What the Data Actually Says
A few weeks ago, I began researching a potential correlation between the growth in the flexible workspace sector and commercial office vacancy rates across some of the world’s major cities.
Something about this linkage was nagging at me.
If flexible space accommodates businesses at twice the density of commercial office space, then surely its growth must have a compounding negative impact on office vacancy?
Well, this is why we do research.
The supposed linkage was, in fact, practically non-existent.
But, in digging through the data, I uncovered a lot of information that set my mind running.
So here we go….
The narrative we've all been sold is simple, clean, and completely wrong. It's a tale of two rivals: the traditional office, a relic of a bygone era, and the flexible workspace, the sleek, digital disruptor. The story goes that as one rises, the other must fall, leaving a trail of empty skyscrapers in its wake.
But when you look beyond the headlines and research the real-world data, you find a far more complex and interesting truth. The high vacancy rates we're seeing in some of the world's biggest cities aren't a result of flexible workspaces killing off traditional ones. Flexible workspaces aren't the enemy, they’ve become a vital part of the solution.
The office isn't dying, it's just becoming an entirely different beast.
The Great Reassessment
The global shift to hybrid working has irreversibly changed the role of the office. It’s no longer a mandatory nine-to-five prison but a purpose-driven hub for collaboration, culture, and, well, humanity. This has fuelled a clear and widespread trend known as the ‘flight to quality’. Businesses are shedding tired, outdated buildings in favour of prime, amenity-rich spaces with strong environmental, social, and governance (ESG) credentials.
New York City offers a perfect case study.
Manhattan's overall office vacancy rate has more than doubled since the pandemic began. At a glance, it looks like a disaster. But dig a little deeper, and you find that a significant part of the problem is with the older, less desirable spaces - the Class B and C stock. Meanwhile, the demand for top-tier, five-star buildings has remained resilient, with occupied space actually increasing. This pattern holds true across the globe. In my hometown of Sydney (Australia), for instance, a similar trend sees sustained rental growth for the "best-in-class assets" despite a contraction in overall occupied space.
High vacancy rates don't mean demand for office space as a whole is in decline. They mean demand for outdated, beige, soulless buildings has fallen off a cliff.
A Tale of Eight Markets
Returning to my misguided thesis, research across eight major cities confirmed that the relationship between flexible workspace growth and commercial office vacancy is not a one-size-fits-all correlation.
It is, in fact, a series of distinct dynamics, each with its own nuances:
New York
A tale of shared causation. The city’s high vacancy rate and the fragmentation of the flexible market are both parallel effects of the same cause - a fundamental reassessment of what an office is for, driven by the widespread adoption of hybrid work.San Francisco
This is a classic case of independent causation, but shared outcome. The city’s office vacancy rate skyrocketed due to a pandemic-driven collapse in demand from its concentrated tech sector, which went almost entirely remote. The high vacancy and the presence of flexible space are two distinct consequences of the same initial shock - the tech industry’s fundamental shift away from traditional in-person work.London
Here, the relationship is symbiotic. The flex market isn’t cannibalising traditional leases, it’s acting as a crucial tool for occupiers. They're using it to manage headcount and bridge real estate needs while they get their shiny new, high-quality spaces sorted.Paris
The relationship is complementary. A scarcity of high-quality space in the city's central business district (CBD) means flexible solutions are a necessity for corporations in the core. The proliferation of flexible spaces in the suburbs supports a 'hub-and-spoke' model for those companies looking for more fluid solutions.Hong Kong
The correlation is non-existent. The high and rising Grade A office vacancy rate is a direct result of a long-term oversupply of new space that began over a decade ago. The flex market is a separate trend and not the cause of the traditional market's struggles.Tokyo
This relationship is synergistic. The flexible sector is growing healthily, while the traditional market has maintained an exceptionally low and robust vacancy rate. This is evidence that flexible solutions are a natural and necessary evolution and a perfect complement to a strong, resilient office market.Shanghai
A clear example of non-correlation. The commercial office market has extremely high vacancy rates, a long-term structural problem caused by an oversupply that began well before the recent growth of the flexible market.Sydney
The correlation is nuanced. The city's office vacancy rate has risen due to a combination of new supply and a contraction in occupied stock. In this uncertain environment, flex provides occupiers with the agility and shorter-term options they need when long-term leases are seen as a risk.
Beyond Correlation: The Strategic Imperative
My assessment of these markets suggests several critical conclusions. While not ground breaking in themselves, collectively they provide a framework for a successful strategy in the new office paradigm.
For Investors
The traditional office investment model is obsolete. While overall vacancy may be high, demand for prime, high-quality assets is strong and drives market value. For underperforming, obsolete buildings, asset repositioning or conversion is a necessity because demand is unlikely to ever return for these obsolete assets in their current form.For Occupiers
Companies are moving from reactive space management to a proactive "Core-Plus-Flex" strategy. The evidence clearly shows that a single, rigid, long-term lease is no longer an efficient solution in an era of business volatility and employee flexibility. By right sizing their core portfolio and supplementing it with a flexible layer, they can reduce overall real estate expenses while retaining the agility to adapt to changing headcount needs.For Developers:
The market's demand for modern, collaborative, and wellness-focused spaces has never been stronger. Developers must focus on creating buildings that are not just places to work but genuine destinations that attract and retain talent. This includes integrating technology for efficient space utilisation, providing a diverse range of workspaces from private offices to collaborative lounges, and securing strong sustainability certifications.
The Symbiotic Revolution
The relationship between flexible workspace growth and commercial office vacancy is not causal but deeply symbiotic. They are two defining features of a new, complex, and evolving market. The old rivalry between flex and traditional offices is an outdated concept.
The new paradigm is one of integration, where flexibility and quality are no longer niche concepts but the new standard for commercial real estate. Success now lies in understanding and strategically navigating this bifurcated reality, where the office is no longer a monolith but a dynamic, interconnected ecosystem.
After all, if you can’t make it easy and enjoyable for people to get their work done, why are you even in the corporate real estate business at all?