The office sector continues to grapple with evolving working patterns due to significant shifts in occupier sentiment while striving to grow revenue, invest in new locations, and improve profits.
Article by Ben Wright, Global Head of Partnerships
Understanding the market dynamics and trends that impact investment decisions is crucial for businesses navigating this ever-changing landscape of hybrid and flexible work. Below, we present the latest market data to help operators gauge their positioning in the market and make data-led investment decisions.
Pricing Trends: A Key Indicator of Revenue and Profit Generation
Keeping a close eye on pricing across the market is critical. It directly impacts the ability to win more clients and grow revenue. While in growth mode, pricing trends are also a strong indicator of locations that have higher revenue-generating and profitability potential.
The trajectory of desk rates within the flexible workspace sector has been a tale of fluctuation and adaptation. Following a decline throughout 2023, desk rates have begun to ascend, signaling renewed interest in flexible workspaces. In Q1 2024, there was a notable 5% increase in average desk rates across North America compared to the same period in the previous year. This rise in pricing can be attributed to the 7% uptick in interest for flexible workspaces during Q1 2024 compared to Q1 2023, following stable demand throughout 2023 compared to 2022. It’s also a healthy sign of confidence among operators to adjust pricing based on market dynamics.
Interestingly, the flight-to-quality trend has continued to shape pricing dynamics across a range of types of flex spaces. For example, desk rates in coworking spaces across the market have seen a mere 2% incline from Q1 2023 to Q1 2024, suggesting increased pressure to balance pricing and rising operational costs. Meanwhile, desk rates in private offices at premium flex spaces, characterized by low-density, higher-spec finishes, and service-focused environments, have witnessed the most significant hike, seeing a 7% increase across North America.
In the same vein, market-specific variations further underscore the nuanced nature of pricing trends. In bustling hubs like New York City, the average monthly desk rate increased 24% to $847 in Q1 2024 versus the same period last year, and premium spaces hit an average of $1,076 per desk per month, with occupiers willing to pay not just more, but a premium for the right location and amenities. Meanwhile, markets such as Miami and Mexico City continue to experience robust demand, driving up average desk rates by 3% and 32%, to $749 and $566 per desk per month respectively.
Occupier Sentiment Driving Flex Demand
Occupier demand for flexible workspace solutions remains robust, reflecting a sustained trend observed throughout 2023. In fact, flex demand in 2023 ended on a positive note, boasting a 43% increase from pre-pandemic levels across North America. Our research shows that the ideal scenario for many individuals entails a blend of spaces, with 44% of time spent in the company office, 32% in coworking spaces, 21% at home, and 3% in third spaces.
Flex solutions are the obvious choice for occupiers facing challenges related to space utilization and rising costs of traditional real estate solutions. It’s an opportunity to maximize portfolio value and provide employees with greater autonomy over their work environment.
In fact, data from The Instant Group demonstrates that larger flex requirements are driving growth of the sector, with a 34% increase in flex desks from requirements for over 26 people in Q1 2024 over Q1 2023. Given this, operators seeking to expand should consider larger floor plates with a strong mix of products to cater to this demand from larger clients.
Market Outlook: Emerging Landlord Strategies to Deliver Flex
Amidst the evolving landscape of work, landlords are recalibrating their strategies to meet shifting demands and capitalize on emerging opportunities. With agility and portfolio adjustments driving strategic decisions for businesses in 2024, there is growing interest from landlords and owners to deliver a more diverse and productized offering across their portfolio, including a range of flexible products, from meeting rooms and coworking to managed office solutions. With this comes opportunities for flex operators to partner with landlords in delivering new locations.
Forecasts indicate a decline in demand for traditional leases over the next two years. One hundred percent of landlords have witnessed an increase in demand for flexible space compared to long-term leases and one third cite seeing a significant increase. In response, landlords are gearing up to meet this demand with 67% planning to develop flexible spaces independently across their assets. Additionally, 60% of landlords anticipate that at least 20% of their portfolio will comprise flexible spaces by 2030.
Critical to this transition is the utilization of data-driven insights to identify markets primed for new flexible supply while mitigating the risk of overexposure. As recovery remains uneven across regions, strategic allocation of supply will be essential to ensure sustained growth and improved margins for workspace providers across the industry.
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In essence, the landscape of the office sector continues to evolve, with flexibility becoming an increasingly integral component of any real estate portfolio, presenting both challenges and opportunities for both sides of the market. For workspace providers – both landlords and operators - staying attuned to supply/demand dynamics, pricing trends, and what occupiers want can help identify flex solutions that not only drive revenue and improve margins but also serve the wider industry by bringing the right type of supply onto the market.
Learn more here about how our Partnerships team is helping space providers to make smarter investment decisions.
Methodology
Data within the report is compiled via The Instant Group’s leading flexible workspace data platform Instant Insights.
Sources:
- The Instant Group, Workspace Occupier Survey Q3 2023
- The Instant Group, Future of Flex Survey 2023
