The Price Per Desk for Flexible Workspace is Declining in Gateway Cities

The cost-per-desk for flexible workspace is following a bifurcated path, with prices declining in gateway cities while increasing in the secondary markets that are attracting businesses and people.

While New York City’s Midtown market (-29%), Washington, DC (-23%), Boston (-22%) and Los Angeles (-18%) saw a significant decrease in the cost per desk, Phoenix (39%), Nashville (14%), Denver (11%) and Austin (3%) recorded gains, according to The Instant Group’s US Market Summary.

The Instant Group’s report also shows that during the pandemic, flexible workspace is moving closer to where people live—such as in the suburbs—as opposed to inside the gateway cities. For instance, while demand for flexible office space dropped by 14% in New York City in 2020, it rose in areas of Westchester, NY, Connecticut and New Jersey.

However, there could be issues with this drift in demand toward the suburbs. The Instant Group notes that a challenge will be whether offices in the suburbs will be able to service the increased demand and provide the space and services New York City workers expect. Further, it says that New York City is home to 86% of the flexible workspace available within this area, which means that suburban supply will have to grow to keep up.

Still, The Instant Group notes that flex space provides substantial cost advantages to tenants. In Midtown New York, for instance, it says that there are minimal declines in rates being passed to occupiers.

The Instant Group uses the average occupancy cost for 50 employees to show that the traditional model only provides a cost savings of $13,750 based on the annual change in office rent. However, on the flex space side, occupiers have achieved a savings of $78,618 over the same period for the same number of people. 

Flex operators have been able to react to market changes more quickly than those traditional landlords because of shorter lease terms, according to The Instant Group. In the process, they have been able to change their offerings to meet the specific needs of the occupier.

The flex space sector’s ability to move nimbly doesn’t always help occupiers. In growth markets, rates have risen. But flexible lease terms allow occupants to downsize, move or negotiate.

A recent CBRE analysis suggests that occupiers will increasingly prefer this flexibility. “Occupiers are increasingly demanding flexible space options, shared meeting space, indoor air quality, connected building apps and touchless technology when considering new leases,” according to CBRE.

Flex space needs will likely increase “as occupiers shift their strategies away from long-term, capital-intensive commitments.”