Chapter 2

Top Trends Driving Growth

Flexible Office Space 2022

8 Minute Read

  • 38%

    of large enterprise occupiers surveyed by CBRE report using flex space to test alternate workspace or occupancy models and designs.

CASE STUDY: Strategic & Scalable Company Uses Flex

Life Sciences Giant Moves New Spinoff to Flex

Situation

Organon—a spinoff unit of a global life sciences company—needed to establish ~70 new offices globally in 18 months.

How Flex Helped Organon Achieve Their Goals

Procurement of agile workspace sites for all locations to place 9000+ employees with four critical objectives in mind:

Objectives Results
Speed Set up master service agreements with WeWork & IWG to streamline the procurement timeline. Most locations were up and running within eight months between the two providers.
High performance space that does not break the bank Developed space design, physical security and IT infrastructure standards to deploy across the portfolio, allowing Organon to custom design spaces that reflect the new company vision, culture and values, and leverage WeWork’s buying power. Dedicated square feet per employee reduced 55% (<100sf/ person) by successfully leveraging shared amenities.
Flexibility All agreements were for three years or less, providing the option to shrink or grow.
Talent Delivered space that emulates Organon's values to ensure positive employee experience.

  • 85%

    of Organon’s portfolio (67 locations) in a flexible office space

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02 TREND

Occupiers tapping new talent pools with flex.

Flex office providers have reduced space in traditional downtown gateway markets since the start of the pandemic in early 2020. Flex expansion has been mostly concentrated in non-gateway markets, particularly in the suburbs. This demonstrates the resilience of flex space in markets where a new base of talent needs to be supported because of business growth or new patterns of work. However, gateway markets have recently seen a rebound in office leasing activity that will continue to carry over to the flex market.

Figure 4: Flexible Office Space as a % of Office Inventory

CBRE Research, Q3 2021.
Note: Gateway markets include Boston, Chicago, Los Angeles, New York, San Francisco (including the peninsula) and Washington, D.C.

Individual Market Highlights

  • Houston
    Houston is the only top 10 flexible office market with net supply growth over the past year, led by regional Texas operator Common Desk (acquired by WeWork in 2022).
  • Miami
    Miami surpassed San Francisco in 2021 as the most penetrated flexible office market, with 4.2% of its total office inventory made up of flex space.

  • 31%

    of large enterprise occupiers surveyed by CBRE report using flex space to enter new markets.

Top Five Operators by Net Expansions Q4 2020 through Q3 2021

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Source: CBRE Research, Q3 2021.  Note: Numbers reflect data collected by CBRE for 54 U.S. markets and may not include all operator expansions.
03 TREND

Occupiers are exploring “Core Plus Flex.”

“Core Plus Flex” is an emerging strategy that offers occupiers a way to seamlessly integrate traditional leased space and flexible office agreements in their portfolios. Under this strategy, occupiers only lease enough long-term space to house the portion of their headcount that is certain and utilize flexible office to accommodate everyone else. Core Plus Flex allows occupiers to be more financially efficient while still providing employees with a consistent experience and company culture. This is an attractive strategy for occupiers to manage lease expirations and minimize under-utilization of space. Given its nascent stage, this strategy will be most viable for landlords that already offer flexible office space themselves or have a management or partnership agreement with a third-party flexible office space provider.

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Hub & Virtual Space:
No minimum size

A maturing solution for occupiers with any size requirement that have a desire for a central location but also want to offer choice to their employees at the market level with a high degree of flexibility. Favors landlords and providers that offer flexibility and scale within preferred markets.
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Co-Locate with Flex:
Minimum of 20,000 sq. ft. traditional space

An emerging solution for occupiers with a medium traditional requirement and variable asset level headcount (20K - 50K sq. ft.) Favors buildings that already have a flexible office space component and leverage the flex solution as required.
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Bring Your Own Flex:
Minimum of 50,000 sq. ft. traditional space

A more sophisticated solution for high-value occupiers with a large traditional requirement and variable asset level headcount. (50K sq. ft. or more). Negotiate flexible office space options into the deal up front either through a landlord-provided offering or with a pre-selected provider.

  • 28%

    of large enterprise occupiers surveyed by CBRE report using flex space to solve for uncertain demand.

01 TREND

Occupiers are test driving strategies with flex.

Enterprise occupiers are refining their portfolio and workplace strategies, largely with the goal of accommodating hybrid-working arrangements. They anticipate that space will be utilized differently on the other side of the pandemic but exactly how is still unclear. The only certainty is that employees will be more mobile, frequent the office less and use it more for teamwork than ever before. Existing real estate portfolios will not support these new workstyles, so many companies are exploring new strategies.

Whether companies are planning for an office-centric future, a virtual-first future or a balanced approach, most of them see flexible office space as the most efficient structure for some of their needs. Many strategies emphasize limiting the amount of underutilized space to achieve cost efficiencies and create engagement within their space when employees come to the office.

Getting creative with flexible office space structures gives occupiers the agility to quickly move past strategies that are not working and integrate those that are. The iterative nature of this approach reduces the risk of being locked into long-term, cost-prohibitive contracts across their entire portfolio while they determine the office-use attendance patterns of their employees. As occupiers realize how flexible space could benefit company culture and employee satisfaction, there should be greater adoption of flex, ranging from single-location strategies to all-access arrangements.

CASE STUDY: Core Plus Flex

Government Contractor Adds Flexibility with Landlord Solution

Situation

Professional services firm seeks flexibility to expand or contract its footprint to accommodate headcount changes due to the contractual nature of its business.

Objectives

  • Model headcount fluctuations based on fundamental drivers of the client’s business to understand range of real estate needs.
  • Procure flexible solutions from third-party providers and landlord.
  • Structure a financially favorable Core + Flex negotiation that allows client to expand or contract footprint as needed.

Results

  • Landlord provided the greatest flexibility by allowing the client to contract for the flex space at any time after an initial three-year period.
  • Core + Flex solution generated 15% savings for the client compared with only a traditional lease.
  • Client can accommodate headcount fluctuations as needed without investing in unnecessary square footage.

“This arrangement benefits us in many ways. There’s an element of speed to market that cannot be ignored: We can occupy agile space much quicker than the traditional model of leasing and building out the space on our own. Secondarily, the agile portion reduces demand on internal capital resources. And the ability to grow or reduce our footprint through shorter lease terms offers a level of flexibility that traditional leasing does not.”

A Major Government Contractor, Global Head of Real Estate

Chapter 3 Provider Transformation
Chapter 1 Occupier Sentiment