Market Update
Week in Review

Week in Review

Flex Office Remains Viable

Positive economic news and the near-term end to economic lockdown have pushed the recovery in risk assets to surprising highs. Rising stock markets historically have been a lead indicator for real estate demand growth.

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Economy

Good Indicators

The S&P 500 is up 39% since its low on March 23 and up 13% since this time last year. The New York Fed Weekly Economic Index indicates that the U.S. economy hit bottom in May and has stabilized.

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Flex Space

Manhattan

Manhattan is the largest flex space market in the U.S. with more than 16.6 million sq. ft. as of Q1 2020. Since late 2019, there has been a significant drop in flex office growth and there was speculation that the sector might be headed for a correction in early 2020.

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Flex Space

Los Angeles

Southern California’s flex space operators are in the early stages of adapting their operating model within a radically different economic and public health context. The expansion of flex space operators in Los Angeles, the nation’s second largest flexible space market with 6.7 million sq. ft. of space, has slowed since March.

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Flex Space

Chicago

The growth of Chicago’s flex office footprint has slowed after two strong years propelled it to 4.5 million sq. ft., 83% of which is in the downtown. Flex operators are focusing more on location performance and occupancy before leasing any new space.

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Flex Space

Boston

Growth of the 4.2 million-sq.-ft. Boston/Cambridge flex office footprint has slowed over the past two quarters. While there was an expectation that the sector was headed for a correction in 2020, the impact of COVID-19 stay-at-home orders has all but confirmed this.

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Flex Space

Dallas

While flexible office space in the Dallas metropolitan area has more than doubled since 2017, it still accounts for less than 2% of the market’s total office inventory. Rent collections so far have remained very strong among flexible office providers, but there have been three instances of providers putting space on the market for sublease.

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Flex Space

Denver

Denver’s flex market is struggling as many operators navigate the COVID-19 storm. Flex leasing has slowed, with no leases of more than 10,000 sq. ft. in traditional office space in Q1 and none thus far in Q2.

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Flex Space

San Francisco

Flexible office space totals 3.9 million sq. ft. or 4.9% of San Francisco’s total office inventory and is largely controlled by national operators. There is an emphasis on enterprise space in the market, with 460,000 sq. ft. or 12% of all flex space currently being marketed for enterprise use.

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Flex Space

Washington, D.C.

Flexible office space providers have grown rapidly in the Washington, D.C. region—particularly so in the District of Columbia, where the sector contributed more to occupancy growth over the past two years than any other sector. However, the flexible office space sector comprises a lower percentage (1.3%) of the region’s overall office inventory than several other leading markets.

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Flex Space

Atlanta

A notable uptick in enterprise client activity is taking place as occupiers seek shorter lease terms and more location options to accommodate changing business conditions. Adapting to changes in the workplace such as social distancing and cleanliness has resulted in some flex occupiers taking more space to ensure occupant guidelines are met or exceeded.

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Flex Space

Seattle

Flexible space accounts for just 2.4% of the Seattle metro area’s total office inventory and is largely controlled by national operators. One local operator has closed since the COVID-19 outbreak, but the impact of its 38,000-sq.-ft. space is minimal compared with the industry’s 2.8 million-sq.-ft. local footprint.

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Flex Space

Asia Pacific

COVID-19 has led to previously aggressive flex operator growth giving way to consolidation in what was a crowded and competitive marketplace. However, the long-term demand drivers of flexible space remain intact, with smaller users continuing to pursue cost-effective and term-flexible fully furnished space and large multinationals leasing flexible space as a key component of agile portfolios.

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