JLL reveals top markets primed for flexible space growth

CHICAGO, Jan. 22, 2019 – How much flexible space can the office market take? All signs point to “significantly more,” according to JLL’s latest research, Flexing Their Muscles: Markets to Watch in 2019. From up-and-coming Austin, to always stellar Seattle, to long-time heavyweight New York and others in between, JLL research reveals the top ten U.S. markets poised for rapid growth in 2019.

“The world’s top companies recognize there is no one-size-fits-all flexible approach, just like there’s no one type of worker,” said Doug Sharp, President, JLL Corporate Solutions, Americas. “Flexible space options allow workers and teams to select the right space to perform work each day in a location that will help realize their company’s mission and their own ambitions. This is one of the reasons we see so much runway for flex space in U.S. office markets – it addresses several core needs for employers and employees alike.”

Flexible space inventory (including coworking space, incubators and other short-term space options) has grown at an annual rate of 23 percent since 2010. In 2018, flexible space accounted for more than two-thirds of the country’s office market occupancy gains. JLL predicts it will comprise approximately a third of the market by 2030, compared to less than five percent today.

Top 10 U.S. markets poised to flex their muscles in 2019 and beyond

So where are the top locations primed to take on the flex space? JLL’s research indicates that, across the board, every U.S. region is expected to see more flexible offices. That said, some markets will grow faster others. Below are the top 10 office markets to watch as they embrace flex space in 2019 and beyond:

10. Los Angeles (Westside) – Hollywood’s “showbiz” opens the curtain for flex: The Westside continues to benefit from large-scale growth in its traditional industries such as media and entertainment, as well as digital content creation and production—industries that involve significant use of freelance creative talent and project work. Both established hubs (Santa Monica, Century City) and emerging submarkets (Playa Vista, Hollywood) are attracting a range of tenants and, in turn, flex space providers.

9. Denver – Fast-growing metropolis tears down parking lots to build flex paradise: One of the fastest-growing metropolitan areas nationally, Denver’s regional population has risen by 13.6 percent since 2010 to nearly 2.9 million. In its urban core, its population has grown 17.4 percent since 2010 and has transformed former parking lots and industrial areas into one of the most vibrant secondary markets in the country. Significant new development has included a mix of traditional office space, and with creative flex spaces, that cater to continued demand.

8. Seattle – A strong tech presence makes the “Emerald City” a flex gem: Seattle’s population and economic growth have been among the fastest of any large U.S. city in recent years. Its rapidly growing tech sector has powered 9.2 million square feet of new office construction, with coworking operators growing to meet the demand for interim space solutions. Despite labor shortages, public policy conflicts and high housing costs, Seattle is projected to see continued flex space growth.

7. Washington, D.C. – The vote is in - nonprofits and political advocacy groups cast “yea” on flex space: Although Washington, D.C.’s traditional legal services and government tenants largely avoid coworking spaces, nonprofits and political advocacy groups have been strong adopters of flex space. A growing base of technology tenants and a sizable network of freelancers have led to numerous flex space options around the Green Line micro-markets of Gallery Place, Dupont Circle, Logan, Shaw and the Ballpark.

6. Northern Virginia – Virginia is for lovers, and for tech, small and veteran-owned businesses that are driving flex demand: Although its flex office stock is limited, Northern Virginia is primed for flex space growth because of its large technology workforce, headquarters expansion activity in National Landing, and projected increases in federal procurement spending. Government contractors—including small and veteran-owned businesses—are likely to boost demand for incubators and other flex space formats that bring subcontractors together.

5. Boston – Flex is heading to Boston to exploit its low inventory and strong fundamentals: Among gateway markets, Boston has a surprisingly slim development pipeline even as life sciences, tech and professional services users continue to consume space in new buildings. With just over 2 million square feet of coworking space, Boston has less inventory dedicated to flex space than any other U.S. gateway city, suggesting a strong runway ahead.

4. Austin – Vibrant entertainment scene attracts young residents “keeping Austin weird” – and flexible: Austin has made headlines as one of the standout office markets nationally, with new construction totaling more than 10 percent of supply and intense demand leading to double-digit rent growth both in the city center and suburbs. Comparatively low costs of living and business operations, along with a lively arts and entertainment scene, will keep attracting young residents to the city creating further demand for coworking space.

3. Silicon Valley – Technology consolidations and startups wire this region for flex: Despite technology industry consolidation and a wave of new offices, sustained real estate investor-fueled growth continues to translate into demand for space—including flex space. One indicator of this demand was a technology giant’s approximately 450,000-square foot lease through a flexible space operator in 2018. square feet lease of flex space in the Valley. In addition, venture-funded startups continue to proliferate and seek short-term options to limit their long-term lease liabilities.

2. San Francisco – Limited space options for tenants open the gate to flex gold: Just as it is home to technology innovation, San Francisco is an innovator in flex space. The fast-changing technology sector, combined with a historically tight office market, has created an ideal environment for coworking and incubator-style flex space offerings. With just over 2.3 million square feet of flex space, the city ranks sixth among U.S. markets, suggesting strong growth potential ahead. 

1. New York – Like Frank Sinatra, freelancers and small businesses want to be a part of it, making “New York, New York” the preeminent flex destination: Although it’s already home to the largest flex space inventory in the country with 12.1 million square feet, New York is expected to grow its lead. The city boasts the nation’s highest concentration of freelancers and small businesses, which makes it the world’s leading entrepreneurial economy. Access to capital is a fundamental driver of flex sector growth, as leading investors and landlords continue to create owner-operator flex space models with many of them designed for the Big Apple.

“Our research, and our conversations with corporate executives across the globe, indicate that flexible work is not just a passing trend—it’s woven into the fabric of the future of work,” said Scott Homa, Senior Vice President and Director of U.S. Office Research at JLL. “Even though some markets are better positioned for rapid growth, this still leaves significant runway for expansion across all U.S. office markets. We also expect to see continued disruption of the traditional lease model as investors, occupiers and operators come to terms with a new—more flexible—way of business.”

JLL’s latest research is based on analysis of 25 economic, demographic and other variables in U.S. cities. The research also includes demand projections based on current space requirements among corporate tenants and local market forecasts.

To see an even more comprehensive list of flexible space markets poised to outperform the rest, check out JLL’s flex space page.