7 October, 2019

Executive Summary

Recent media coverage has called into question the long-term viability of flexible office space and its potential impact on real estate markets. Despite this, CBRE believes that the structural shift to flexibility is here to stay and that real estate markets are not threatened by it.

Here are some facts supporting why flexible office space is a durable trend in the real estate market:

  • Penetration levels are modest. Under 2% of total U.S. office inventory is dedicated to flexible office space and there are only a handful of submarkets that have more than 5 million sq. ft. of total office inventory with a flex-penetration rate of 5% or more.
  • The operator base is diversified. Approximately one-third of the flexible office space in the U.S. is provided by WeWork. Nine other operators account for 35% of total flexible office space. The rest (32%) is scattered across 690 more operators.
  • Office demand remains strong and broad-based. Over the past year, traditional (non-flex-operator) tenants have leased, on average, 55 million sq. ft. per quarter. Flexible office space accounted for only 6.5% of all leasing activity nationally in H1 2019, compared with 26% of leasing activity directly to technology companies.
  • Landlords have been conservative in leasing to flexible operators. In Manhattan, the 10 largest landlords on average have less than 2% of their portfolio leased to flexible space operators and none of the top-10 landlords has more than 5% exposure.
  • The demand is clear. Market data provider Statista estimates that more than 1 million people in the U.S. will work out of flexible office space by 2022. There is enough demand to meet the existing supply of flexible office space and we see that continuing.

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