Los Angeles has the second largest supply of flexible office supply in the country. According to a new report from CBRE, Los Angeles flexible office supply increased 15% last year to 4.23 million square feet, and now, the flexible market accounts for 2.1% of the total office market in Los Angeles. New York City is the only market with more flexible office space—a substantial 13.5 million square feet, according to the report.

Large companies are using co-working operators to expand and test new markets, and this trend has been the primary driver for the expansion of flexible office providers in Los Angeles. “More and more companies are looking to expand their offices,” Chris Penrose, first VP at CBRE, tells GlobeSt.com. “The economy is doing well, and companies are hiring more people. In certain markets, companies are dipping their toe in the water as they are trying to expand their business, and we are seeing co-working companies are moving to those areas. The Arts District is a great case study of co-working groups doing two- to three-year service agreements with companies that are trying to figure out if that is a market they want to be in. Co-working provides companies the flexibility to decide if they want to be in a market.”

While the niche office sector is growing, it hasn't negatively impacted direct leasing. In some instances, Penrose says that co-working has created opportunities for landlords, although that has not become a widespread trend. “Every now and then, you do get a company that grows out of the co-working group and needs there own space,” he says. “It is easy, in those cases, to do a direct deal with the landlord of the building you are currently in. I don't think that happens as much as we wish it would, but it does happen.”