Office term structures and the tenancy of flexible workspace providers

Flexible workspace (FW) providers as tenants usually occupy office spaces on longer leases. Anecdotally, by taking longer leases, FW tenants can achieve lower effective rents, which is highly relevant to their long-short business model. However, the relationship between lease term and effective rent is not always downward sloping and previous studies show that lease term structure depends on the demand for spaces, supply in the pipeline, and risk considerations. Existing studies show that FW providers pay lower rent in UK and US markets. To understand the dynamics of FW providers further, in this paper, we analyse the lease term structure of FW providers in different economic cycles and compare it with that of conventional office tenants in New York City between 2011 to 2022. Our findings reveal that FW providers have a distinctive lease term structure compared to conventional office tenants: they secure lower rents for longer leases but face higher rents for shorter terms. Additionally, the FW lease term structure has shifted upward in recent years, reflecting increased perceived risk associated with their business model.