All eyes are on Asian flex markets for a sign of what’s to come here

Confidence begins to return in China as European and Northern American operators start to feel the strain.

The UK flexible office sector is looking closely at China to see how the coronavirus pandemic might impact the sector here in the coming weeks and months.

The Chinese government loosened lockdown restrictions last week amid signs the spread of Covid-19 was slowing.

Two months of strict travel restrictions were lifted in Hubei province, the pandemic’s epicentre, at midnight on Wednesday 25 March, allowing traffic to flow and workers to return to their offices.

Flexible office providers swiftly began to reopen their offices. Last week, IWG said all its centres in China that had been closed during the outbreak were up and running.

The market also started to pick up again. New searches for flexible office space on the Instant Offices platform in the Asia-Pacific region are now down 30% on traffic before the virus, says John Williams, head of marketing at Instant Offices. By comparison, less than a month ago, searches were down 50%.

“Market demand and confidence is starting to seep back into the Asian markets,” he says.

He adds that Instant Offices had spoken to 20 operators across China and other Asian markets and that they had reported that only a few of their clients had exited their contracts in the past three months.

“[Despite the] very challenging market, the co-working and flex model has proved to be resilient in the face of an unprecedented situation,” Williams adds.

Huge uncertainty

However, the resumption of activity in China could prove a false dawn and in western markets, the full lockdown has only just begun, with any relaxation weeks and perhaps months away.

A number of global operators are already starting to buckle under the strain. In a letter to bondholders last week, flexible office giant WeWork’s chief executive Sandeep Mathrani and executive chairman Marcelo Claure warned that “in light of recent events relating to the Covid-19 pandemic and given the uncertainty of the current environment, we no longer expect to meet the previously disclosed targets for 2020”.

At the same time, Knotel, which is valued at $1.6bn (£1.3bn), cut 30% of its employees and furloughed another 20%, and flexible meeting and office operator Covene laid off 150 staff, a fifth of its 800-strong workforce.

The fear is that if western nations do not emerge from lockdown as quickly as China, some providers will not survive.

“The current situation could affect providers if their head landlords won’t lower or suspend rent payments,” says Nick Riesel, founder of flexible office space search platform FreeOfficeFinder.

“If the landlord is prepared to put a freeze on rent owed during a crisis, then the traditional model is still viable.”

Riesel predicts that ‘pandemic clauses’ will be added to flexible office space operator leases going forward. When normal service does resume, many are confident the flexible office market will bounce back strongly.

Bounceback likely

If anything, flex workspace experts believe corporates will be more inclined to take flexible space. They note that more people will have become accustomed to remote working and the coronavirus outbreak has demonstrated the benefits of not being tied into long leases.

“We expect the flexible office space market to go through a rapid recovery phase when people return to the workplace,” says Steve Jude, chief executive of flexible office operator Citibase. “Businesses have had their eyes opened to the notion of short-term flexible leases.”

He adds that coronavirus has “drilled holes in the traditional long-term lease solution”.

In the meantime, all eyes are Asia to see whether there will be a renewed taste for flexible workspace once the crisis has abated – and who will be left to provide it.