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JLL Flexible Office Space Report

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Flexible workspace is not just for millennial freelancers or tech startups anymore. Large, multinational companies are rapidly adding flexible workspaces to their global portfolios. This report examines the global trends taking place within the flexible office sector and the implications for the Great Lakes region.

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JLL Flexible Office Space Report

  1. 1. 1 | Flexible Office Space 2018 Flexible workspace is not just for millennial freelancers or tech startups anymore. Large, multinational companies are rapidly adding flexible workspaces to their global portfolios. This report examines the global trends taking place within the flexible office sector and the implications for the Great Lakes region. is disrupting the commercial real estate industry Flexible Office Space
  2. 2. Corporations are embracing flexible space Shared workspaces have grown at an incredible rate of 200 percent over the last five years, and by 2020, it is estimated that there will be 26,000 flexible office locations worldwide. From start-ups to Fortune 100 companies, flexible space enables greater efficiency, potential cost reductions and responsive solutions for a dynamic business environment. Nearly half of corporations already use some type of flexible office solution, and by 2020, 65 percent of companies expect to incorporate coworking into their office portfolio. Why businesses are adopting a flexible workspace model: The term flexible space is used to describe a variety of space types used by occupiers to increase portfolio flexibility, reduce occupancy costs, and enhance collaboration. The most prevalent type of flexible space is coworking, but other examples include executive suites and incubators. Coworking a shared workspace featuring an open, communal environment. The build-out often includes communal lounges and shared amenities. Executive suites feature an office-intensive layout that provides a more private and professional setting than coworking. Incubators workspaces designed for start-ups and entrepreneurs. These facilities generally provide enhanced resources, including mentorship and early stage funding. What is Flexible Office Space • Reduce occupancy costs • Increased agility during growth periods • Avoid fixed long-term leases • Ability to scale staffing flexibly • Protection from market volatility • Simplicity when penetrating new markets 2 | Flexible Office Space 2018 3 | Flexible Office Space 2018
  3. 3. Who are the big players? The major providers of flexible space include Regus, WeWork and Servcorp. These three providers represent 42 percent of the global market, but there are an estimated 7,600 flexible space operators worldwide, highlighting the fragmented nature of the industry. Are there signs of market saturation? Closures have been isolated and contained mainly to small operators. Competition has increased as large operators have expanded their foothold, which has placed pricing pressure on many groups within the industry. Given the rapid pace of industry expansion, it may take time for some markets to fully absorb the new supply and reach full occupancy. However, we do not feel the market risks saturation, due in part to growing demand from corporate users. 4 | Flexible Office Space 2018 5 | Flexible Office Space 2018
  4. 4. for the Great Lakes The expansion of flexible office space has been pervasive across the Great Lakes. The industry has more than doubled over the last five years, with the opening of 122 shared workspaces totaling 1.8 million square feet. The majority of shared workspaces are owned and operated by local businesses, however, global operators such as WeWork and Spaces have been active in the region lately, scouting the market for potential expansion locations. Coworking spaces make up more than half (59 percent) of the flexible office locations in the region, while executive suites (29 percent) and incubators (12 percent) make up the balance. Coworking spaces and incubators tend to be located in downtowns or in dense neighborhoods, while executive suites tend to be located in suburban areas near large employment centers. Flexible operators by type 112Coworking 115Local 55Executive suites 42Global 22Incubators 32National 189Total 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 600,000 500,000 400,000 300,000 200,000 100,000 0 2 4 3 5 6 13 11 23 30 33 18 Square feet of flexible office space added by year Number of flexible locations opened by year Implications 6 | Flexible Office Space 2018 7 | Flexible Office Space 2018
  5. 5. The average flexible office location is 17,000 square feet, roughly the size of one floor in a downtown office tower. Amenities typically found at a flexible office space include: free beverages, snacks, wifi, conference rooms, printers, bike racks, shower rooms, outdoor spaces, and curated social events. Pricing models for flexible office space vary widely, ranging from daily to monthly to multi-year contracts. On average though, a dedicated desk at a coworking facility costs $227 per month, while a dedicated private office costs $511 per month. Implications for the Great Lakes Markets Flexible office locations Flexible office space (s.f) Average monthly price for a coworking desk Average monthly price for a private office Pittsburgh 31 751,752 $240 $540 Indianapolis 25 632,789 $204 $508 Columbus 29 498,207 $207 $532 Detroit 38 392,477 $224 $564 Cincinnati 23 280,563 $268 $479 Cleveland 28 252,107 $196 $499 Grand Rapids 6 79,488 $266 $495 Louisville 9 48,887 $208 $473 Overall 189 2,936,270 $227 $511 8 | Flexible Office Space 2018 9 | Flexible Office Space 2018 Detroit Louisville Indianapolis Columbus Grand Rapids Cincinnati Pittsburgh Cleveland 150 mi
  6. 6. ForecastCorporate demand Large-block corporate leasing will become more prevalent. Freelancer demand Continued growth will supplement the rising share of enterprise users. Geographic reach Operators are expanding to the suburbs and covering more international markets. M&A within industry Acquisitions are helping to add scale and enhance operators global reach. Operator failures Future market volatility will test commodity players, with only the strong surviving. Industry profitability Margins are compressing given rising costs and increased What’s on the horizon for flexible space? The drivers of flexible space demand Cost Challenge: High capital expenditures for new offices and an average corporate utilization rate of just 60 percent. Opportunity: The adoption of flexible space can reduce initial out-of-pocket costs, enable greater efficiency and drive down total occupancy costs. Flexibility Challenge: Most organizations only have 24 months of revenue projections and 36 months of strategic planning. Opportunity: Flexible space can help organizations buy time as they launch new initiatives, establish growth projections and develop long-term space strategies. Innovation Challenge: In the age of digital nomads, companies are seeking ways to drive innovation and collaboration. Opportunity: Shared workspaces foster innovation through increased employee interaction, exposure to new business concepts and cross- pollination of ideas. Talent management Challenge: Employers are finding it increasingly challenging to manage their digital workforce. Only 40 percent of employees feel fully engaged in their current workplace format. Opportunity: Retention is appreciably higher among employees with access to flexible workspace options. 10 | Flexible Office Space 2018 11 | Flexible Office Space 2018
  7. 7. About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2017, JLL had revenue of $7.9 billion and fee revenue of $6.7 billion; managed 4.6 billion square feet; and completed investment sales, acquisitions and finance transactions of approximately $170 billion. At the end of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of 82,000. As of December 31, 2017, LaSalle had $58.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com. About JLL Research JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. © 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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