Contact Us
News

Houston, Long Considered Behind In Flexible Offices, Is Now Holding Up Better Than Most

Houston's flexible office market is holding up better than most other cities.

Only seven U.S. markets had any activity in the flexible office space sector during the second quarter of 2020, down from 17 markets in the first quarter, according to the most recent data from CBRE. Houston ranked fourth in the country, recording 45K SF of either new or renewal activity and accounting for 13% of national activity during Q2.

About half of that square footage was attributed to a single renewal transaction by Regus for just over 20K SF, according to CBRE. Overall, Houston has about 2.2M SF of flexible office space.

Some of Houston’s smaller coworking firms told Bisnow in April that daily occupancy levels had fallen, as many members were choosing to stay home or had been financially affected by the coronavirus pandemic. But as time has gone on, interest in flexible working environments has increased.

Placeholder
A shared area at Common Desk's East End location in Houston.

The Instant Group CEO Americas Joe Brady told Bisnow that his firm, which advises and helps clients procure flexible workspace, saw a 7% year-over-year increase in Houston inquiries in Q2. That jumped to a 21% increase year-over-year in Q3. Typically, the conversion rate from inquiries to memberships is between 10% and 15%.

In particular, the number of inquiries for “spoke” locations, or cities within the greater Houston area rather than within the central business districts, rose dramatically. Brady said year-to-date combined inquiries for League City, Pearland, Sugar Land and Spring were up by 92% in Q3, compared with the same period last year.

“What that would indicate is that folks were looking to work near home, they wanted to get outside of their homes and they wanted to use flexible office space as an alternative,” Brady said.

That trend is happening across other major cities in the U.S., including New York City, San Francisco and Chicago. The average requirement size of flexible office deals also fell during Q2 across the U.S., as more demand came from individuals, while larger corporate users paused to assess their own portfolios, according to The Instant Group.

“We're seeing trends that are happening from corporates, and what we're hearing is, 'We're going to reduce our footprint.' Some companies have said anywhere between 25% and 50%,” Brady said.

As remote work and flexible arrangements become the norm, large national and global flexible office and coworking providers that have large footprints in downtown or central business district areas are going to have some challenges in the short term. That could present a good opportunity for local operators to think about expanding their operations, according to Brady.

“I suspect this would be a good time for acquisitions [by] some smaller local operators,” he said.

Placeholder
A private office within Office Evolution's Westchase location in Houston.

Flexible office and coworking spaces have been slowly expanding their presence in Houston over time, and some operators are expecting demand for their services to grow significantly in the near future.

Common Desk CEO and founder Nick Clark told Bisnow his firm has been working on opening its first Houston office in the East End for nearly two years. The 30K SF space only opened last week, and the company is already preparing to launch its second Houston location in the Uptown area right before Thanksgiving.

The East End location has a combination of dedicated private offices and shared open space and an overall capacity of about 300 members. Clark said the location is at 20% occupancy, and at least one private suite has been leased.

“We knew this year would be tough, and there's probably going to be certain aspects to where next year is tough as well,” Clark said. “But our belief at Common Desk is that through COVID, companies are going to be seeking additional flexibility when it comes to their office space needs in the future.”

Despite the pandemic, Common Desk is betting large on Houston. The Dallas-based company has plans to open a third, still-to-be-announced Westchase location and has several more slated in the next two years.

“We truly believe by this time, two years from now, we will be in eight-plus locations throughout the city,” Clark said.

For the firm’s existing locations in Dallas and Austin, and in Raleigh, North Carolina, the strategy has been more focused on trying to keep existing memberships intact. That sentiment was also voiced by Fritz Fowler, the managing partner of Office Evolution’s Westchase location in Houston.

Fowler told Bisnow that operators of flexible and coworking space in Houston regularly talk to each other and that since the pandemic happened, most conversations have revolved around how to maintain their member bases and expenses.

Office Evolution’s 8.7K SF Westchase location mostly consists of private offices and was 90% occupied in March. That number dropped in the subsequent months, partly because some energy industry-related members left, and guest revenue also slowed.

Most flexible office and coworking providers have been offering more incentives to potential members this year, including free rent, discounts and day passes. Not all of those incentives are openly advertised, but most providers are willing to work with interested parties, particularly if they are the kind of members that can bring extra value to the community.

Fowler said he has started to receive inquiries from firms all around Houston that have lease renewals coming up but are considering flexible office space as an option for their employees instead.

“I do think, based on those conversations, that that's what we're going to see more and more of going into next year,” Fowler said. “Folks are inquiring about space, but there's still some hesitation. A lot of them are saying, ‘well, we're not going to do anything till January.’ So it's just going to take some time.”

Placeholder
Firmspace CEO Anish Michael

In the wake of the pandemic, social distancing has become crucial to how businesses operate. For that reason, flexible office and coworking facilities that offer private offices and suites have a natural advantage.

Firmspace CEO Anish Michael told Bisnow that the firm has always focused on offering high-end private offices rather than open workspaces. That strategy has paid off during the pandemic. The firm’s two-floor, 33K SF location in Uptown Houston is seeing a new high in occupancy levels, greater than when the location opened in early 2019.

“We've certainly weathered the storm, in my mind,” Michael said.

Like other flexible office and coworking providers, Michael is optimistic that more corporate entities are going to consider smaller, less centralized office arrangements for workers going forward, which will ultimately benefit the sector.

“I think we're going to see a lot of change in 2021, geared towards flexibility. And I do think there's going to be a continued increase of a coworking presence [in Houston],” Michael said.

The notable rise in inquiries for flexible office in outer areas of Houston this year also signals that the product type could see a more even distribution across the city, beyond the typical office-heavy districts like Downtown Houston, Uptown and Westchase.

“Almost every other location you'll hear us announce will be in a suburb of Houston,” Clark said. “I think the suburban growth of coworking and just office in general is going to explode, post-COVID.”