- According to the Instant Group, the flexible workspace market in Latin America is experiencing increased demand.
- Following the initial lockdown, demand bounced back in May and has been increasing month-on-month ever since.
- 90% of LATAM operators are planning to expand over the next 12 months and several of them plan to open multiple locations.
The Instant Group’s latest research “The Growth of Agile Workspace in Latin America”, looks at the challenges and opportunities facing the flexible workspace market in Latin America.
A key finding from the report is that COVID-19 has had a profound and lasting impact on Latin America’s workspace market. This impact, however, is a positive one for the region, as it has created increased demand for more agile and flexible space.
The Rise of Flex in Latin America
Flexible workspace accounts for a small portion of the total office inventory across Latin America. This isn’t surprising, considering companies in the region, up until COVID-19, preferred a more traditional approach to working and resisted the shift towards remote and flexible work policies.
However, over the past couple of years, the flexible workspace industry in LATAM has been growing at a rapid pace. The Instant Group found that this is particularly true among secondary cities, “where flexible offices are becoming increasingly popular for companies as they enable them to test a new market without long-term commitments.”
Instant reports that:
- There was a 56% growth in demand for flexible office space in Latin America throughout 2019.
- There was a 15% increase in supply of centers in 2019.
- The surge in demand has been driven in large part by more traditional office occupiers and corporates that now see flexible space as an attractive solution.
- Mexico City is the largest flexible office market in Latin America, with 11% of the market share.
- Latin America has experienced a supply growth of 230% in the last decade, compared to a growth of 196% in the USA.
- At the individual city level, local independent players continue to dominate all markets, with a huge 93% of the market share.
- The Latin America flexible office market is dominated by IWG and WeWork.
- As secondary markets develop further, regional operators will gain dominance in more markets.
The Impact of COVID-19 on Flexible Workspace
The flexible workspace industry in Latin America will continue on its growth path after the pandemic. One main reason behind this is the fact that organizations in Latin America, as in other parts of the world, were forced to embrace work from home as government lockdowns came into effect.
As with companies around the world, companies in LATAM have experienced first-hand that remote working works.
According to Instant, “in the long-term, this will lead to a permanent shift to flexible working and will drive demand for more agile office solutions.
“In the short-term, post COVID-19, companies are expected to reduce capital expenditure and create cost savings as well as diversifying their business model. This will see them injecting more flexibility into their portfolios and utilising alternative models to taking leases and self-delivering office space. This shift in the occupier approach to workspaces will in turn increase the attractiveness of flexible workspace solutions.”
The good news for flexible workspace operators in the region is that demand for flexible space is already increasing.
Instant reports that:
- Although demand was impacted throughout March and April, demand for flexible space quickly bounced back in May and has been increasing month-on-month ever since.
- In Mexico City demand levels are higher than they were before the pandemic, with search volumes up by 2% this time last year.
- Demand is also seeing strong signs of recovery in Lima, with inquiry levels up 64% during H1 2020 compared to H2 2019.
- Instant data has also found that there is a greater portion of larger requirements so far in 2020 compared to 2019.
- 90% of flexible workspace operators confirmed that they are planning to expand over the next 12 months and several of them plan to open multiple locations.
Additional Findings from the Report
One of the main reasons why flexible space is such an attractive solution for companies in the region as they embrace remote work is to cut commute times.
“Road and public transportation infrastructure is poor across much of the region and so commute times are typically 1-2 hours for distances of just 10-15km. Latin America, therefore, has much to gain from the adoption of the ‘hub and spoke’ model and, as a result, suburban flex office operators will see a rise in demand.”
As more companies allow workers to work from home or work near home, suburban markets, and therefore local flexible workspace operators, stand to win in the post-pandemic world.
Although market rates have been on the decline in Latin America over the past 2 years, and despite the fact that COVID-19 has resulted in rent cuts as operators hope to keep clients, market rates are expected to go up.
Currently, market rates are at least 20% reduced up to 70% reduced for long-term commitments. However, “in the short-term, clients will be demanding lower densities and increased cleaning, both of which incur higher costs. Therefore, we may see workstation rates rise as companies turn to flex space post-COVID, although this will be across all markets and will only be an interim measure.”