Flex office space has always been correlated with fluctuations in the wider commercial real estate market and office demand. But while the industry took a significant hit last spring, with more than 200 locations closing in 2020, per Upsuite, and once high-flying WeWork, now the subject of a special-purpose acquisition company deal, being reduced to a fraction of its former self, many industry observers see potential in flex space as corporations seek a new normal with hybrid schedules, remote work and potentially reduced real estate footprints.
But a central question for the industry is whether or not new demand will fuel new hiring. Liz Burow, a workplace consultant and former WeWork design director, doesn’t think this new enterprise demand necessarily translates into a large expansion of the flex office industry workforce. Like much of corporate America, the coronavirus pandemic has taught firms to do more with less.
“I am not sure if there will be a lot of hires within the flex space industry,” she said. “I think all the fluffy jobs are done or gone; all those people went on to other careers. Companies realize they can do a lot with a lean team, or have consultants and vendors handle design or operations.”
Courtesy of Industrious
Industrious added 1 million square feet of new space in 2020, despite the coronavirus pandemic.
Early research suggests there is an appetite for more flexible office options. A report by sector specialist consultant Workthere found 79% of such spaces turning a profit, painting a much brighter portrait than early lockdowns suggested. Last December, CBRE concluded that the sector had “held its own” amid the pandemic. Growth in flex office has slowed to 7% year-over-year in the second half of 2020, well below 41% during the same time in 2019 but much better than the worst-case scenarios some feared. At the close of 2020, CBRE found that 82% of major companies anticipated using flex space going forward.
“Coworking will win,” Burow said. “I think entrepreneurs will return to their offices that they likely left during the pandemic; the one-20 person offices will fill up again. And on-demand seats, office or hot desk for the day, will likely be in demand as some employers use it as an HR benefit to new flexible working agreements.”
Servicing these new enterprise clients may become an increasingly large part of the business of firms like WeWork. While company reps declined an opportunity to comment for this piece due to the ongoing SPAC merger, the firm’s recent Securities and Exchange Commission filings note that half of the memberships today are for enterprise clients, suggesting a strategy and staffing shift toward servicing and recruiting clients from bigger firms.
Anna Squires Levine, chief commercial officer at Industrious, a large coworking firm in which CBRE recently invested, agreed that corporate customers are becoming a bigger focus for industry players today; they’re betting that larger firms will need help implementing remote work plans this year, and look to the flex space industry to fill that gap. If that happens, the industry may see an upswing in new hires.
Coworking firms are betting uncertainty means more companies will be looking for temporary office space in 2021.
Levine said her company, which added 1 million square feet to its portfolio last year and plans to exceed that number in 2021, has added to its digital team to help facilitate better videoconferencing and other online meetings, and hired additional members of the finance team, to enhance financial planning and analysis, reporting, and accounting. Shifting demand means focusing on enterprise clients, and responding to evolving back-to-office strategies, which means expanding business development teams.
Industry experience isn’t a prerequisite; Levine said the firm, which has 100 locations across more than 50 markets, with about 340 employees nationwide, often looks at new hires coming from hospitality, tech or even nonprofit backgrounds.
“It’s easy to say hybrid, and harder to translate that into a concrete plan,” Levine said. “From our conversations with hundreds of companies, we see the teams that are ahead of the eight ball thinking about their plans in terms of what guidelines they’re going to put in place at the all-company level, at the city level and at the team level. Only a handful of companies will be able to execute something scaleable on their own.”
Partnership with flex office specialists thus becomes an attractive route.
“This downturn has sparked flex office to become a strong alternative to traditional leases for many office-using companies,” CBRE Global Head of Occupier Research Julie Whelan said. “That is in large part because flex space can provide companies the agility to accommodate a workforce that values more choice over where and how they work.”
JLL’s Ben Munn, managing director of Flex Space, compares the potential rapid growth in the industry, and potential additional hiring, to the dot-com boom, and sees the industry actually gaining more space in the second half of 2021.
“We had massive amounts of capital flowing into the growth of a fast-moving, but relatively small, real estate segment and some of that got blown out because of a lack of understanding and risk,” Munn said. “But those early movers have paved the way for the sector.”
Industrious’ Levine said the company has also bet that other larger workplace trends coming out of 2020 will fuel growth. The company has focused on adding capacity in newly popular markets such as Miami, Dallas and Tampa, and has been exploring first-ring suburbs, anticipating more acceptance of the hub-and-spoke model, as workers look for low-commute options for offices they may visit two or three days a week.
“Every company in America right now is asking themselves how to support their workforce in making the transition back to the office, and we want to be top-of-mind for as many of these companies as possible,” she said.