One of the more noticeable ways the pandemic has impacted American culture is the shift to flexible office spaces. With people working from home more often than ever before, many more companies are considering various alternatives to the traditional office and are looking to coworking spaces as a solution.
In major cities across the U.S., many flex office operators unfortunately had to give up space to landlords as the pandemic sent workers home semi-permanently. Overall, flexible office operators decreased their total space by 12.2 million square feet since mid-2020. In Houston, however, the flexible office supply has been surprisingly growing.
A new report from CBRE found Houston’s net supply of flexible office space increased by 5.3% between the last quarter of 2020 and the third quarter of 2021. This amounted to 153,000 square feet, bringing the city’s total supply to 3.1 million square feet.
This is due largely to a company called Common Desk that’s headquartered in Dallas, about four hours away from Houston. It opened its first location in East Downtown Houston in 2020 and has been rapidly adding new sites ever since. Common Desk accounted for 84% of the new flexible workspace purchases between November 2020 and September 2021.
Interestingly, Common Desk was just bought out by WeWork, which has been widely recognized as the coworking market leader. WeWork says its membership numbers rose by nearly a quarter last year, so that it now serves well over 600,000 customers.
Right now, companies are still figuring out whether they want to bring employees back to work and if so, how to go about it.
As a result, Houston is full of empty office spaces and landlords are ready to get things moving. This problem is compounded by the fact that the city already had an oversupply of office space. Many companies are turning to flexible or hybrid offices to save on space, increase collaboration, and make things more comfortable for employees.
Office vacancy in Houston is highest nationally
Houston’s move toward flexible workspaces is an interesting trend, given that the city’s office vacancy rate is the #1 highest in the nation across medium-to-large-sized metro areas.
With a 19% empty office rate, CBRE guesses the growth in the city’s flexible workspace market comes from companies looking for more malleable lease options for their employees who are still navigating a combined in-office and from-home work schedule. That 19% compares to a median of 9% nationwide.
The report from CBRE studied 49 markets across North America. The firm found 38% of major tenants in flexible office spaces are simply trying out alternate models and designs for their workspaces.
“Flexible office space is no longer seen as a niche sector but as a strategic solution for a broad range of companies,” CBRE said in a news release.
This news comes as the cost of rent in Houston is skyrocketing to all-new highs. Average rent in the city went up 10% in the third quarter of 2021, when compared to the same time period in 2020. The pandemic caused operational costs for landlords and multifamily companies to increase in nearly every facet of the industry, from property taxes and insurance rates, to the costs of cleaning supplies and repairs. Inflation plays a role in raising rates as well. Plus, the prices simply follow market trends.
Wages have only gone up 2.3% in the Houston area within the past year, meaning families can’t come close to keeping up with the rising costs. Yet people still need a place to live and work, so apartment vacancies in Houston ranked at a seven-year-low at the end of 2021. The search for a comfortable place to live is even more critical given that so many people are working in their apartments rather than an office each day.
That trend for rent costs has shown no signs of slowing down. This means more companies may be looking to invest in flexible office spaces, which can be installed in buildings like recently-vacant hotels and malls.