The global Covid-19 outbreak has had serious negative effects on commercial real estate, including flexible space. Of late, many operators have experienced the flexible nature of the business working against them, as many occupiers have opted to surrender desks and implement work-from-home plans.
This is particularly true of freelancers, start-ups and SMEs. Demand from corporate occupiers has been more mixed. Generally, flexible space with open plan and dense centre layouts is viewed as a higher risk. But in some markets, corporates have taken additional flexible space to satisfy business continuity and disaster recovery requirements.
As corporates return to the workplace, we expect to see them continue to leverage flexible space for these purposes, as well as for split teams and de-densification requirements. Thus, companies enable their employees to work remotely in better connected and more productive workspaces compared to home.
Landlords re-think flexible space strategy
Despite varied market conditions and end-user demand across the region, the Covid-19 outbreak has put some operators under financial strain, and we expect the consolidation of a heavily fragmented sector to accelerate as a result.
This is particularly true of operators on a straight lease, rent arbitrage model who are paying top of market rents. In the wake of operator defaults, landlords will be forced to re-evaluate the role of flexible space in their portfolios.
But we do expect them to continue using flexible space as a tool to attract and retain traditional occupiers in their buildings.
Greater China may offer some insight
Greater China may offer some insight into how landlords will respond to centre closures as operators there were making strategic adjustments…