While 2018 was a fascinating year for the real estate industry, 2019 is set to be even more disruptive as economic headwinds mount, industry consolidation accelerates, building owners become “friend” or “foe,” and institutional capital continues to flow into the sector.
We were spot on with our 2018 predictions, so the new year felt like the perfect time to dust off the crystal ball and offer up five new predictions for the flexible space industry in 2019.
1. Industry consolidation accelerates
It’s always risky to put a quantifiable figure on predictions for the future, but I think 5 – 10 percent of the companies in the flexible space category will either go out of business or be acquired by the end of the year.
With so much competition in the space, it will be hard for certain players to raise the capital needed to grow and make the investments required to be differentiated. Many smaller players are already looking for exits or new capital, but there won’t be enough opportunities to go around.
The larger players with the balance sheets, product diversity, landlord relationships, and infrastructure will continue to grab market share as economic uncertainty grows, the market becomes increasingly competitive, and large enterprise organizations continue to adopt flexible workplace strategies.
The more commoditized offerings will struggle as customers seek premium experiences at scale (albeit at more attractive price points) or boutique offerings (e.g., The Wing, The Riveter, Neuehouse, CSI, Soho Works) that align more closely with their personal brand, ethos, and offer access to a truly unique community.
2. Landlords emerge as either partners or competitors to the industry
As the needs of tenants evolve, every landlord is now making the decision to buy, partner, or build when it comes to flexible space, amenities, and technology. There are benefits to each decision, but each leads to one of two outcomes: landlords are either partners to operators in the flexible industry, or they become direct competitors.
With the space, relationships, and resources that asset owners have in their arsenal, they could certainly opt to build their own flexible space platforms and challenge the market share of the big coworking players. Some of the larger vertically-integrated owners will opt to go that route, while others will wisely choose to partner.
3. Landlords that choose to go at it alone will struggle to succeed
Building flexible workspace and amenity platforms isn’t easy. It takes time, capital, product knowledge and lots of experience. Especially as the industry matures, the complexity and quality of the offerings expected by clients will increase dramatically. More than ever, tenants are demanding an experience, rather than just a space to work.
Should landlords attempt to build that experience on their own from scratch? I would advise against it—starting any new venture takes time, and finding product and pricing model fit is hard, undoubtedly resulting in years of resource drain. It makes less sense to do that, when partnering with an existing service provider could offer landlords a fully functional and scalable platform in a matter of months.
Luckily for landlords, there are established brands out there who have already developed these core competencies, with hospitality driven offerings ready to scale, and are willing to partner with asset owners to deliver customizable and high-quality workplace experiences. I may be biased, but Convene offers the easiest path to that reality for Class A building owners.
4. Co-working bleeds into hospitality, facilities management, retail, and co-living
Last year we saw a wave of product and service extensions for serviced space providers, as the more innovative platforms looked for new and creative ways to enhance the experience for their customers.
“Hospitality” was the motto for 2018, and in 2019 we expect these flexible space platforms to continue to grow and bleed into new realms. Providers will continue to create additional services and partnerships to serve our clients in more places and more ways, while creating a differentiated experience that’s more than just physical space. A great example of this is Convene’s partnership with The New Stand to bring curated retail experiences to the workplace.
Retail, wellness, facilities management, hospitality and even residential offerings are all on the table. WeWork has even dipped into education and childcare. The sky’s the limit, and flexible space providers will become more than just spaces to work, but platforms that redefine the entire experience of today’s mobile workforce.
5. Experience becomes essential to survival
In 2019, it’s de-commoditize or die. With increasing competition from both in and outside the industry it will become even more important for flexible space operators to stay differentiated. Product and service enhancements enabled by technology will become essential to survival for flexible office providers. This will help landlords develop their brands and protect their customer relationships by being able to offer unique workplace experiences for their tenants. Buildings that offer an integrated flexible space and service experience will perform best by becoming destinations for every aspect of someone’s life, ultimately increasing the value of the asset.
There is no doubt 2019 is going to be an exciting (and potentially tumultuous) year for the flexible space industry. With economic volatility rising and competitive pressures increasing, the evolving space-as-a-service sector will see new levels of consolidation, competition, and complexity. Despite all the changes, one thing is certain: the demand for flexible and experiential workplaces is not going away.