The Golden Age of Flex Office

With WeWork sputtering and venture dollars gone, things may look dire. But the macro landscape for managed office is perhaps the best it has ever been. Where is the sector headed?

Thesis Driven dives deep into emerging themes and real estate operating models by featuring a handful of operators executing on each theme. The deep dives will give an investor enough context to understand the trend as well as opportunities for personal introductions to relevant GPs actively executing on opportunities. This week’s letter is on the managed office sector.

Prior to the pandemic, co-working was among real estate’s hottest trends. For a brief time, WeWork surpassed Airbnb as the highest-valued real estate “technology” company in the market. For reasons that have now been well-documented across books and TV miniseries, the WeWork narrative (and valuation) came crashing down, casting a pall over the co-working ecosystem along with it. Today, most operators prefer to use the terms managed office or flex office rather than co-working, which is both more accurate and less fraught despite not rolling off the tongue in quite the same way.

In some ways this is a shame, as the macro environment for managed office operators has never been better. On the demand side, office end users are embracing the distributed work environments and hub-and-spoke models enabled by managed office providers. End users are also craving lease flexibility in an uncertain environment for both the future of work as well as the economy. While 43% of companies intend to increase their flex office footprint in the coming years, only 1.5% of office supply is currently operated as flex space. Workspace Strategies estimates that the number of people working in flex office space rose from 1.8 million in 2019 to 3.1 million in 2022.

On the supply side, the secular pullback in fixed-lease office demand has forced building owners to accept terms with operators they never would’ve considered prior to the pandemic. Management agreements, long a dream of co-working operators, are finally the norm. Operators no longer have to bid against high-dollar master lease offers subsidized by venture capital dollars when competing for quality spaces.

In today’s Thesis Driven, we’ll dive deep into the current state of the managed office sector through discussions with several successful operators that are not the subject of New York Times-bestselling cautionary tales. Despite attention—and VC dollars—being drawn away from the sector, managed office models have never been more applicable or relevant to institutional real estate owners and investors.