Increased institutional interest is creating more transparency, which will aid in the maturity of the sector.
The “work from anywhere” trend will continue to pick up steam in 2022, a team of Colliers analysts predicts, with some imbalance to be expected between car-dependent secondary suburbs and dense urban cities.
That’s good news for the burgeoning flex space sector: while office occupancy levels in cities like Dallas and Houston have reached more than 40%, utilization rates are closer to 15-20% in dense urban centers like Manhattan and San Francisco. The very nature of office work is undergoing a “sea change,” according to Colliers, with work patterns shifting to a more hybrid model and employees demanding more flexibility about where they work.
“While operators have largely regeared their agreements with landlords over the last 18 months, user interest in flexible workspace has expanded as firms reassess their occupational portfolio needs in the light of the COVID-19 pandemic and ongoing shifts in work patterns,” the report notes. “Owners are being much more creative in their approach to delivering flexible workspace solutions by carefully looking at their product mix and delivery models. Concurrently, increased institutional interest is creating more transparency, which will aid in the maturity of the sector.”
Colliers predicts a greater emphasis on user experience going forward, as owners look to provide an extensive suite of quality amenities to elevate the tenant experience by either providing services in-house or outsourcing to trusted partners in areas like fitness, wellness, hospitality, technology and flexibility. But “having one operator allows for better integration of amenities, helping create a seamless experience for the end user,” the report notes.
Colliers also predicts more attention will be paid to content creation and programming, both of which are “critical to engagement” with end users.
“How occupiers interact with a building will be fundamental to real estate decision making,” the report notes. “Providing high-quality tenant experience is becoming essential, particularly for Grade A and trophy buildings. We expect more specialist operators to emerge into this space, together with hospitality operators stepping in and flexible workspace providers pivoting towards it.”
As the physical work environment evolves to meet customer demand, expect the line between flex space and traditional office offerings to blur and become more holistic. These days, flex space is increasingly viewed as a need-to-have, not a temporary solution.
“Asset owners are increasingly adding components of flexible workspace to their product mix and engaging in creative delivery models to provide for occupier demand,” according to Colliers. “Turnkey suites are becoming more prevalent as landlords look to capture behavioral changes in occupier demand and some are continuing to develop their own flex products.”
Against that backdrop, Colliers predicts more product offerings will be on the horizon this year, and the flight to quality assets will continue.
Big changes are also expected this year in how flex space operators earn revenue. Research late last year from Yardi Matrix predicts that franchising and management agreements with revenue sharing will become more common. In management agreements, landlords are typically responsible for the cost of fit-outs but can receive a larger share of the revenue from operators.