The flexible office sector's moment of truth has arrived. The market's boom in recent years has long had its skeptics, who have argued that short-term office leases would be easy targets for businesses looking to cut costs in a recession.

That downturn is finally here — and it is much more severe than anyone might have feared. The coronavirus pandemic has forced governments to instruct millions of workers across dozens of countries to stay at home as they struggle to decrease the virus' spread. The measures have slowed global economies to a crawl, costing millions of jobs. The worst economic crisis since the Great Depression is forecast as a result.

Like most other sectors, flex is being hit hard and some of its largest operators are beginning to show the strain. The We Co.'s WeWork operation, widely acknowledged as the driving force behind the flex boom of the past decade, has reportedly stopped rent payments at some of its locations and is requesting rent relief from landlords.

IWG PLC, the world's largest flex provider, has suspended its full-year 2019 dividend, while its senior executives have taken a 50% pay cut to reduce the group's costs as the crisis shrinks revenues.

"Whenever there's a recession, there's usually a retrenchment in terms of the serviced and flexible office sector," Andrew Thomas, head of international capital markets, London, at real estate services firm Colliers International, said in an interview. "We've seen that going back to the early 2000s when the serviced office sector went to the wall, although Regus PLC hung in there."

Regus, now part of IWG, blazed the trail for flexible workspaces in the late 1990s as the dot-com boom spawned a glut of tech startups looking for temporary bases for their businesses. When the bubble burst, Regus' income plummeted, and many of the long-term leases it had signed with landlords became unserviceable.

As flex operators once again see income threatened due to a sudden economic shift, the sector finds itself in another fight for survival. "With a significant drop in demand and many customers seeking some form of rent relief, this period will now be a real test of the different business models adopted by providers," Cal Lee, head of real estate services firm Savills' flex brokerage and listing platform Workthere, said in an email. "Cash and liquidity are now king and key to providers being able to weather the storm."

Flex providers with a higher portion of management agreements with landlords in place, as well as operators who own the freehold or long-leasehold to all or part of their portfolio, will be in a stronger position than those tied to leases, Lee added. Those that have a higher exposure to large corporate businesses, and those with a strong financial backing, should also be better-placed to withstand the current headwinds, he said.

London, which set the trend for flex working globally alongside New York, is among the most exposed markets if a large number of operators begin to falter. Flex space occupied 5.1% of total office space in the U.K. capital as of the end of 2018, the highest proportion in Europe, according to a 2019 report by Colliers International. Amsterdam, at 5.0%, is similarly vulnerable.

The sizable role of flex in the London market, where it has helped drive take-up and rental growth in recent years, has concerned some analysts for a while. "We've been one of the few longer term bears on the London office market as the flex issue is masking its real fundamentals," said Colm Lauder, real estate equity analyst at stockbroker Goodbody. "Income streams are weak. And this crisis may bring that to a head."

Still, listed London landlords, many of whom have their own in-house flex offerings such as Landsec's Myo and British Land Co. PLC's Storey, are not overly exposed, Lauder added. "The flex issue is not going to directly affect cash flow with the listed players," he said. "It's more the broader market sentiment toward flex that's the issue."

Not everyone is down on flex's prospects. Eugene Tavyev, founder of Spacepool, a flexible workspace marketplace that launched in February, believes that the current crisis could be the catalyst for a major rethink by businesses on working practices. While he acknowledges that the economic downturn will threaten the survival of some flex businesses — Spacepool is seeing extremely limited demand for space offered on its platform — the success of remote working and embrace of video conferencing due to the crisis could bring about change, he said.

"We perhaps need to look at how we work and change the way we work," said Tavyev. "Why do people need to travel an hour, two hours on the train to an office when they can work from their local flexible business center, and actually have a better work-life balance? Less travel will also benefit the environment."

Similarly, Savills' Lee sees opportunities in the long term. "The flexible office market is a risk-averse solution for companies during this time of uncertainty and also after," he said. "We expect the sector to benefit from any long-term uncertainty in the future as companies accelerate their use of flexible space in their portfolio."

For now, the uncertainty about the long-term impacts of the coronavirus crisis is reflected by the ambivalence of the major multinational real estate services firms in their analyses of how flex might fare in the months ahead. Views range from a high likelihood that a number of flex businesses will struggle to survive, to flex space and leases becoming more embedded into occupiers' property strategies.

Colliers' Thomas is less ambiguous. "Do I see a blood bath?" he said. "Probably not in the short term."