How 2020 Shapes Up For Coworking and Flexible Office Space

The coworking and flexible work space trend, essentially a post-Great Recession phenomenon, continues to bloom and grow. According to Colliers International, coworking is one of the few growing office demand sources. And there’s plenty of room for it to run. Even with all its growth over the past decade, flexible office space still comprises just a fraction – less than 2% — of all office space in primary office markets, Colliers reports.

When it comes to prognosticating about the future of coworking and flexible office space, one of the best-informed sources is The Instant Group. The company maintains the largest data set focused on the coworking and flexible office market, and incorporates company insights based on managing offices across the globe.

The Instant Group’s CEO Americas Joe Brady envisions a coming year characterized by, among other trends, greater sector franchising, a bigger share of flexible to corporations and in general a rapid shift of office space to flexible, with a likelihood of 10,000 flexible locations by 2023. Let’s take a look at what the next 12 months could hold for this intriguing, emergent sector.

Fragmentation, not consolidation

Today, the 10 largest providers of coworking and flexible office space comprise 36 percent of the market. A year ago, they controlled even more of the market. Conservatively, an additional 250 providers of flex space were added over the past year in the U.S. “As clients gain experience in procuring flexible space, providers are going to have to become more accommodating around specific demands from second- or third-time buyers of flex,” Brady says. “This dynamic will only increase customization, specialization and nichification.” 

Lowered desk rates

There’s been rapid expansion of coworking and flexible office space in the most coveted locations within international cities. That has sent providers outside central business districts scurrying for new opportunities, leading to a lowering of desk rates, Brady says. “As competition over space increases in traditional business centers and work-life balance pushes for a move toward the suburbs, we foresee an even greater move into secondary and tertiary markets, and continued dominance of niche operators,” he says.

More franchising

Office Evolution, Serendipity Labs and Venture X are among brands already franchising in the sector. The boldest player on today’s scene may be IWG CEO Mark Dixon, who will launch 30 new centers with partner companies in the coming year.

Dixon views the franchise model as a way to quickly scale his business while also best leveraging IWG’s back-office operations. Like new hotels, new flexible spaces profit from bearing a large organization’s imprimatur. That’s because digital marketing, customer services and other lead generation capabilities can be difficult to successfully scale from square one.

Growing supply

As pointed out earlier, the supply of flexible work space continues to expand. In 2019, “For the first time . . . we saw the flexible office space market in the U.S. outnumbered the U.K., the initial market forerunner,” Brady says, adding there currently exist more than 6,000 flexible work space providers in the U.S. “We predict this number to grow upwards of 10,000 spaces in the next three years.”

Corporates’ bigger bite

Flexible space is now a fast and nimble path to market for companies big and small. The Instant Group’s view is that flexible space adoption will grow once procurement arms of larger organizations work flexible alternatives into their processes.

That leads to its prediction that within three years, 35 percent of corporates will use flexible real estate. Larger organizations view flexible offices as a way to mitigate risk in an era marked by shortened business cycles and need to stay nimble in uncertain times.

The strong economy the country has witnessed for more than a decade can’t continue forever. At some point a downturn is inevitable. “The CRE market is in the age of acceleration,” Brady says. “[It is] injecting flexibility into a fundamentally linear asset class. In the possibility of a recession, we see the flexible office market as being a risk-averse solution for companies looking for office space.”