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As the Flex-Office market in Germany navigates its first contraction since its inception, the researchers and advisers Cushman & Wakefield (C&W) project a challenging year ahead. The Flex-Office sector, which flourished from 2018 to 2019, has been hit by a series of economic shocks, including the pandemic, a shift towards remote working, and the current recession, leading to unprecedented market dynamics in 2024.
According to Helge Zahrnt, Head of Research & Insight Germany at C&W, the market is expected to see a net reduction in flex spaces, with closures outweighing new openings for the first time. Zahrnt notes, "This year, we anticipate 31 new openings totaling 51,000 square meters, contrasted by closures and a planning freeze affecting over 50,000 square meters." This downturn represents a significant shift from the peak years of 2018 and 2019, where nearly 200,000 square meters were introduced annually.
The contraction has been felt across various operators. High-profile bankruptcies like those of Work Republic and Rent24 have removed significant space from the market. Moreover, WeWork, once a major player in the sector, has downsized substantially, shedding rental commitments as part of a broader restructuring effort that included a Chapter 11 bankruptcy proceeding, from which it is set to emerge debt-free after property software provider Yardi recently bought a majority stake in the company..
Player dynamics in Germany's Big 7 cities
In Germany's major urban centers, known as the Big 7—Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart—the landscape of flex office providers is evolving. Design Offices and Regus currently lead the market, with WeWork slipping to third place after reducing its footprint significantly. Mindspace and Spaces are also notable players. Despite these shifts, new projects are still on the horizon, with Zahrnt highlighting, "There are 78,000 square meters of new flex office space planned across 39 locations for the upcoming years."
The demand for smaller, high-quality flex spaces is on the rise, reflecting a broader trend towards more premium offerings. Current asking prices vary widely, with hot desks averaging €245 per month, dedicated desks at €350, and private offices around €450. In some premium locations, the rates for private offices exceed €1,000, underscoring the market's stratification.
Future outlook and growth prospects
Despite current challenges, experts like Tina Reuter, the freshly-appointed Head of Germany at C&W, remain optimistic about the flex office market's resilience and potential for growth. "The sector is showing remarkable resilience," Reuter states. "With falling interest rates expected later this year, we anticipate a revival in investment decisions, particularly in high-quality, flexible spaces that cater to evolving workforce needs."
The UK market, analysed by Calum Russell, CEO of flexible workplace specialist Covalt, offers valuable insights that could parallel the German experience. Russell points out the increasing adoption of management agreements in the UK, which could suggest a similar trend in Germany. These agreements allow property owners and operators to share operational risks and rewards, fostering a cooperative approach to managing flex spaces.
Russell points out that that these management agreements can, unlike traditional leases, and if properly structured, be nimble enough to address immediate challenges and respond to longer-term changes in circumstances. For operators, the attraction of a capital light model and the flexibility of not having to take a lease is increasingly aligned with landlords who see the benefits of offering a flex space with the potential for increased returns without taking on the operational risk.
The industry's adaptability, such as these management agreements, will be key to its future success. The sector's ability to innovate in management practices and space offerings will likely dictate its trajectory in the coming years. With a cautious but forward-looking approach, the Flex-Office market will have to redefine itself amid changing commercial real estate dynamics.
