Research

Flex space overview in Colombia

The expansion of flex space was one of the most prominent trends of the office market in the last quinquennium. Two approaches to flex space: as a workplace configuration and as a business model.

January 24, 2020

The expansion of flex space was one of the most prominent trends of the office market in the last quinquennium. In Colombia, the figures are striking: the flex space stock held by the five top players flourished from 13,000 sqm in 2014 to 114,300 sqm in 2019.

Three key elements underpinned the eruption of flex space stock in Colombia: WeWork’s disruption in 2016 with its aggressive expansion strategy; the market cycle that leaned negotiation power towards tenants, and hence favored operators; and the spreading of flex space to other Colombian cities, such as Medellin and Barranquilla simultaneously with the launching of coworking spaces in non-consolidated office areas of Bogota.

From a demand perspective, the rise of flex space has been propped locally by the need for flexibility regarding contract terms in a context of high uncertainty, the possibility to grow within the same building, the low CapEx requirements and the chance to improve workplace standards versus old-fashioned office spaces. Other advantages for users of flex spaces include: increased collaboration between employees, teams and companies; potential talent attraction and retention; and a fertile environment for innovation.

Our global team forecasts flex space could reach 30% of quality office stock by 2030. In our region, the share could be even greater, due to idiosyncratic elements favorable to flex space: policy and economic uncertainty push companies to seek flexibility in expansion schedules to lower their operational risk.

In Colombia, JLL focuses its analysis on the quality flex space owned by the five biggest local players: WeWork, Regus and Spaces (both subsidiaries of IWG), Owlo and Tinkko. However, we recognize the existence of many other players, mostly oriented to entrepreneurs and small startups.

The flex space stock in Bogota owned by top five companies totals 95,400 sqm, equivalent to 3.5% of overall office inventory (vs 3.6% in Latin America). WeWork operates 70% of stock, followed by IWG (Regus and Spaces) with 17%. More than half of stock is concentrated in Calle 100 (34%), Santa Bárbara (15%) and Andino/Nogal (14%). The remaining 20,000 sqm of quality flex space in Colombia are in Medellin (14,100 sqm) and Barranquilla (5,900 sqm).

Up to 2015, Regus was the sole operator of corporate flex space in Colombia, with middle size areas (500-2,000 sqm) within some of Bogota’s most coveted buildings. The market transformation began in 2016 with WeWork’s entry in Chicó (+6,000 sqm) followed by an outburst in 2018, when four operators (WeWork, Spaces, Owlo and Tinkko) took more than 50,000 sqm in Bogota and over 12,000 sqm in Medellin. In 2019, flex space companies leased 25,000 sqm, a lower yet impressive pace, which we expect will continue in the next three years due to a new market cycle and a subsequent less aggressive takedown of space.

 

There are three main ongoing shifts in the flex space market. The operation and self-perform functioning models are becoming more common, as landlords and investors are keen on getting a slice of the industry’s boom. In the meantime, flex space providers are shifting their focus from freelance, small and middle size companies to more traditional and consolidated firms, with a visible impact in design and fit-outs. Lastly, stock is starting to decentralize, as operators now hold areas in buildings outside Bogota’s CBD such as Connecta and Elemento in El Dorado; Central point in Salitre and Centro Empresarial Colpatria in the others submarket.

At JLL we deem flex space is here to stay despite rapidly evolving new trends. From one side, the specific situation of the biggest local player and the end of the production cycle, will set the ground for a deceleration in flex space companies’ expansion. Notwithstanding, we see a consolidating industry in flex space, bolstered by the development of economies of scale, making facilities more efficient and with operators targeting more stable corporate users; the growing popularity of the user experience within tenants, specially enterprises; and the increasing interest of institutional capital both in terms of investment and involvement (the self-perform model is earning popularity abroad).

Our global team forecasts flex space could reach 30% of quality office stock by 2030. In our region, the share could be even greater given the desirable fit between flex space as a business model and the Colombia’s idiosyncrasy marked by high uncertainty; as well as the growth margin for flex space as a workplace configuration, still an incipient trend among local companies.