THE FUTURE OF REAL ESTATE IS A SPECTRUM OF FLEXIBLE SPACES
JLL’s most recent report “The Impact of COVID-19 on Flexible Space: What the Future Holds in a Fast-paced World Affected by the Pandemic”, argues that following the coronavirus pandemic, the need for agile portfolios with a spectrum of flexible options will only increase.
Although the onset of COVID-19 has paused flexible workspace growth, it has also accelerated flex trends and workplace mobility programs. This means that while in the short-term, flexible workspace operators have suffered, in the long-term, there’s a big opportunity ahead.
“The trend towards workplace mobility was not created as a result of the pandemic, but it was certainly accelerated by it. As a result, agile work strategies are expected to increase in a post-pandemic world, reinvigorating demand for flexible space.”
JLL believes its prediction from a couple of years ago that by 2030, 30% of all office space will be consumed flexible, still holds true, despite the pandemic and the slowdown in flexible workspace growth.
Re-imagining flexible workspace
Unfortunately for some operators, the report found that some flexible workspace models are more likely to survive the pandemic than others.
According to JLL, “flexible space will take a different form than it has in the past, but it will continue to grow as corporations and investors alike respond to the increasing demand for flexibility.”
So, which operators are more likely to survive?
Because tenant priorities have shifted to employee safety and well-being, brands who operate on an exclusive coworking model — shared desks, shared offices, and short-term memberships — will ultimately suffer the most.
“Profitability in these types of coworking spaces is driven by high seating density and rental arbitrage.” As part of government protocols and guidelines, companies are now seeking to de-densify the office, which will put the sustainability of the coworking model to the test.
On the other hand, flexible workspace brands that operate what many call a “hybrid” model are more likely to withstand the health crisis.
This type of flexible workspace leans on long-term commitments of private offices in addition to shared workspace areas. These operators are best poised to experience growth once the pandemic passes.
Another factor that will also determine the survival or closure of some flexible workspaces is their lease commitments. Operators that signed leases while the market was high are more likely to struggle to meet their rent vs those who signed leases at a lower price when the market hadn’t yet peaked.
On another note, operators that own their real estate or that have entered into partnership agreements with landlords and investors are more likely to weather the storm as well.
Because some brands will suffer more than others, this will “expedite a long-predicted consolidation of the flexible space operator market”, according to JLL.
The Next Normal
“Flexible space operators that can withstand the challenge of the pandemic will look to support ‘the next normal’ in the workplace for all tenants — regardless of size or sector. In fact, some proactive flexible space companies are already attempting to drive brand loyalty through remote community services.”
To de-densify their workplaces and to support workplace mobility programs that emphasize remote work, enterprises will turn to flexible space.
“Flexible space is quick and easy to acquire, and tenants will turn to it as a solution for smaller, satellite offices that reduce commute times and dependence on public transport. Furthermore, with expected economic uncertainty, portfolio reductions, and cost-saving strategies will be employed. Short-term, flexible offices will support these enterprise goals.”
Long-term, many large enterprises may have less demand for long-term leases and will be less interested in having owned assets.
Investors that are affected by the closure of flexible space locations are also more likely to repurpose their vacant spaces to operate their own flexible space brand — a trend that was already gaining traction prior to the pandemic and that will likely accelerate in the future.
Although the global flexible workspace market is likely to see limited growth this year (2020), the demand for flexible space is expected to be resilient.
“Large occupiers have rapidly adopted agile space strategies. Although freelancers are more likely to shed coworking space as the COVID-19 outbreak stalls business, 67% of CRE decision-makers are increasing workplace mobility programs and incorporating flexible space as a central element of their agile work strategies.”