How are flex-space operators adapting to the current market

Offices around the world were left empty during the pandemic, making business particularly tough for some flexible-space operators as occupiers reacted to economic upheaval.

Now, some of the larger operators are looking to capitalize on challenges in the sector, pushing ahead with plans to expand.

In June, listed flex-space group IWG took over 30,000 square feet of office space in Hong Kong that had been leased previously by another flex operator. U.S. groups Serendipity Labs and Industrious are also in a strong position to expand, says Ben Munn, managing director, flexible space at JLL.

The interest isn’t likely to dissipate given corporate demands for holistic workspace solutions, with pressure on legacy business models driving consolidation, Munn says.

“The operators which came into this challenging period in a strong financial position with well-established businesses, limited vacancy and favourable underlying real estate deals are able to look at two main routes to expansion: either taking over space from another operator and or acquiring the businesses of struggling competitors,” he says.

Both happen, but particularly the former. “In some cases, the previous operator has exited their lease, or in others collapsed the special purpose entity holding the lease, leaving the landlord with no recourse,” Munn says. “Or it may simply be that an operator presented unfavourable terms to the landlord for renegotiation and the landlord is taking the opportunity to restructure the workspace proposition in the building.”

Corporate real estate executives will have to navigate a more complex world, applying workspace solutions along a wider spectrum of choice, from on-demand space to more traditional long-leased or owned assets.

The businesses and employees they support will have increased demands for flexibility. Although freelancers are more likely to shed coworking space as the COVID-19 outbreak stalls business, 67 percent of corporate real estate decision-makers are increasing workplace mobility programs and are incorporating flex space as a central element of their agile work strategies, according to JLL.

This will present challenges to landlords. The growing proportion of flex space – JLL expects 30 percent of all office space globally to be flexible in some form by 2030 – means fewer long leases. Valuing flex space is more complicated, and security of covenant will be crucial.