FlexIndex Update: Year in Review [2022]

A Summary of Our Most Important Observations

In November 2022, the index surpassed the 2019 benchmark and reached 5.1 fp (flex points). This is the first month, when the market showed a full recovery after COVID-19 pandemic struck the industry. In September and October 2022 we were really close to breaching the 2019 benchmark, as in both months the FlexIndex had a score of 4.9 fp.

The observed drop in December 2022 is anticipated. Typically, at the end of the year the two desk related KPIs ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’ are flattening. At the same time the bookings related KPIs – ‘Average Booking Duration per Paid Meeting Space’, ‘Booking Revenue per Paid Meeting Space’ and ‘Bookings per Meeting Space’ are sharply dropping, driven by the holiday season at the end of the year. This dynamic of the booking related KPI led to a drop in the FlexIndex and closed 2022 at 4.4 fp (flex points).

As per our expectations in the last FlexIndex update, for the period September –  November 2022 we observed a positive surge in all of the bookings related KPIs. We were anticipating ‘Average Booking Duration per Paid Meeting Space’ to breach the baseline for a second time this year and it became true. However, our forecast for ‘Booking Revenue per Paid Meeting Space’ seems to be a bit more conservative than the reality. In November 2022, this KPI breached the 2019 benchmark for the first time, while we forecasted it to be slightly below the 2019 baseline.

For the upcoming Q1, 2023 we are expecting the desk related KPIs to stabilize slightly above the 2019 benchmark. Most likely,  ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ will recover and pass the 2019 baseline after January 2023. While ‘Bookings per Meeting Space’ will be still under the 2019 levels.

Based on that, in Q1, 2023 we predict the FlexIndex to recover to levels above the 2019 benchmark. Most likely though, this won’t happen immediately in January 2023.

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

• ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’ are now constantly above the 2019 benchmark and keeping the stability of the FlexIndex on a relatively high level, with a slight cooling off at the end of 2022.
• ‘Static Desk Occupancy’ has reached 4.5% above the 2019 benchmark and we are expecting to continue the positive trend. At the same time, the ‘Revenue per Available Workspace (RevPAD)’ reached 8% above the baseline at the end of the Q4.
• The closing gap between ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’ is an indicator for balancing the supply and demand of the flex offices. Since October 2022, ‘Revenue per Available Workspace (RevPAD)’ is with higher value than ‘Static Desk Occupancy’. This was typical for the pre-covid market dynamics.
• Because of the Christmas celebrations ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are sharply dropping at the end of the Q4 2022 with -19% and -18.6% below the 2019 benchmark. However, in November 2022, for the first time, both of the KPIs were above the 2019 baseline with 4.7% and 3.3% resp.
• It is worthy to mention that the trends of those 2 KPIs are synchronizing and the gap between them is closing. Similar to the desks related KPIs, this was typical for the pre-covid market dynamics. However, this doesn’t mean balancing between the supply and demand of the meeting space.  The overall bookings per meeting space are still far below the 2019 benchmark.
• The ‘Bookings per Meeting Space’ was stabilized in November 2022 at a lower level of 14.5% below the baseline. Being the most affected from any holidays, in December 2022 the KPI significantly dropped to -38.9% below the 2019 benchmark.

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

A Closer Look at the FlexIndex Components

1. Static Desk Occupancy

The ‘Static Desk Occupancy’ has reached 4.5% above the 2019 benchmark. Very close to the best months in pre-covid period.

The observed cooling-off in November – December 2022 is a seasonal trend matching the pattern from previous years. We are expecting the positive trend to be recovered and stabilized slightly above the 2019 benchmark.

2. Revenue per Available Workspace (RevPAD)

As expected ‘Revenue per Available Workspace (RevPAD)’ follows a similar pattern to our first KPI but the downtrend is not that much visible. At the end of December 2022 this KPI is ~8% 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. ‘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 ‘RevPAD’ even  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 ‘RevPAD’ negative trend continued. This opened a gap between both KPIs, which is still there as of the time of the index calculation.

The closing gap between ‘Static Desk Occupancy’ and ‘Revenue per Available Workspace (RevPAD)’ is an indicator for balancing the supply and demand of the flex offices. Since October 2022, ‘Revenue per Available Workspace (RevPAD)’ is with higher value than the ‘Static Desk Occupancy’. This was typical for the pre-covid market dynamics.

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.

This KPI was stabilized in November 2022 at a lower level of 14.5% below the baseline. However, being the most affected from any holidays, in December 2022 the KPI significantly dropped to -38.9% below the 2019 benchmark.

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.

4. Average Booking Duration per Paid Meeting Space

‘Average Booking Duration per Paid Meeting Space’(5) was also severely impacted by the pandemic. This KPI hit bottom in March/April 2020 and is since slowly recovering.

As of March 2022, ‘Average Booking Duration per Paid Meeting Space’ is the first bookings-related KPI to reach and even surpass the 2019 baseline by 1.1%. In November 2022, we observed a higher value of 4.7% above the 2019 benchmark.

The end of the year seasonality impacted negative the ‘Average Booking Duration per Paid Meeting Space’ trend and in December 2022 it is again under the 2019 baseline with 19%.

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.

Similar to previous bookings related KPIs, the holiday season had a negative effect and in December 2022 ‘Booking Revenue per Paid Space’ is 18.4% below the 2019 benchmark.

Prior to the pandemic, ‘Booking Revenue per Paid Meeting Space’(6) and ‘Paid Booking Duration per Paid Meeting Space’ had very similar tendencies compared to the 2019 monthly average rates. However, after May 2020, booking revenue has a higher deviation from the benchmark. Since Sep 2021, the gap has been closing slightly and almost vanished in Q2 2022. Since then, the trend of the both KPIs are synchronized. However, this doesn’t mean balancing between the supply and demand of the meeting space.  The overall bookings per meeting space are still far below the 2019 benchmark.

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

Our Еxpectations for the Future

As per our expectations in the last FlexIndex update, for the period September –  November 2022 we observed a positive surge in all of the bookings related KPIs. We were anticipating ‘Average Booking Duration per Paid Meeting Space’ to breach the baseline for a second time this year and it became true. However, our forecast for ‘Booking Revenue per Paid Meeting Space’ seems to be a bit more conservative than the reality. In November 2022, this KPI breached the 2019 benchmark for the first time, while we were expecting to be slightly below the 2019 baseline.

For the upcoming Q1 2023, we are expecting the desk related KPIs to be stabilized slightly above the 2019 benchmark. Most likely,  ‘Average Booking Duration per Paid Meeting Space’ and ‘Booking Revenue per Paid Meeting Space’ are recovering and passing the 2019 baseline after January 2023. While ‘Bookings per Meeting Space’ will be still under the 2019 levels.

Based on that, in Q1 2023 we are expecting the FlexIndex to recover to levels above the 2019 benchmark. Most likely, this won’t happen immediately in January 2023.

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