by Brianna Crandall — January 7, 2022 — After a period of unprecedented disruption in demand for office space, many 
tenants are coming to the realization that in times of uncertainty, flexibility is the greatest amenity. As a result, tenants, landlords and investors are looking to the flex space sector as a viable solution for the post-pandemic workforce as they await greater clarity in business conditions and workplace strategy, finds global real estate services firm JLL.
Flexible space is defined as pre-built work environments available for short durations through a streamlined transaction, and, according to JLL’s November 2021 Global Flex Space Report, 41% of tenants expect to increase their use of flex space as part of a post-pandemic work strategy. This is credited to occupier motivations for short-term space needs, workforce mobility and cap-ex savings.
Furthermore, with the pandemic exacerbating uncertainty, tenant sentiment now indicates that flexible space adoption is set to accelerate substantially as demand shifts from fixed long-term commitments to more agile options.
Ben Munn, global head of Flex, JLL, pointed out:
Since the increased demand for flex space is structural and not solely a result of the pandemic, we see landlords and building owners including both flexibility and hospitality services into their portfolios. They are now taking into consideration various ways to drive foot traffic, generate leasing prospects and deliver modern amenities to tenants within this new space.
While investors consider calculated risks and await data on operating performance, asset pricing and liquidity, innovative new deal structures are forming that mitigate this risk, maximize return potential, and confer greater control of space and customer relationships to landlords. JLL also expects owner-operated platforms and management agreements will continue to gain scale, with this segment’s share of the market increasing from less than 15% of stock today to over half of all flexible space inventory in the future.
In addition, investors will become increasingly selective of covenants with third-party operators. Securitization, which includes letters of credit and corporate guarantees, will take on heightened importance given the market volatility experienced throughout the pandemic. As this additional transparency develops around operating performance, investors are likely to gravitate to flexible space due to the benefits of a more agile office ecosystem outweighing the risk.
Scott Homa, head of US Office Research, JLL, stated:
As with most trends, the pandemic has been an accelerator, not a creator, and this case is no different, as flex was squarely on the agenda already. That said, we firmly believe that the office, or corporate headquarters, is here to stay — but it is evolving. As part of a long-term space strategy, both occupiers and investors recognize that flex space can augment their current portfolio or offerings — providing even greater options and amenities to their workforce or tenants.
Flexible workspace will continue grow from a sliver of the overall market to a critical and mainstream element of commercial real estate, predicts JLL. Awareness and adoption will evolve to a point that flexible workspace becomes fully integrated with not just conventional office buildings, but retail shopping centers, multi-housing developments and other property types.
To download the Global Flex Space Report, visit the JLL website. JLL is a Fortune 500 company with operations in over 80 countries and a global workforce of more than 95,000. The company’s 2,300 property management experts in the U.S. provide comprehensive real estate services in more than 1,200 buildings totaling more than 208 million square feet.
