Flex Office Giant Bets Big On The Massive Asset Class You’ve Never Heard Of

It’s not hard to see why managed office space has flown under the radar, even as the flexible office sector has grown and captured headlines in the past decade.

You’re not supposed to notice it. 

Managed space — flexible offices provided to companies and managed by a third-party operator, though without that operator’s branding — makes up about 10% of all flex space, according to estimates by The Instant Group, one of managed space’s biggest players. 

That proportion could grow to as much as 30% by 2030, Instant said, as corporate occupiers look for more flexible office options, try to reduce upfront outlay and move away from branded space. 

Instant, owned by flex office giant IWG, manages 5M SF of such space globally. That includes 3M SF in the UK alone, larger than the UK footprint of WeWork. In one recent example, Instant signed a deal with Brookfield to provide 11K SF of managed office space at the investor’s 100 Bishopsgate office tower in the City of London. 

“It’s hard to measure the size of the sector because there isn’t a clear definition of managed space, and by its nature, it's not advertised in the same way,” Instant Head of Research and Insights James Rankin told Bisnow. “But it’s growing faster than the rest of the flex sector.” 

Flexible offices are in a challenging moment generally, with demand growing, albeit slowly, and rising costs hitting profitability.

With that in mind, Instant and other players in the market are looking to managed space as an area of growth. 

Instant is typically mandated by a corporate occupier to find and manage an office space for it, Chief Marketing Officer John Williams said. Usually, the spaces are around 10K SF to 15K SF and could be smaller, but it has found spaces as large as 100K SF for clients, including American Express and Jaguar Land Rover. 

Sometimes an occupier might not want to sign a lease because the office is in a new or noncore market, Williams said. But flexibility, cost and brand are also huge factors. 

“They want the quality and fit-out of The Office Group or WeWork, but they also want something that’s bespoke and where their employees feel they are coming to their office,” Williams said. 

Instant will lease space from an office owner, then sublease it to their client, Williams said. It almost always only signs leases with tenants lined up for the space. While the typical flex tenant stays in an office for nine months, the retention rate for clients in its managed space is much higher, he added, citing Instant data.

Instant then fits the space out. Because of the scale of its business and supply chain efficiencies, this takes about six months, versus an occupier going through the process itself taking an average of nine to 12 months. 

Instant is incentivised to move the process along quickly because clients don’t start to pay until they occupy the space. The cost of the fit-out is amortised across the length of the lease, meaning there is no lumpy upfront payment at the beginning of the process and no need to pay for dilapidations at lease termination because the client isn’t the leaseholder. 

Clients pay for space monthly, as with a traditional flexible lease, and the managed space operator provides the same services that an occupier would receive in a flex space, such as plug-and-play WiFi. 

Williams said traditional flex space often didn’t work for clients because it was harder to make an office bespoke. 

Landlords are increasingly looking to create turnkey space into which occupiers can move straight away, but they don’t always have the large teams necessary to manage space and provide services, Williams said. 

“Corporate real estate teams have never been under the scrutiny they are now,” he said, adding that the wider world didn’t think much about offices before the pandemic. “Companies want smaller, more efficient portfolios.”

IWG paid £270M for an 80% stake in Instant in 2022. In addition to running managed office space, the company also provides a portal for companies looking for flex space, collecting data from across the market. 

The flex market is at an interesting juncture, Rankin said. Demand is rising, though not at the same rate as in 2021, when the end of lockdowns accelerated the demand for flexible space. 

And with inflation having spiked in 2023, costs have risen dramatically for operators. Staff, energy and supplies like coffee beans are all more expensive than they were a couple of years ago. 

Operators haven’t felt able to pass these costs on to their customers, given worries about whether demand will hold. That means the occupancy level at which a flex space breaks even has risen from around 75% to 80% a few years ago to 85% or even 90% today. 

“Occupiers are under huge cost pressure,” Rankin said. “And despite a relatively healthy market where occupancy levels have stayed stable, operators haven’t felt able to pass costs on to customers.”

Average occupancy levels in the various London submarkets Instant tracks range from 76% in King’s Cross and Euston to 92% in Soho. 

Instant is seeing the strongest growth in demand in both the UK and U.S. in suburban markets, where there is little existing supply and office owners and new operators are wary about investing into a sector that remains at the centre of negative headlines. That lack of investment will constrain future supply and help boost the occupancy of existing flex offices, Rankin said. 

“If you’re an operator wanting to expand right now, it’s difficult to raise finance,” he said. “You need an investor with guts.”

CORRECTION: JULY 9, 4:30 P.M. ET: A previous version of this story said IWG paid £270M for The Instant Group. It paid £270M for an 80% stake in the company.