Given the well-publicized turbulence in the flexible workspace sector over 2019, alongside current global market conditions, we will witness a deceleration in the breakneck expansion of flexible workspace operators that the markets have experienced over the last five years.
In 2020, operators will come under increased scrutiny. Investors will pressure operators to pursue more sustainable models for growth and asset owners will take a deeper look at operators as they analyze different options to deliver flexibility and amenities within their portfolios.
Though near-term uncertainty is unavoidable, the fundamental trends underpinning the flexible workspace sector are here to stay. Occupier demand continues to evolve and drive enterprise outsourcing, with flexible workspace and amenitization as key components of the corporate real estate portfolio and workplace strategy.
Colliers remains bullish on the sector, with a range of factors supporting continued, albeit slower, growth across asset owners, operators and occupiers.
We forecast five top trends for 2020:
Enterprise Outsourcing Takes Off
Flexible workspace outsourcing is now a key component of the modern CRE toolkit.
Flexible workspace operators will continue to develop expanded product sets and scale new solutions for occupiers looking to expand, contract or dispose of space quickly, and we will see more enterprises turning to flexible workspace operators to solve real estate pain points.
As operator models evolve to address these issues, enterprises will grow more comfortable in outsourcing traditional core real estate functions. Initial results from a soon-to-be-released Colliers’ Flexible Workspace Occupier Survey indicate that over 45% of global occupiers see value in proposing flexible workspace solutions to accommodate needs for larger office space with stable headcount projections.
For some occupiers, outsourcing will take the form of just meeting and conferencing facilities (amenitization), but for others it will entail outsourcing the delivery of their entire office portfolio.
Hospitality Becomes the New Normal
With asset owners increasingly attracting enterprises through elevated tenant experiences, we expect further amenitization and hospitality to trend upward in 2020, answering occupier demand for workspace as a service. Whilst hospitality in the office is not new — Servcorp and The Executive Centre have built their businesses on this — we are now seeing operators offer a holistic range of products beyond workspace, underpinned by hospitality models, elevating the value proposition.
We will see asset owners forge deeper partnerships with operators who specialize in delivering these hospitality and amenity models in 2020. We expect amenities like high tech conferencing, fitness and wellness offerings, and food and beverage services to take off. There are new examples of this emerging globally, such as EQ Office’s Playa District partnership with Industrious in LA to deliver flexible workspace, meeting, conferencing and event programming; Convene’s similarly full suite of products at 22 Bishopsgate in London; and The Work Project’s partnership with CapitaLand in Singapore, which is scaling out their work, meet and host products across the portfolio.
The trend towards hospitality and amenities has brought new competition to flexible workspace operators in the form of hotel and hospitality operators. Ennismore recently launched Working From_ at The Hoxton in Chicago and is expanding the concept to London, while Soho House currently operates two Soho Works locations in London and is planning further locations in New York, LA and Hong Kong.
We forecast that in 2020 a major hotel brand will pivot from offering workspace as a component of their hotels to, instead, offering standalone workspaces and amenity products within office buildings.
The Wellness Boom
As highlighted in Colliers’ How? Where? WELL! report, the promotion of wellness in the workplace is shifting from a corporate social responsibility consideration to a strategic priority. More enterprises recognize the role wellness plays in attracting and retaining staff, and in driving productivity and business results.
As wellness becomes both part of enterprise productivity strategy and the CRE procurement process, we anticipate flexible workspace operators will invest in their wellness offerings. This will encompass innovation in both workplace ‘hardware’ (including lighting, materials, monitoring and ventilation systems) and ‘software’ (apps, wearables and online platforms), delivering significant potential for occupiers to deliver wellness infrastructure and enable healthier lifestyles for their workforce.
Key aspects flexible workspace operators will consider extend across the wellness spectrum, including green or natural spaces; air and water quality monitoring; access to natural light; fitness options; proximity to public transit and end-of-journey facilities (EV charging stations, bike racks, showers/lockers); healthy food options; activity-based working options; and the use of sustainable building materials.
From a fitness and health perspective we will also see further exciting partnerships between fitness/wellness brands and flexible workspace operators. Equinox Fitness’ partnership with Industrious at Hudson Yards in NYC is a benchmark for this.
The Suburban Revival
We anticipate operator growth in fringe districts of tier one markets and further expansion in tier two and three markets. While we have been talking about the uptick in freelancers and the gig economy in urban markets for several years, we see suburban operator growth being driven by large scale occupiers executing flexible working policies for their employees based in decentralized locations — driven by larger cohorts of aging millennials moving to suburbs, and enterprises embracing more decentralized portfolio strategies.
We expect local operators and solopreneurs to satisfy the demand here, with their focus on authentic community networks and long-term self-run businesses, adding to the fragmentation trends we detail below.
We also see franchising to be a major driver of flexible workspace growth in suburbs and decentralized locations in 2020. As larger players like IWG and Serendipity Labs, and small to midsize players such as Venture X and Office Evolution, turn to franchising as a more cash-conscious expansion strategy, we will see more franchisee entrepreneurs open flexible workspace locations in less competitive office markets.
When IWG announced the franchise sell-off of its Japanese business for $446 million (USD) last spring, it sent a major validating message to all operators pursuing franchise agreements as a growth strategy.
Fragmentation Keeps Growing
While we expect increased M&A activity, we do not foresee the sector consolidating into four or five global operators. We have yet to witness a high-profile merger between any of the top five players, but we are expecting WeWork to dispose of some market holdings to strong local or regional operators — Singapore’s Temasek is reported to be making moves on its China portfolio.
With some enterprises looking to seek a global platform partner, there are a number of U.S. operators bullish toward international expansion in 2020. U.S.-based Knotel is likely to enter Asia with their Japanese investors, while Convene recently announced its London expansion. In EMEA, London-based The Office Group have launched in Germany, along with Welkin and Meraki, who plan to expand across Europe this year, while in Asia, The Executive Centre, JustCo and The Work Project continue to expand in their home markets and across the region.
We believe there is value to global scale for both occupiers and operators. However, there is also value in local expertise, and in certain scenarios, occupiers may be better served finding the best-in-market operators to meet their needs. In many cases, well established local operators can deliver a better product and stronger service than large scale global operators — requiring a hybrid of global CRE strategy with localized partnerships.
With the top 10 global operators accounting for less than 40% of the market (by number of locations), we expect more localized and hospitality-based operators, and more models, to enter the market in 2020 — driving further fragmentation.
Stay tuned for 2020 regional reports from the Americas, EMEA and Asia Pacific. Also upcoming in the first quarter of 2020 we will publish the results of our global “Flexible Workspace Occupier Survey,” including data gathered from more than 300 enterprises weighing in on trends and changes they see ahead in the flexible workspace sector.
If you would like to discuss more about this dynamic sector, please contact our experts.
About the Authors
Jonathan Wright leads Colliers’ Flexible Workplace Consulting throughout the Asia Pacific market; he founded this business line in 2016 to support our occupier, operator and asset owner clients in leveraging the growing and dynamic sector.
Francesco De Camilli leads Colliers’ Flexible Workplace Consulting for Occupier Services in the Americas by providing multi-market advisory on flex solutions in one of the fastest growing industry sectors in commercial real estate. As an expert, he helps drive enterprising solutions for Colliers clients, as well as builds relationships with operators on a national platform level.
Tom Sleigh joined Colliers in 2019 as Head of Flexible Workplace Consultancy in the EMEA region. He supports occupier clients in the execution of their flexible workspace strategy and requirements, in addition to advising flexible operators on their expansion strategy throughout EMEA.