Largest Operator Market Spotlight Q1 2021

Guest Writer, Joshua Beer, of Avison Young's Flexible Office Solutions Practice

The US flexible workspace market was frozen in time in 2020, radically different from the explosive growth in prior years.

However, in the last 90 days we have seen headline after headline of large operators executing on plans developed during this pause, and unfortunately some who could no longer sustain their business plans.

Shown below are the “2020 Largest Flex Operators,” i.e. operators who held more than 50 locations within the US.

For context, it is important to note that this is a very small group with only 8 of the estimated 3,300 US operators having this kind of scale.

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First up are the original “Big 4” by number of Locations (Spoiler Alert: Not such great news for the industry)

IWG – Operates well over 3 times more locations than its closest competitor, WeWork. Though IWG made news in 2020 through its Regus brand filing for bankruptcy protection for over 90 centers, in reality it has only closed 16 in the last 90 days. Its Spaces brand is slowing its future development and has closed 6 locations, but still operates close to 110 centers nationwide.

WeWork – Talk of location consolidation strategy was already in progress prior to the pandemic, but WeWork has accelerated this by closing 13 centers in the last 90 days in addition to handing back spaces that were yet to be formally launched.

Breather – Made headlines in late 2020 for literally closing its doors and walking away, while its CEO publicly questioned the coworking model altogether.

Important to remember, Breather had what we call in the industry “A Lot of a Little” – loads of small locations making economies of scale incredibly difficult on top of paying market rent.

What’s not so difficult? Apparently pitching this concept and raising $122M in funding, which is now all gone.

Knotel – Once seen as real competition to WeWork and on track to become a global player, Knotel now awaits it next life as a product offering within the real estate brokerage firm Newmark's arsenal. Which locations are in and which ones are out will be monitored, but safe to say it will not be the portfolio as it stands today.

Now for some good news for the industry.

Industrious – With an injection of $200M of much needed capital, thanks to real estate powerhouse CBRE, Industrious still gained 13 centers in the last 90 days even without the pending Hana portfolio.

How? (1) Landlords and Investors began moving forward with deals and (2) Industrious stepped in to take over distressed centers from other operators.

Industrious seems to have figured out the essence of the Management Agreement and its tricky waterfall of revenue that often plagues Landlords and Operators. As we enter this new world, this is an excellent skill to have.

Premier Workspaces – Though Premier did shed one of its centers in the last 90 days, the real story here is how a well-established, well-run, time tested operator has weathered the storm, showing if you have solid fundamentals you can be large and successful.

Office Evolution – Probably the best in the industry for executing a franchise model, Office Evolution continues to attract investors hungry to get into the flex market, but with a known brand who can help them succeed.

Flex+ Workspace by Irvine Company – So refreshing to see a forward thinking landlord proactively position their portfolio for the post pandemic world. Irvine has wasted no time in increasing the number of spec and agile suites across its portfolio adding some 35 new addresses since Nov 2020, a whopping 67% increase. Better yet, these are not giant floorplates of space but rather sub 10k sq ft furnished suites ready for prime time and strategically placed throughout their portfolio. The Landlords who get this right will be well placed for future success.

What are the Bottom Line Trends?

What’s Hot:

·        Operators who can execute Management Agreements – Industrious

·        Operators who have a well-oiled Franchise Model – Office Evolution

·        Landlords who have a well-executed Flex Offering – Irvine Company

What’s So Not Hot:

·        Growth at all cost

·        Poor fundamentals

·        Poor location strategy

The next 12-24 months will be a roller-coaster, but it's clear the US flex market will come out stronger than ever as companies and employees look to collaborate in person.

Other blog entries

Female Focused Flex Workspace Market Spotlight (03/11/2021)
Georgia Flexible Workspace Market Spotlight (02/22/2021)
Buffalo native opens coworking incubator, art gallery (12/04/2020)
Industrious, LIVWRK team on coworking location in Brooklyn (10/12/2020)

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