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December 10, 2023
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Rejuvenated Flex-Office Sector Positioned to Facilitate Long-Term Changes in Office Use


This report was provided to us by real estate services firm CBRE

The North American flex-office sector has evolved through the pandemic into a more sophisticated version of itself, gradually shifting to rely more on large companies as users of flex space than on startups and individuals, according to a new report from CBRE. Flex space’s versatility also has made it a frequent option for companies striving to accommodate new changes in how they use office space.

The Greater Los Angeles area is the fourth-largest flex space market with 4.7 msf. The region ranks No. 10 in terms of market penetration – which is flex space as a percentage of the overall office market by square footage - at 2%. In comparison, the two top markets of Miami and Manhattan register 4.2% and 3.2%, respectively.

“We are noticing two major trends in regard to flex space,” said Los Angeles-based Senior Vice President Chris Penrose. “For one, a lot of smaller tenants that didn’t renew their leases in 2020 and 2021 and allowed their staff to work from home are now looking to get back into some sort of office setting to meet and collaborate. They are mostly in the market for three- to six-month type leases, to give them the greatest flexibility.”

He added, “Then there are the larger tenants that are still figuring out their ultimate space utilization going forward. They might be renewing regular leases with a smaller footprint but often in buildings with flex space options, so they can expand or contract their office space easily.”

Nationally, the flex sector, a rapidly expanding niche prior to the pandemic, has slimmed down since early 2020. CBRE’s annual analysis of the sector found that, in the 12 months ended in September, North American flex-space providers collectively trimmed their square footage by 9% to slightly
more than 80 msf. Similarly, the sector’s share of overall office space declined to 1.75% from roughly 2%.

Having reset itself, the flex sector is poised for growth this year in both physical occupancy levels and square-footage gains as big companies increasingly embrace the format’s versatility to handle changing staffing levels and fluctuating office attendance. A CBRE survey of 185 U.S.-based
companies found that large companies anticipate adding more flex space to their office portfolios. Last year, nearly a quarter of the survey’s respondents had a significant portion (more than 10%) of their office portfolio in flex space. By 2023, half expect to be at or past that threshold. To that end, major flex-office providers recently reported gains in their business with big companies, or enterprise users.

“We have completed more than 100 deals over the past 18 months in the Greater LA region, anything from 20 to 50 desk options all the way to 50k sf spaces,” said Penrose. “What has come through loud and clear in all of our conversations with clients - small and large - is that they have come
to realize that the quality of work has suffered in this predominantly at-home work environment and that it is time to get people back into a more collaborative and professional setting.”

He added, “Where we’re seeing the most demand in this region is in the neighborhoods where amination, streaming, gaming and tech companies are concentrated, namely Hollywood, Culver City and Burbank. They have been by far the busiest markets when it comes to flex demand.”

Different Flavors of Flex

CBRE defines flex space to include multiple formats of office space leased for shorter-than-traditional terms. That includes coworking, which often entails communal desks and common areas used by a flex operator’s occupants. But it also includes faster-growing models, such as private suites and enterprise
offerings, which dedicate offices or entire floors for exclusive use by individual companies.

Among flex options that have gained traction as companies experiment with new work arrangements are the core-plus flex model in which users occupy long-term space and flex space in the same building or campus, and subscription-based services that allow employees to work from any of a flex provider’s locations across the market, country or globe.

Market Comparison

CBRE analyzed flex office in 49 North American markets, finding that 15 recorded a net expansion of their flex square footage in the year ended in September, 28 notched a net contraction, and six saw no change. The biggest expanders were secondary and satellite markets such as suburban Maryland (5.9% gain).. Houston (5.2% gain) was the largest market to post an increase.
The ranks of the largest markets didn’t change much despite flex providers paring their square footage in many. Naturally, there is overlap between the largest markets and the most penetrated.

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