Daily Digest News – February 3, 2021

Hand selected flexible workspace news from the most reliable sources to keep you ahead of the pack. We find all the latest news, so you don’t have to. Morning and afternoon updates. Stay in the know.

Here’s what you need to know today:

Troubles For The Office Market Could Still Be Ahead

Bond credit rating company Moody’s Analytics report is predicting that effective office rent in the U.S. will decline by 7.5% this year and may not rebound to pre-pandemic levels until 2026.

Although the global commercial real estate economy is eager to bounce back from the tumultuous year of 2020, this grim outlook could mean that the worst of the pandemic’s impact is still yet to come.

Average effective office rents include concessions made by landlords, which are not reflected in asking rents. According to Moody’s, this figure fell by 0.7% in 2020, which could be indicative of the long-term nature of many office leases.

However, JLL’s recent report also stated that average asking rents stayed relatively steady despite many people working from home.

Occupancy levels are one of the big signals of the struggles that the office market has faced. The U.S. marked a record 80.4 million square feet of negative net absorption according to JLL. This could continue to be jeopardized as remote working becomes more widely adopted and demand for office space decreases.

Because of this, landlords will need to find creative ways of filling out their buildings and work alongside tenants to navigate deals that help both parties.

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Knotel Chairman To Step Back

Just days after flexible workspace operator Knotel revealed it was filing for Chapter 11 bankruptcy, cofounder Edward Shenderovich stated he would be stepping back from his role as chairman. In the meantime, CEO Amol Sarva will take over.

“Just to be clear, I am not abandoning the ship – I hope to be back after the Chapter 11 process concludes. Just stepping out for a while,” Shenderovich stated in an email.

Shenderovich was responsible for much of Knotel’s fundraising. In August 2019, the company raised $400 million in a Series C fundraising round. $250 million from this round was to be used towards buying buildings on behalf of lead investor Wafra, but that never came to fruition.

In recent months, Knotel has struggled to raise capital. In July, Sarva revealed he had raised $10 million and was working to bring an additional $100 million by the end of August, but again, that never happened.

Knotel has also faced numerous lawsuits from various landlords, claiming the firm owes millions in unpaid rent and other debts.

At the beginning of the year, Sarva told staff he had secured more funding, but did not reveal how much and from where. An insider stated that this was a restructuring deal that included debt and equity components.

The company now has plans to sell its business to real estate services firm Newmark.

Credit: Knotel

Miami Metropolitan’s Office Market Could See A Rebound

Although Miami-Dade and Broward counties’ office real estate markets have experienced a downturn over the past year, interest from financial firms could help the industry bounce back.

While both areas experienced a negative net absorption due to tenants not renewing leases, there is a rejuvenated confidence in the market particularly from firms like Blackstone and Goldman Sachs.

The JLL report found that Miami-Dade has seen an uptick in vacancy rates, but growing demand could lead to a boost in occupancy.

Over the last several months, Miami-Dade saw office giants walk back on its occupied space. For instance, WeWork gave back its space at downtown Miami’s Southeast Financial Center, while HSBC cut down its space at the Four Seasons.

However, Blackstone recently took up a 41,000 square foot lease at 2 MiamiCentral, where it is expanding its in-house technology capabilities.

Additionally, H.I.G. Capital expanded to a 22,000 square foot workspace at The Plaza Coral Gables, while also renewing its lease in the Brickell Financial District.

Currently, Miami-Dade’s vacancy rate is at 18%, a 6.4% increase from the previous year.  However, the county’s construction is boosting inventory and its sublease availability is actually among the lowest in the country at 2.2%.

Broward County has reported a 16.2% vacancy, but currently has 145,322 square feet of construction in the works.

Additionally, Goldman Sachs has revealed it is seeking a multi-floor office space in downtown Fort Lauderdale.

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WeWork Sees Uptick In Enterprise Clients

Although the coworking industry as a whole has taken a major hit due to the pandemic, WeWork is seeing a spike in interest as companies look for alternative workspace solutions.

Large organizations have embraced the idea of adopting a more flexible workplace, and doing so means that third-party office providers could see increased interest in their offices.

According to Balder Tol, manager of WeWork’s Australian operations, inquiries are growing.

“There’s heightened appreciation for the flexibility that sits within our business model,” said Tol. “Since Q4 [fourth quarter] the number of conversations we’re having with our enterprise members has definitely picked up significantly…They are really trying to balance their people strategy with their occupancy strategies.”

Tol added around half of WeWork’s memberships come from enterprises, and he is anticipating that number to grow.

At the moment, around three-fourths of WeWork’s member companies have returned to the office for part of the week.

The company recently opened its 21st location in Australia after the pandemic delayed the opening.

WeWork has been experimenting with new ways to accommodate members throughout the pandemic, including its “All Access” pass that allows members to use any of its locations.

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Digital Nomads Could Create New Opportunities For Real Estate

Digital nomads are workers who are not geographically tied down. Instead, they often travel to various countries and work out of coffee shops or coworking spaces.

As of 2020, there are nearly 11 million American digital nomads, and that number is anticipated to keep growing in the near future.

Even prior to the pandemic, digital nomads grew 49% from 2019 to 2020. Now that companies have readily embraced flexible and remote working, this number could grow even more.

Additionally, the ability to use mobile devices to complete work and growth of SaaS means that the pool of digital nomads is widening.

This is going to mean big things for the real estate industry as digital nomads look to rent out temporary homes from overseas.

In order to attract these traveling professionals, landlords will need to be transparent about the leasing process. Adopting the use of video tours, verified testimonials and ratings will help give brokers a competitive edge.

Streamlining the leasing process with technology will also be crucial. Services like DocuSign and Adobe Sign help landlords upload the required documents to sign the lease, which allows digital nomads to settle in their new homes as soon as they arrive.

Credit: Canva

UK’s Flexible Office Sector Could Slowly Recover This Year

After closing out what became one of the most memorable and challenging years in recent history, the UK flexible office market is entering 2021 with optimism.

“Unsurprisingly we did not foresee a global pandemic in our 2020 predictions for the sector this time last year,” said Cal Lee, global head of Workthere. “However, whilst the flexible office market has been profoundly affected by the pandemic due to the short terms nature of contracts and a general shift to people working remotely, it has arguably been more robust than people might have given it credit for.”

According to Workthere’s Sentiment Survey, UK contract occupancy was 68% at the end of November, which is down from 84% pre-pandemic.

Moving forward, Workthere predicts that there will be a small growth in demand for day passes for meeting room spaces, which could boost deals in the flexible office sector.

In the second half of 2021, it is anticipated that there will be a record number of companies taking up flexible office space as they look to adopt more agility in their portfolio and do not want to commit to a long-term lease.

Additionally, Workthere expects that desk prices in central city locations will rise as operators look to become more competitive. In the second part of the year, demand is anticipated to grow and supply to reduce.

However, suburban locations will likely maintain their strength. In fact, demand for UK suburban flexible offices accounted for a quarter of total demand according to Workthere’s October sentiment survey.

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