Tuesday, September 24, 2019

Office-Flex Space Growing in Philadelphia

by John Jordan Globest.com
While still a small component of the overall office market here and in Pittsburgh, a newly released report by CBRE states that the office-flex inventory in both cities has grown significantly in the past year.

Philadelphia’s office flexible-space inventory grew to 1.1 million square feet by the end of the second quarter of 2019, an increase of 308,000 sq. ft., or approximately 38%, from a year earlier.

Flexible space now accounts for 1% of Philadelphia’s total office inventory, up from 0.7% a year ago. Still, that ratio comes in below the U.S. average of 1.8%, indicating that there is room for the sector to grow in Philadelphia.

“When co-working operators began expanding in Philadelphia a few years ago, startups drove the demand. However, many operators have shifted their focus and are now targeting larger corporate users. So far in 2019, the co-working footprint in Philadelphia has already grown at a higher rate than each of the previous two years and we anticipate that trend will continue.”
Flexible space is heavily concentrated in Philadelphia’s Market West submarket, which accounts for 47.5% of the market’s flexible space inventory.

In the City of Pittsburgh, new inventory of office-flex space has come to market of late. The report on the Pittsburgh office-flex market notes that Pittsburgh’s flexible office space inventory grew to 616,000 square feet by the end of the second quarter of this year, an increase of 121,000 square feet or approximately 24%, from a year earlier. The office-flex market has grown by more than 250% since 2014, according to the report.

Flexible space currently accounts for 0.8% of Pittsburgh’s total office inventory, up from 0.6 %a year ago.
“Pittsburgh’s universities and growing technology industry have helped accelerate the demand for flexible office space. Currently, there are 18 different flexible office space operators in Pittsburgh offering lease term flexibility and highly appealing workplace environments.”

Flexible space is heavily concentrated in Pittsburgh’s Downtown submarket, which accounts for 34.4% of the market’s flexible space inventory.

National Office-Flex Market Trends

Nationally, the flexible office space sector currently occupies a cumulative 71 million square feet, or 1.8% of the office space in 40 U.S. markets.

Forecasts the national flexible office space will expand to approximately 13% of office space by 2030, reaching up to 600 million square feet. Even in a low-growth scenario, has flexible office space claiming up to 6.5% of the market by 2030.

Fueling that growth is demand from small businesses and enterprise users alike that favor the flexibility of office accommodations on relatively short-term leases, allowing them to expand or contract their space according to the needs of their business. Additionally, the flexible office space category has room to grow in every U.S. market. Even markets where flexible office space is well established—such as San Francisco at 4% of its office market and Manhattan at 3.6%—aren’t as penetrated as major international markets like London and Shanghai, both at 6%.

“We’re seeing a fundamental change in the expectations that organizations and their employees have for the workplace. This change is spurring an increasing number of companies to engage with flexible office solutions that provide the physical environment and business terms they prefer. This shift is ongoing. There are some very bold predictions in the marketplace – with some calling for flexible space accounting for as much as 30% of office space in the future. There is simply not enough available office space to support this supply without even more drastic changes in tenant behavior.”

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