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Co-working retreat demonstrates the staying power of flexible office

At the start of the pandemic, many believed it would erode the co-working model with the advent of work-from-home policies. Two years later, it appears that many co-workers have not only survived, but are doing better than traditional landlords.

By mid-2021, the world’s two largest global co-workers, WeWork and IWG plc (formerly known as Regus), reported a 52 percent and 69 percent jump in occupancy, respectively. He also reported an increase in revenue.

In fact, while physical office occupancy overall is well below pre-pandemic levels, with average weekly attendance down 50 percent, occupancy at co-working facilities is significantly higher than at traditional offices, with JLL as America’s flexible location. Chief Jacob Bates says. property management.

After a blip during the Omicron wave this winter, coworking leasing activity is expected to increase over the next few months and some operators are already looking for vacancies, according to New York City-based Krystle Brawn, US agile practice. are. Leading with real estate services firm CBRE. She notes that co-working space availability is already tight in some markets, including Miami and Seattle, and 26 new co-working spaces opened in the US and Canada in the fourth quarter of 2021.

Scott Homa, the company’s senior vice president and director, says the pandemic has suppressed the availability of flexible office space inventory due to limited supply and leasing restructuring, while demand for flexible space options has increased significantly in recent months. US Office of Research with JLL.

“Today, the flexible office market comprises about five percent of the entire major office stock,” he says. “But given the growing demand for hybrid work and tenant agility, we expect 30 percent of office space to be used flexibly by 2030.”

Homa predicts that the majority of this new consumption will be in pre-built suites designed for large enterprise-type businessmen.

Co-workers are already benefiting from a more geographically distributed workforce and the penetration of tech and other office-using industries into more secondary and tertiary markets.

Over the past month, there has been an increase in both physical occupancy at co-working facilities and inquiries by potential members, resulting in space trips above pre-pandemic levels, Bates notes. “It is expected to boomerang back and expand over the next few years, with enterprise corporate customers becoming the largest occupants of the flexible space.”

Where is the money coming from

With flexible office space currently outperforming traditional offices on occupancy, Brawn noted that the co-working sector has become attractive to a wider spectrum of investors. “We have seen a significant move towards more traditional real estate capital sources as well as the adoption of Flex by general venture capital-oriented players,” she says.

This is happening for two reasons. First, investors are more comfortable signing profit-sharing agreements when they can benefit from normal market volatility. Second, investors are recognizing that they can survive and perhaps even thrive by backing properties that are attracting tenants with greater flexibility.

Prior to the pandemic, co-working operations were largely capitalized by private equity and venture capital, but according to Bates, a major, unexpected shift in financial sources occurred during the pandemic, with co-working operators operating commercial real estate. Used to partner with or capitalize on assets. service companies.

For example, last year, WeWork entered into a strategic partnership with Cushman & Wakefield to integrate WeWork’s workspaces into the firm’s global occupier portfolio. Newmark and a private investor acquired Notel, which filed for bankruptcy during the pandemic. and CBRE acquired a 35 percent stake in flexible workspace operator Industries, making CBRE its largest shareholder.

More recently, JLL founded Flex by JLL, the most significant new entrant into the flex and co-working industry since the pandemic began. Bates noted that Flex is an extension of JLL’s asset and experience management services for property owners, providing flexible office products and services to both consumers and enterprise businessmen.

Office landlords/investors recognize the opportunity to provide flexible workspaces to attract new tenants, who may eventually convert to traditional leases, and are increasingly setting up their own flexible operations.

“Prominent real estate investors will continue to have their own evaluations of buy, build and partner scenarios,” Bates says. “But Flex is a pragmatic approach to providing higher service quality than traditional property management, so the long-term question is ‘at what size to effectively and efficiently own flexible office space without partnering with a major real estate company. service company?'”

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