The US Flexible Workspace Market Is Now The Largest In The World

According to new research by Instant Offices, the US market for flexible workspace is now the largest in the world with 5,300 centers.
Supply has increased by 10% year on year (2018-2019), and Instant forecasts 10,000 US centers by 2023.
The industry has not only grown in size and supply, but also in the variety of options available.

The Instant Group recently published its latest US flexible workspace market summary. The report, titled “The Pioneers and the Pathfinders” found that the US flexible workspace market is now the largest in the world with 5,300 centers, surpassing the UK which currently has 4,563 centers.

Large operators have played a key role in the growth of the industry, but small, independent operators continue to make up the majority of the industry. In fact, despite the fact that the 10 largest operators in the US make up 36% of the market, the Instant Group found that these players now hold less market share than in previous years.

Niche operators make up the largest percent of market share, even when taking into account that “established operators are expanding at an impressive rate while landlords and brokerage houses are making a play to get their foot in the door.”

Both the rapid expansion from larger, multi-location operators and the low barriers to entry for small operators have led to the growth of the industry outside of core markets and urban areas and into secondary cities.

Key Findings and Takeaways

The US market for flexible workspace is now the largest in the world with 5,300 centers
Supply increased 10% year on year (2018-2019)
The US market is diversifying NOT consolidating: the 10 largest operators now make up 36% of the market
The average size of centers opened in 2019 is 50% larger than the average of all US centers
Instant forecasts 10,000 US centers by 2023
Flex space makes up less than 1% of total office space across the entire US market, meaning there’s ample room for growth

An increasingly diverse industry

According to Instant, “the workspace market has three key opportunities to respond to – the war for talent, employees choosing to pursue a better quality of life, and digital innovation that continues to create new, agile roles for workers.”

The above, to a certain extent, have driven the evolution of the industry. The industry has not only grown in size and supply, but also in the variety of options available. As clients become more discerning in the workspace choice, flexible workspace operators are having to strategically think about their location and the type of space and experience they offer.

In this sense, while small, independent operators remain a dominant force that cater to the startup and freelance sector, many operators are increasingly focusing on providing solutions for more mature businesses.

Given that more mature businesses typically have larger space requirements, a trend that the report notes, flexible workspace locations are getting bigger as they are better able to cater to the needs and demands of a diverse clientele.

Instant reports an “increased demand from larger requirements and increased investment into the industry.” Their data shows that the average size of a flexible workspace center in the US is 18,741 square feet. When examining “data for locations solely opened in 2019, the average size has increased to 28,526 sq ft – over a 50% uplift.”

In New York, demand for 25+ desks has increased from 6% to 13% in the last year. In San Francisco, demand for 10+ desks has increased from 27% to 60% of demand. This, however, does not mean that demand for 1 or 2 desks has vanished. It is worth noting that “over 80 percent of deals closed between Q1 2018 and Q1 2019 has been for 1-2 desks showing that the industry is still finding solutions for its original clientele – the smaller start-ups.

“The market is evolving to meet more sophisticated, niche-specific client demand, but also responding to demand from larger, corporate customers with very different dynamics.”

While larger flexible workspace operators are targeting the bigger requirements (up to 50+ desks), small operators are sticking to slightly smaller offices, “ranging from 5 to 15 desks”.

In the end, “it is choice that is the key trend driving demand and tailoring the office space to specific client requirements.”

For their part, client profiles are also shifting, with Instant reporting that the majority of deals closed this year were from the consulting industry “at almost double the rate compared to technology.” An additional important shift to note is the increased demand for flexible space from the legal industry.

Lease terms are shifting

Lease terms for flexible workspace agreements are also shifting and getting shorter — this holds true when looking at year-on-year data. When looking at a slightly longer-term view over the past decade, flex deals are more than 50% longer than those of even five years ago.

Part of the reason why lease terms are getting shorter is because many are expecting an economic downturn in the coming years. On the bright side, Instant believes that even in an economic downturn, the industry will thrive due to uncertain market conditions “where flexibility in lease terms and employee retention gives companies an advantage.”

There’s ample room for growth

While the US has become the world’s largest flexible workspace market, flexible workspaces only account for 1% of total office stock. In the UK, comparatively, that number is just above 7%. There’s ample room for growth, particularly in new markets.

The Instant Group expects to see upwards of 10,000 flexible workspace locations across the US by 2023. According to the report, it’s crucial to take into account large and small operators to measure the full extent of the market. Currently, this extent is “being misrepresented” because most of the research is focused only on the major city centers and for spaces over 20,000 square feet.

The rise of the franchise model

Increasingly, operators are turning to the franchise model to power and finance their growth. Notable operators doing this include Regus, Serendipity Labs, Venture X, and Office Evolution.

The franchise model can not only help power growth, but it can also help ensure flexible workspace success — particularly in suburban areas and secondary cities. “Many of the challenges for operators in these markets has centered on sourcing the right space and understanding the nuanced demand of the local working population. Working with a local partner, with business experience in-market, is a way to share risk and expand the brand.”

Free beer and coffee no longer cut it

While in the past, amenities like free beer on tap and gourmet coffee were enough to retain members, this is no longer the case.

“Amenities that keep a business running such as HR advice, stable internet connectivity and accessible conference rooms were valued higher than the perks such as bar facilities or pet friendliness.” In fact, 81% of flexible workspace users said they would pay a premium for business related services that add value. 57% of them already pay for additional services that complement their flexible workspace experience.