Flex space inventory in San Diego jumps nearly 90 percent in less than three years
San Diego CA— San Diego is the 17th largest flexible office space market in the U.S., according to a new report from CBRE. The market’s flexible-space inventory jumped to 1.19 million sq. ft. by the end of Q2 2019, an increase of approximately 563,000 sq. ft., or nearly 90 percent, since 2016.
Flexible space accounts for 1.5 percent of San Diego’s total office inventory. This ratio compares with the U.S. average of 1.8 percent, indicating that there still is room for growth in the San Diego market. Flex space in the region is now present in 55 locations across the area, operated by 25 different operators.
“While growth of coworking space in Downtown San Diego remains strong, flexible space operators are beginning to penetrate into lab space, allowing them to tap into the robust life science and biotech industry in areas like UTC and Torrey Pines,” said John Frager, executive managing director at CBRE’s San Diego office. “Because of the high upfront costs associated with lab equipment, more biotech companies are turning to flexible space operators as a more scalable and affordable solution.”
He added, “Foreign and domestic investment has been very strong overall and continues to grow. In Q2 2019, we saw $744 million in VC funding, a 31 percent increase from the previous quarter. Most of this funding is going into life science, software and tech which are all progressive, forward-thinking industries whose tenants are more likely to adopt an unconventional office such as flex space/coworking.”
The Central San Diego area boasts the highest concentration of flex office space, accounting for 41.5 percent of the county’s total inventory and has also been home to 51.5 percent of the total transactions in this space over the past year.
CBRE outlines several growth scenarios for the flexible office space sector, which currently occupies a cumulative 71 million sq. ft., or 1.8 percent of the office space in 40 U.S. markets. CBRE’s baseline forecast calls for flexible office space to expand to approximately 13 percent of office space by 2030, reaching up to 600 million sq. ft. Even in a low-growth scenario, CBRE sees flexible office space claiming up to 6.5 percent of the market by 2030.
Fueling that growth is demand from small businesses and enterprise users alike that favor the flexibility of office accommodations on relatively short-term leases, allowing them to expand or contract their space according to the needs of their business. Additionally, the flexible office space category has room to grow in every U.S. market. Even markets where flexible office space is well established – such as San Francisco at 4 percent of its office market and Manhattan at 3.6 percent – aren’t as penetrated as major international markets like London and Shanghai, both at 6 percent.
“We’re seeing a fundamental change in the expectations that organizations and their employees have for the workplace. This change is spurring an increasing number of companies to engage with flexible office solutions that provide the physical environment and business terms they prefer. This shift is ongoing,” said Julie Whelan, CBRE’s Americas Head of Occupier Research. “There are some very bold predictions in the marketplace – with some calling for flexible space accounting for as much as 30 percent of office space in the future. There is simply not enough available office space to support this supply without even more drastic changes in tenant behavior.”
CBRE believes flexible space can account for as much as 22 percent of office space by 2030 under the most aggressive flex-space adoption scenario.
CBRE’s analysis found the majority of flexible-space supply in the U.S. concentrated in top markets, many of them tech hubs. Several of those markets also registered the fastest growth rates in the past year.
About CBRE Group, Inc
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.