FlexIndex Update: Q1 2023 Overview

A Summary of Our Most Important Observations

2023 began with a recovery from the anticipated December 2022 dip, driven by the bookings-related KPIs. We anticipated the index to recover in the first 2 months of the year but not immediately. At the end of Q1 2023, the OfficeRnD FlexIndex was above the 2019 benchmark and reached 5.1 fp (flex points). March 2023 is the second month after November 2022, when the market showed a full recovery after the COVID-19 pandemic struck the industry.

After the end-of-year flattening, ‘Static Desk Occupancy’ started 2023 with an unexpected dip, as typically we are observing such dynamics in March. In January, the KPI was 2.7% above the 2019 benchmark. That’s more than a 3 percentage points drop compared to the previous month. In February and March 2023, ‘Static Desk Occupancy’ fully recovered and closed Q1 with 6.6% above the benchmark.

We believe that the global dynamic of the labor market and the layoffs’ concerns impacted the whole Flex industry. To address this, prices were pushed in order to keep office spaces occupied. This is reflected in the changes in ‘Revenue per Available Workspace (RevPAD)’. After the strong performance in December 2022, this KPI degraded in Q1 and closed March 2023 with only 1.9% above the 2019 benchmark.

On the other hand, bookings-related KPIs are recovering after the holidays’ deterioration in December 2022. As per our expectations, ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are above the 2019 benchmark –  6.5% and 6.2% respectively. This positive trend countered the decline in ‘Revenue per Available Workspace (RevPAD)’ and continued to increase the FlexIndex.

‘Bookings per Meeting Space’ is improving as well but is still 10% below the 2019 benchmark. This is the best result since the start of the COVID-19 pandemic.

In Q2 2023, we are expecting FlexIndex to be around and slightly above the 2019 benchmark. It is expected that the bookings-related KPIs will be negatively affected by the Easter celebrations in April 2023. This could result in a slight decline in the index. However, the ‘Static Desk Occupancy’ is expected to remain stable. The FlexIndex dynamic will be determined by the trend of ‘Revenue per Available Workspace (RevPAD)’.

Now, here are our most important findings about the 5 FlexIndex KPIs:

• Despite the global dynamic of the labor market and concerns about layoffs, both  ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’ are still above the 2019 benchmark.
• The decrease in ‘Static Desk Occupancy’ usually occurs in March, but in 2023 it happened in January. In March 2023, the KPI reached 6.6% above the 2019 benchmark. We are expecting it to continue its positive trend and soon to be stabilized on higher levels compared to 2019.
• In Q1, the ‘Revenue per Available Workspace (RevPAD)’ is cooling-off with close to a 7 percentage points drop compared to December 2022. This KPI closed March 2023 at 1.9% above the 2019 benchmark.
• After the Christmas celebrations ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are recovering and at the end of Q1 2023 are surpassing the 2019 benchmark with 6.5% and 6.2% respectively.
• The ‘Bookings per Meeting Space’ has increased in March 2023 but it’s still 10% below the benchmark set in 2019. However, this is the best result since March 2020.

For comparison here’s the monthly dynamic of all FlexIndex components against the 2019 baseline.

A Closer Look at the FlexIndex Components

1. Static Desk Occupancy

In March 2023, the ‘Static Desk Occupancy’ reached 6.6% above the 2019 benchmark. During the last 2 years, in March we were observing a drop in this KPI. However, in 2023 this drop happened in January, followed by a recovery in March.

2. Revenue per Available Workspace (RevPAD)

During Q1 2023, ‘Revenue per Available Workspace (RevPAD)’ was lagging behind the ‘Static Desk Occupancy’. Compared to December 2022, this KPI degraded by close to 7 percentage points, and at the end of March 2023, this KPI is only 1.9% above the 2019 benchmark.

We also plotted the monthly dynamic of ‘Static Desk Occupancy’ and ‘RevPAD’ against the 2019 baseline for a comparison of both metrics.

