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Flexible Office Leasing Slows Significantly in Q4

  • Flexible office leasing volume totaled 1.0 million sq. ft. in Q4, down by 75.3% from the prior quarter and by 79.7% from Q4 2018. The drop is largely attributable to WeWork’s pullback in leasing after its failed IPO in late Q3.
  • For full-year 2019, leasing by flex operators was down 11.6% to 12.1 million sq. ft. from 13.7 million sq. ft. in 2018. Despite this slowdown, demand for flex space is still growing, albeit at a slower rate.
  • More than 86% of flex leasing activity in Q4 was in new leases or expansions. Flex operator Spaces (IWG) accounted for 36.2% of new flex leasing activity in Q4 (vs. 3.9% in Q3), while WeWork accounted for 21.8% (vs. 69.4% in Q3).
  • Dallas/Ft. Worth, Manhattan and Phoenix accounted for 48% of Q4 flex leasing activity, with Dallas/Ft. Worth alone accounting for 20%. Manhattan remained the top market for new space leased by flexible office operators in Q4.
  • While still among the most active flex leasing markets, Manhattan, San Francisco and Boston leased significantly less space in 2019 vs. 2018. The slowdown was largely driven by WeWork’s shift from a growth to profitability strategy.
  • Detroit, Tampa and Kansas City all had increases in leasing activity of more than 400%, although from relatively low bases in 2019. Markets with the largest absolute annual increases last year were Los Angeles (602,000 sq. ft.), Miami (353,400 sq. ft.) and Orange County (269,500 sq. ft.).
  • Flex startups CommonGrounds Workplace, Office Evolution and Venture X all increased their leasing activity by more than 100% last year. Operators with the largest absolute annual increases in leasing activity were CommonGrounds Workplace (248,200 sq. ft.), WeWork (161,900 sq. ft.) and Knotel (124,600 sq. ft.). Hana entered the market in 2019 and leased 122,600 sq. ft. in Dallas/Ft. Worth and Orange County combined.

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