Flexible office spaces see increase in profitability on global scale, says Workthere
According to new research from Workthere, the proportion of global flexible office spaces that are profitable at an operating level, has increased over the last 12 months from 79 per cent to 82 per cent.
The Flexmark report, which surveyed flexible office providers across the globe to provide a benchmark of the sector, also found that the number of global flexible office providers that have made a profit has grown from 79 per cent to 82 per cent over the last year, with providers that have recorded profits over 26 per cent increasing to 16 per cent of respondents.
Cal Lee, Global Head of Workthere, comments: “Given the challenges of the last 12 months, it is interesting to see that a portion of providers globally have increased their profitability at an operating level. This is particularly relevant given that our research shows that occupancy levels have decreased for both private and dedicated desks, which generally capture the larger share of revenue, from 81 per cent to 68 per cent and 65 per cent to 56 per cent respectively. This suggests that, despite the fact that occupancy has been reduced, operators have managed to effectively cut costs either through the negotiation of rent holidays or by moving from a lease to a management agreement, therefore removing their higher fixed costs and making their cashflow more profitable.”
Asia and Europe represented the most profitable regions according to the research. In Asia, where rent holidays are less frequent, but management agreements are more popular, 71 per cent of spaces had profit margins of greater than 10 per cent, while in Europe 44 per cent of spaces were profitable above the same margins. These figures also correlate with the fact that Asia saw the lowest drop in private office occupancy over the last 12 months of just 5.5 per cent year on year, whilst Europe saw the lowest decrease in shared space occupancy, with a decline of 1.4 per cent over the last 12 months.
Workthere’s research confirms that private office membership fees still account for the largest share of revenue for flexible office providers at 54 per cent, albeit this has decreased from 65 per cent since the flexible office specialists’ inaugural report in 2020. The research also shows a shift in revenue split, with hot desks and dedicated desks accounting for larger proportions of space, increasing from 7 per cent to 10 per cent and 9 per cent to 16 per cent respectively. This change has meant that flexible offices are more correlated with the space allocation for these types of space.
While private offices remain the most profitable element for providers, they have seen an average drop in prices of 6 per cent over the last year, according to Workthere.
Lee continues: “Driven by the pandemic, the drop in prices has, to some extent, happened in two stages. Firstly providers were forced to offer discounts to incentivise existing occupiers as they negotiated the renewal of contracts during March, April and May last year. The second stage came as enquiries began growing and was driven by providers offering heavily discounted deals in an effort to attract new occupiers and generate an income during the latter half of the year. In reality, the 6 per cent decline in private desk prices at a global level is arguably lower than what we might have expected and demonstrates the reliance and perceived future growth for the sector.”