The flexible office space sector has more than doubled in size since 2014, “resulting in the biggest shift in the real estate industry that we’ve ever seen”, according to Dan Brown, JLL’s head of flexible space, Europe, Middle East and Africa (EMEA).
While most corporate real estate portfolios are dominated by longer-term fixed leases, more companies have turned to flexible office (also known as co-working) space to keep up with changing work trends. In 2017, more than 1.27 million people used co-working spaces worldwide.
There are now 700 flexible space operators in the top 20 cities in Europe, 20% of which opened their first centre in the past two years, according to JLL research.
Well-known flexible office space provider WeWork is currently the world’s most active foreign investor in 2018, undertaking 170 greenfield FDI projects, according to fDi Markets. This marks a 161.5% increase from the number of projects made in 2017.
Another flexible office provider, Spaces – a subsidiary of IWG (formerly Regus) – was the third most active global investor in 2018, with 109 greenfield FDI projects, according to fDi Markets. Spaces co-founder and chief executive Martijn Roordink has announced that the company will double its portfolio to 400 co-working spaces worldwide by the end of 2019, marking a rapid expansion since IWG acquired the company in 2015.
However, some co-working space providers are making a loss because they incur huge expenses growing their portfolio of locations but have yet to generate any revenue from sites that are still to open. WeWork reported a net loss of $723m in the first half of 2018, but expects to make future revenue as this figure lags behind current expenditure.
These losses are unlikely to persist in the long term as 30% of corporate portfolios will be flexible by 2030, according to JLL research. As more companies turn to flexible working space in a fast-paced and evolving business world, occupancy rates are likely to grow, bringing with them the opportunity for huge profits for flexible office space providers.
Flexible office space can also “attract specific talent pools, especially younger generations, who tend to favour a less traditional corporate office setting”, says Tom Carroll, JLL head of EMEA corporate research, while JLL head of offices research in EMEA, Alex Colpaert, adds: “Investors should look closely at what’s happening and decide on the most appropriate response for them, whether that’s adopting flexible providers into their buildings, or adapting their strategies to provide their own flexible solutions.”