October 2, 2019

Why Flexible Office Space Is Leading to Commoditization in the Market

A recent survey conducted by CBRE estimates that the market for flexible office space will grow from just 2 percent today to a projected 13 percent by 2030. While this remains a small sector of the market, the organization suggests a 25 percent annualized growth rate—a trend-marking statistic that simply can’t be ignored.

Julie Whelan, head of occupier research for the Americas at CBRE, shares that flexible office space is “any space that you can occupy quickly with flexible terms that are shorter than typical market terms and has no capital needs as they are amortized into your fees.” As she puts it, “The key to flexible workspaces is speed, flexibility, and capital deferral.” And while this may be the stereotypical definition for many, the logistics behind the flexible workspace are anything but typical as we learn more about the market.

“The standard relationship between third-party, flexible space operators and landlords typically has been traditional leases,” explains Whelan. “However, as we see this business model further tested and continually expanding, we’re seeing a shift in landlords taking on more of a partnership role, resulting in a larger share of the profit…and the burden, should markets turn.”

As the market shifts toward more flexible office design, the ability to multitask in every space will become more imperative. Photography courtesy of JLL.

Drivers of flex space in a corporate setting

Whelan suggests that the number-one driver of flexible office space—uncertainty—often originates from multiple sources. “Up to this point, corporate occupiers used flexible spaces as swing spaces while their other locations were being built out or to accommodate for rapid, unforeseen growth. Many times, they served as satellite locations. But today, flexible office space is becoming part of corporate occupiers’ long-term portfolio strategy. Every employer knows that there is a certain amount of forecastable head count—that’s the head count that will continue to require traditional office leases,” she says. “However, in strategically planning for headcount volatility, be it due to cyclical shifts, automation changes, the economy, or anything else affecting head count, employers can deploy a flexible office space strategy that allows for long-term fluidity.”

As a result, the workplace is seeing the merger of the traditional office lease with the flexible office space, often in the same building. Whelan continues, “If this is done right, employees in traditional spaces could sit in the same building with employees in the flexible office space seamlessly. This allows the flexible office space to serve as a valve that can be turned on or off as your long-term portfolio shifts.”

What’s more, research suggests that market fundamentals are shifting when analyzing the number of leases by size. The total for less-than-5,000-square-foot leases has shrunk by more than 8 percent in the largest flex markets, compared with slight growth of 1 percent in other flex markets. The study suggests that the influence of flexible office space in these markets is contributing to the decline, specifically as offices are deploying flexible space as more of their long-term portfolio.

Impact on design of corporate spaces

In terms of design, the flexible office space is mirroring the more relaxed look we’re seeing as an office theme across the board. As Whelan puts it, “You walk into these spaces, and they have a resimercial look. It isn’t industrial, cold, and gray; instead, you’re seeing soft furnishings and color palettes. But it goes beyond the way it looks to the actual amenities that are being offered. The elements of the workplace that draw you in to a different experience are in demand today. They could be as simple as the way water and snacks are made available to you to the more complex way that technology enables your day.”

Flexible office spaces will include amenities that mirror a residential look and feel. Photography courtesy of JLL.

As for layout, Whelan adds that the spaces are designed with activity-based planning in mind. “You have different areas that support the way occupiers socialize, collaborate, and handle private matters. Each space is designed to provide movement throughout the workplace and draw occupiers to the areas that best serve their work and needs at any given time throughout the day.”

And Whelan explains that it’s this very principle that’s driving the need to commoditize. The concept of flexible office space requires short-term agreements and all the amenities compacted into one service agreement. So, logic would reason that this leaves very little room for restructuring when agreements shift. One flexible workspace may accommodate a marketing firm one day and then a law firm two weeks later. This rapid turnover is the impetus behind the need to commoditize.

Whelan puts it like this: “We feel that space is becoming more of a commodity in the way that it is designed. Yes, there are firms that have niche industry needs—but generally that is more of the exception. Activity-based workspaces are designed agnostic of firm and industry and can be swapped out, freshened up with carpet and paint, and presented to the next firm with a similar design.”

She adds, “Even with this concept of space as a commodity, spaces need to be able to shift according to the users’ needs to enable the most effective and efficient use of space. Today, a conference room may be necessary, but three months from now, that same occupier may need to break down the walls and turn the space into individual workspaces. You can’t expect the occupant to shut down a space for six weeks surrounded by construction disruption, so this is leading to designs that accommodate for fluidity and flexibility.”

Whelan suggests demountable walls and free addressing are among the design trends that lend best to this concept of flexibility. “We need furniture that can be more modular, allowing each piece to support a multitude of different uses.” In other words, the standard, or commodity, is becoming the concept of flexibility.

As for the future of flexible space growth, Whelan leaves us with this: “I think this is a natural evolution in real estate—consumer demand is growing this. There always will be a need for long-term traditional spaces, but there also will be room for shorter-term office solutions that serve as a structural trend of the future. One thing we know for sure is that the way in which flexibility is delivered will continue to change.”

This article originally was published in Bellow Press and was reposted here with permissions.


Amanda Schneider is President of ThinkLab, the research division of Interior Design Media. At ThinkLab, we combine Interior Design Media’s incredible reach within the architecture and design community with proven market research techniques to uncover relevant trends and opportunities that connect back to brand and business goals in a thought-provoking, creative, and actionable way. Join in to know what’s next at thinklab.design/join-in.

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