FlexIndex Update: Q3 2023 Overview

The latest version of FlexIndex report is finally here, showcasing the movements of the market during the last quarter. Q3 2023 unfolded according to our predictions. In April, we witnessed the expected decline in the OfficeRnD FlexIndex, primarily influenced by key performance indicators related to bookings.

Let’s delve deeper and explore the details of this intriguing trajectory.

A Summary of Our Most Important Observations

Q2 2023 dynamic was aligned with our expectations. In April, we observed the anticipated OfficeRnD FlexIndex drop, driven by the bookings-related KPIs. That was followed by a recovery In May and June on levels around the 2019 benchmark. At the end of Q2 2023, the FlexIndex was on the benchmark line and closed the quarter with 5.0 fp (flex points).

We were expecting the ‘Revenue per Available Workspace (RevPAD)’ and ‘Static Desk Occupancy’ to be on a higher level after the dip in January 2023 and thus the overall performance of the FlexIndex to be slightly better. However, Static Desk Occupancy’  closed Q2 with 6.2% above the benchmark, while at the end of Q2 2023 ‘Revenue per Available Workspace (RevPAD)’ is 4.9% above the 2019 benchmark. The good news is that the gap between both KPIs is closing and their trends are stabilizing. We are seeing this as a sign of balancing the supply and demand in the flex space industry.

The bookings-related KPIs are following the seasonal trend observed in the last few years. The  ‘Bookings per Meeting Space’  has dropped significantly in April due to the Easter celebrations, followed by a recovery in May and slight cooldown in June. At the end of the quarter this KPI is 22.3% below the 2019 benchmark.

‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are having similar trends. The difference being that in May and June the first KPI is with a stable trend on the 2019 benchmark, ending the quarter with 0.4% above the line. At the same time, ‘Booking Revenue per Paid Meeting Space’ continued recovering after the Easter celebrations and at the end of Q3 2023 is surpassing the 2019 benchmark with 6.7%.

For the first two months of Q3 2023, we are expecting FlexIndex to be below the 2019 benchmark. This is because of the summer seasonality affecting all three bookings-related KPIs negatively. In September 2023, those KPIs would recover – expecting ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ to be on the 2019 benchmark or even above it. We are assuming that ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’  will remain balanced with a possibly slower growth rate. Based on these, we are anticipating FlexIndex to be above the 2019 benchmark at the end of Q3 2023.

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.
• In June 2023, the  ‘Static Desk Occupancy’ reached 6.2% above the 2019 benchmark. We were expecting the positive, recovering trend to continue and be above the level reached in March 2023. However, the KPI stabilized at a very close rate compared to the end of Q1 2023.
• In Q2, the ‘Revenue per Available Workspace (RevPAD)’ stabilized and closed June 2023 at 4.9% above the 2019 benchmark.
• After the Eastern celebrations ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are recovering and at the end of Q2 2023 are surpassing the 2019 benchmark with 0.4% and 6.7% respectively.
• In June 2023 the ‘Bookings per Meeting Space’ has recovered after the April drop, but it’s still 22.3% 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

Static Desk Occupancy

In Q2 2023, ‘Static Desk Occupancy’ stabilized after the dip observed in January 2023.   In June 2023 this KPI was 6.2% above the 2019 benchmark. We were expecting the positive, recovering trend to continue and be above the level reached in March 2023. However, the KPI stabilized at a very close rate to the end of Q1.

Revenue per Available Workspace (RevPAD)

After the dip in January 2023, ‘Revenue per Available Workspace (RevPAD)’ is recovering but at a slower pace than we anticipated. In Q2, the ‘Revenue per Available Workspace (RevPAD)’ stabilized and closed June 2023 at 4.9% above the 2019 benchmark but still lower than the December 2022 peak.

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.

During Q2 2023 the gap between both KPIs is continuously closing and their trends are synchronizing. We are seeing this as a sign of balancing the supply and demand in the Flex space industry. Most likely both of KPIs will remain stable with a potentially slight improvement.

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. In April 2023 it dropped significantly the Easter celebrations, followed by a recovery in May and slight cooldown in June. At the end of the quarter this KPI is  22.3% below the 2019 benchmark.

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 Easter holidays seasonality impacted negatively the ‘Average Booking Duration per Paid Meeting Space’ trend. However, after April 2023, the KPI recovered and stabilized at the 2019 benchmark – slightly above with 0.4%.

Booking Revenue per Paid Meeting Space

The final KPI – ‘Booking Revenue per Paid Space’ was recovering very well during 2023, despite the Easter holidays. In fact, in June 2023 this KPI reached it highest value since the Pandemic and closed Q2 with 6.2% above the benchmark.

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 July and August 2023 all three bookings-related KPIs will decline due to the summer season. However, in September, 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 Q3 2023, ‘Revenue per Available Workspace (RevPAD)’ is expected to be stabilized but may not reach the same levels as in December 2023. We are assuming that ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’  will remain balanced with a possibly slower growth rate.

As a result, the FlexIndex is likely to degrade at the beginning of Q3 and fall below 5 fp (flex points). However, we expect the FlexIndex to be above the 2019 benchmark in September 2023.