Having both KPIs on the same chart reveals even more interesting insights. ‘Revenue per Available Workspace (RevPAD)’ grew rapidly after Q1 2019, driven by the increased demand for flex offices and the lower elasticity of the supply for flex offices. In April 2019 ‘Revenue per Available Workspace (RevPAD)’ rose above the ‘Desk Occupancy’ trend. This dynamic remained the same until the lockdowns started.

Between April and Sep 2020, both KPIs synchronized. After that, the ‘Static Desk Occupancy’ KPI degradation slowed down, while the ‘Revenue per Available Workspace (RevPAD)’ negative trend continued. After that, the ‘Static Desk Occupancy’ KPI degradation slowed down, while the ‘RevPAD’ negative trend continued. This opened a gap between both KPIs.

In Q1 2023 we observed an anomaly in the dynamic between both KPIs. Usually, a decrease or slow down in ‘Static Desk Occupancy’ is a leading indicator for a cool-off in ‘Revenue per Available Workspace (RevPAD)’. While ‘Static Desk Occupancy’ quickly recovered after the dip in January 2023, ‘Revenue per Available Workspace (RevPAD)’ stabilized on lower levels. Such behavior was typical in the months when the COVID-19 pandemic struck the industry.

We believe the global dynamic of the labor market and concerns about layoffs impacted the whole Flex industry. This led to a price push to keep the offices busy and explains the ‘Revenue per Available Workspace (RevPAD)’ pattern.

3. Bookings per Meeting Space

‘Bookings per Meeting Space’ is the most significantly impacted KPI by the pandemic. There was a tremendous drop in March and April 2020, following the global lockdowns. In April 2020, this KPI was 82% below the 2019 benchmark, clearly showing how easily this part of the flex office business can be affected by any external factors. We could consider ‘Bookings per Meeting Space’ as one of the important, early signals for the health of the flex operators’ business but could be highly influenced by seasonal effects.

In March 2023, this KPI reached its highest value since March 2020 and got very close to the 2019 benchmark but still under it with 9.8%.

4. Average Booking Duration per Paid Meeting Space

‘Average Booking Duration per Paid Meeting Space’ was also severely impacted by the pandemic. This KPI hit bottom in March/April 2020 and is since slowly recovering.

The end-of-the-year seasonality impacted negatively the ‘Average Booking Duration per Paid Meeting Space’ trend. In Q1 2023 the KPI was recovering and in March 2023 surpassed the 2019 benchmark by 6.5%.

5. Booking Revenue per Paid Meeting Space

The final KPI – ‘Booking Revenue per Paid Space’ – was also recovering well during 2022. In fact, in November 2022 it breached the 2019 benchmark for the first time and scored 3.3% above the baseline. After the end-of-year holiday season, this KPI was recovering and in March 2023 again breached the 2019 benchmark with 6.2%.

Prior to the pandemic, ‘Booking Revenue per Paid Meeting Space’ and ‘Paid Booking Duration per Paid Meeting Space’ had very similar tendencies compared to the 2019 monthly average rates. Since Sep 2021, the gap has been closing slightly and almost vanished in Q2 2022. Since then, the trajectories of both KPIs have synchronized. In the last few months, both KPIs are having identical trends.

Lastly, here’s the monthly dynamic of all booking components plotted against the 2019 baseline.

Our Еxpectations for the Future

Most likely, in April 2023 all three bookings-related KPIs will decline due to the Easter holidays. However, in May and June, we anticipate a recovery in them as the ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are expected to reach or surpass the 2019 benchmark.

During Q2 2023, ‘Revenue per Available Workspace (RevPAD)’ is expected to recover but may not reach the same levels as in December 2022. We are assuming that ‘Static Desk Occupancy’ will stabilize with a possibly slower growth rate.

As a result, the FlexIndex is likely to degrade at the beginning of Q2 and fall below 5 fp (flex points). However, in May-June, we expect the FlexIndex to be above the 2019 benchmark.

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