2 2019 CBRE Research.

Dominant Players

Since 2018, 56 flexible space operators have leased space nationwide. The top-10 most active operators account for more than 90% of that space and are the primary players driving flex-office trends across the country. WeWork remains the most active operator and is consistently growing its share of flex office space (Figure 2), leasing more than 7.5 million sq. ft. last year and 4.7 million sq. ft. already this year.

Figure 2: Top-10 Flexible Space Operators’1 Share of Flexible Operator Leasing

Rise of Flexible Space Operators Intensifies Competition-F2
Source: Q2 2019 CBRE Research.
1WeWork, Spaces, Knotel, Industrious, Convene, Regus, Serendipity Labs, Bond Collective, CommonGrounds, Jay Suites.

Growing Markets

The top-10 largest flexible office markets make up much of the flexible office footprint in the United States. Flexible space still has room to grow in these markets as evidenced by strong leasing activity and the fact that flex space accounts for only 2% of total office supply nationwide. However, recent leasing activity shows growth in smaller markets, such as Phoenix, Austin and Nashville. These cities have good live-work-play environments and continue to have strong population and office-using job growth, making them great candidates for flexible office space growth. Additionally, Northern Virginia has taken a larger share of leasing activity, likely the result of Amazon’s HQ2 announcement.

Figure 3: Top-10 Flex Office Markets’2 Share of Flexible Operator Leasing

Rise of Flexible Space Operators Intensifies CompetitionF31
Source: Q2 2019 CBRE Research
2Manhattan, Los Angeles, San Francisco, Boston, Chicago, Dallas, Washington D.C., Denver, Atlanta, Seattle.

Looking Ahead

Headwinds from competition for efficient blocks of high-quality space in sought-after markets should be closely monitored as market fundamentals continue to tighten. Flexible space operators are competing with one another and with traditional tenants. They also are competing with building owners, such as Tishman Speyer, who are pioneering their own flexible space offerings. Additionally, there are models such as Novel Coworking, an owner-operator with 2.5 million sq. ft. of space in 33 locations. It is likely that the biggest challenges flex-space operators will face in meeting their growth forecasts will not come from member demand but from a lack of available office supply in markets with intense competition for space. Given the focus of the larger flex operators on enterprise users, footprint growth likely will come from larger occupiers replacing a portion of their traditional office space with flexible space.

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