CBRE’s $200 Million Investment Into Industrious Is A Timely Vote Of Confidence In The Flex Space Market
In February 2021, CBRE Group announced that it had acquired a 35% stake in Industrious, a provider of premium flexible workplace solutions in the United States, using $200 million in cash. This makes CBRE the largest shareholder of Industrious, which operates over 100 facilities across 50 cities. As part of the transaction, CBRE’s existing flex-space solutions offering, Hana, will now be part of the services Industrious delivers to its clients. CBRE intends to buy another 5% stake in the firm in the next few weeks, lifting its stake to 40%.
Why has CBRE invested at this juncture? CBRE states that despite the negative short-term effects that COVID-19 has had on the flexible workspace industry, it perceives that the sector will thrive beyond the pandemic. Across its clients, it sees growing interest in making office space provision more responsive to hybrid workplace practices, whereby space must be increasingly agile and more geographically dispersed beyond urban business centres. From the occupier perspective, the traditional approach of having lease contracts locked in for five years or more may no longer be fit for purpose. Firms like Industrious offer lease terms that allow buyers to purchase space at a premium in exchange for flexibility.
But despite the industry buzz around the growth of flex space and hybrid workplace practices, not all occupiers or landlords are ready to make the transition. In our interviews with 100 large corporate occupiers, 60% of them told us that they do not plan to immediately and drastically reduce their real estate footprint. A key justification for this was that they are unsure how permanent the work from home revolution will be. Indeed, the CEO of Goldman Sachs has publicly rejected this as the new normal in the world of work. It may be that working from home is more prevalent in technology services, but much less so in banking and other industries. The second reason is that landlords have told Verdantix that they still consider offering flex space to be a hugely risky endeavour, given how it can make future revenue stability much less certain. Some traditional landlords remain hesitant to offer flex space unless it becomes undeniably widespread and sought after by most customers, creating a demand and supply waiting game akin to the electric vehicle market.
In the bigger picture, CBRE’s investment into Industrious is nevertheless a positive sign for innovation in the real estate industry. It will be one of the first steps towards matching the standard flex space offering to customer needs, finding the balance between the premium buyers should pay and the flexibility a landlord can absorb. To find out more, read our recent report: COVID-19 Supercharges Workplace Transformation.