CBRE: Flexible Office Space Market to Reach 600 Million Square Feet by 2030

September 24, 2019 Commercial, Retail & Office Space 0

A new report by global real estate firm CBRE forecasts rising growth of the flexible office/coworking space market over the next decade.

According to CBRE, there is currently 71 million square feet of flexible office space in the 40 U.S. markets, accounting for 1.8 percent of the office space in these markets. That figure is expected to expand to about 13 percent of U.S. office space by the year 2030, when it reaches up to 600 million square feet, states the report.

CBRE points to demand from small businesses and enterprise users for the growing demand for coworking space. Small businesses prefer the flexibility of office space on relatively short-term leases, something that allows them to expand or contract their space according to the needs of their businesses.

“We’re seeing a fundamental change in the expectations that organizations and their employees have for the workplace,” said Julie Whelan, America’s head of occupier research for CBRE, in a statement. “This change is spurring an increasing number of companies to engage with flexible office solutions that provide the physical environment and business terms they prefer.”

In a separate report titled Flexible Office Space: The Facts Behind the Buzz, CBRE outlines 10 interesting facts about the coworking market, including the largest markets and players in this growing commercial real estate sector:

  1. The top-10 markets account for more than 70% of the nation’s flexible-office inventory (25% in Manhattan alone). With nearly 4 billion sq. ft. of traditional office space in the 54 major metros tracked by CBRE, continued growth of flexible space is inevitable even under conservative estimates.
  2. In 2018 alone, flexible space in the top-10 markets grew by 25%, with Manhattan growing the most on an absolute basis (+4 million sq. ft.) and Seattle growing the most on a percentage basis (44%). Growth since the start of this cycle has been constant and is showing no signs of slowing. Flexible-space operators are currently in the market for more than 6 million sq. ft. of space.
  3. Flexible space as a percentage of total office inventory is around 2%, with San Francisco and Manhattan being the most saturated (over 3% each). In some foreign markets, such as London and Beijing, flex space accounts for more than 5% of total office inventory.
  4. Only 15 markets have more than 1 million sq. ft. of flexible-office inventory. Many U.S. markets have not even scratched the surface of this sector, including high office-using employment growth markets like Nashville, Austin and Charlotte.
  5. The top-five operators by square footage are WeWork, Regus, Spaces, Knotel and Industrious. The We Company (WeWork) and IWG (Regus and Spaces) hold 50% of the U.S. flexible-office inventory. Knotel and Industrious have another 10%.
  6. The Fortune 500 is engaged and intrigued. 85% of real estate executives plan to implement flexible-office solutions into their portfolio strategy, according to the 2018 Americas Occupier Survey. Enterprise customers are early in the implementation stage of flexible-office solutions as a portfolio strategy. If these strategies prove successful, there is potential for more explosive growth of coworking.
  7. The top flexible-space markets are also the highest for technology industry growth and office rent. With many coworking operators expanding in these mature markets, there are valid questions about their potential profitability. Those that deliver a well-operated, experiential product will have the best chance to achieve good margins.
  8. Despite the rise of flexible office space, there was still more than 19 million sq. ft. of small, traditional-office deals (under 5,000 sq. ft.) transacted last year in the top-20 markets. And there is more than 140 million sq. ft. of space coming up for renewal over the next 24 months in these markets (more than half of them for 50,000 sq. ft. or less). Given these statistics, there is clearly more market share to be gained.
  9. CBRE Research found that nearly 40% of office building sales with some flexible-space component achieved values greater than the average for office buildings in their markets that had no flexible-space component. Higher capitalization rates seem to correlate with higher amounts of flexible space occupancy—a signal that long-term lease commitments are still preferred by investors, yet a portion of flexible space is acceptable to them.
  10. The flexible leasing trend is not limited to offices: Medical labs, industrial facilities, housing and retail are promising areas to watch. Niche operators catering to specific businesses or demographics also are emerging. There is potential for diversification of coworking across niche players, asset types and geographic submarkets.