Flex Operators Look To Expand As Occupancy And Lease Lengths Hold Up
More than three-quarters of flexible office operators across the globe are looking to expand in the next two years, Bisnow can reveal, with the sector confident of growth despite well-documented troubles in the overall office sector.
About 80% of flex operators are looking to expand, according to a survey of 180 flex firms by digital platform The Instant Group. Europe is the area that will see the highest growth. Ninety-one percent of operators there are looking to expand by an average of five locations, according to the survey.
Instant is tracking 76,000 centres across 39,000 flexible workspace operators and an estimated 1.3B SF. It is tracking approximately 12.4 million workstations in all.
Occupancy rates have remained steady in the sector for the past couple of years as the office sector focused on figuring out the impact more entrenched hybrid work would have on office utilisation. At the same time, major names in the flex sector, principally WeWork, contracted. Average occupancy is 80%, which is below the breakeven point for most locations.
Instant said that more than two-thirds of U.S. operators plan to increase rates to offset rising operating expenses. Despite cost constraints, occupancy rates are well over 70% across the U.S., which is a strong indicator of profitability and growth, it said.
“While cost remains the biggest challenge for flex space operators, conditions have improved since last year, and profitability has increased,” Instant Global Head of Partnerships Ben Wright said in a statement. “Balancing rising costs while remaining attractive in an increasingly competitive market is complex, particularly in the U.S., where costs of raw materials and labor show no signs of easing up.”
The UK offers more security in terms of lease lengths than its transatlantic cousin, the survey found. In the UK, 59% of operators said lease lengths are between three and five years, while 27% see one-to-two-year leases. In contrast, just over a third of U.S. operators see leases of three to five years.
The flex office expansion will be focused on private offices and meeting rooms, Instant found. Operators experienced increased utilisation for such facilities over the last year of 36% and 52%, respectively, which is expected to continue over the next two years.
The biggest factor in attracting tenants? Friendly staff, Instant found. The primary reason customers choose to work from a specific flex space is accommodating and cheerful employees (70%), ranking it above brand awareness (42%) and cost effectiveness (35%).
Instant also identified a potential disconnect between the desire for sustainable offices from customers and the sustainability credentials of flex providers.
The company said 44% of operators have seen an increase in demand for sustainable buildings over the last year, with customers interested in understanding recycling policies (29%), use of renewable energy (25%) and sustainability certifications (21%).
Yet while customers are increasingly paying attention to the sustainability of the spaces they occupy, 35% of operators don’t know if they are using renewable energy and a further 27% are not sourcing renewable energy. More than a third of operators have a capital upgrade programme, with sustainability a key consideration.
“While there are incredible opportunities in the sector, with many indicating their plans to expand in the coming years to capture demand, there are underlying concerns about the utilisation of spaces, highlighting how important the location, cost and amenities on offer are to a successful workplace brand,” Instant Executive Director of Partnerships in the UK Gavin Foreman said in a statement.
“Operators that make use of reliable market data and insight will be able to make smart investment decisions to meet evolving demand and in turn increase revenues.”
