By Jack Stubbs
“The majority of people using coworking spaces want to connect with other people. We’re pack animals, we really feed of off one another in terms of energy and ideas,” said Kay Sargent, senior principal and director of workplace at architecture-engineering firm HOK, articulating one of the common perceptions about the appeal of coworking in the current real estate market at a recent industry conference held in Seattle.
From November 5th to November 7th 2017, CoreNet Global held its Global Summit at the Washington State Convention Center in Seattle, where one of the central themes of the event was shifts in workplace design in real estate. At all levels of the industry, according to numerous speakers, coworking is one of the buzzwords and concepts at the forefront of individuals’ and organizations’ minds at the moment.
At one of the discussions titled “CoWorking: A Corporate Real Estate Perspective,” featuring Sargent and her colleague Julia Payne Cooper, vice president and senior workplace specialist at HOK, topics of conversation included how demand and supply drivers are influencing coworking as an industry in the world of commercial real estate. It looked at risks and implications of coworking for owners, clients and service providers and how coworking fits into trends around flexible workplace designs. Additionally, the conversation explored some of the challenges and opportunities associated with integrating coworking spaces into a corporate real estate portfolio.
Now a booming trend in many of the nation’s major real estate markets, the concept began roughly a decade ago, according to Sargent. “Around 2007, when this idea came about, something happened: the recession hit, space was cheap, and unemployment was high. It was the perfect storm for creation of open spaces,” she said. As many industry professionals now recognize, coworking reinforces a sense of camaraderie between colleagues. “One of the important through-ideas is a sense of connection with coworking. What often happens with teleworking is that there’s an erosion of corporate culture. You don’t feel as connected to your co-workers. We are actually more engaged when we’re in the office,” Sargent added.
In addition to the sense of community that coworking fosters between colleagues, the spaces also encourage a more fundamental space for the creation and dissemination of ideas in the workplace, according to Cooper. “It isn’t just about the people. It’s also about the baseline infrastructure, which is a key element, and also the information sharing, sharing contacts and workload,” she said.
On top of that, coworking is not something that a very narrow demographic does, anymore. Kay noted that while the stereotype of a co-worker is a struggling entrepreneur in his early 20s, there’s a wide group of people who use coworking spaces, and the average age of a co-worker is 38. And one of the primary reasons that misinformation and other misconceptions about coworking spaces spread is because the information is often disseminated by the service provides, who have a vested interest in presenting data that favors them, according to Kay.
While the concept of coworking spaces was originally modeled after some version of home offices, coworking has recently experienced a massive shift in scale and prominence due to big shops like WeWork transforming the landscape, according to Cooper. “Within the last few months, there’s been a major push by some of the big-box coworking companies to lease entire buildings; they are approaching larger corporations [with their services now],” she said.
These services more and more include a cool factor, which organizations and their employees appreciate. “One of the things that coworking spaces do really well, which we’ve kind of forgotten about in corporate America, is servicing individuals. It’s all about curating the experience,” Sargent said. And this is a very important aspect of modern workspace design, which will help the industry continue to grow. HOK studies the trends nationally, and based on that information Sargent estimated that coworking will grow by roughly 24 percent internationally going forward. This will be primarily driven by big-box coworking operators leasing entire buildings.
According to that study, that makes coworking the fastest-growing sector in the commercial real estate market, growing to 20 percent of the office market in North America within the next decade. And this, Sargent believes, will play a major role in the real estate market for the foreseeable future. “This is not a fad, there are new centers opening every day, and this is a major disrupter in the real estate world, and it will continue to disrupt the industry,” she said. “A lot of big companies are looking at this as their real estate strategy. It’s a high-risk market, and these companies want to go in fast, easy and low-risk, which is why we’re starting to see the emergence of big-box coworking spaces,” she added.
But things do not come easy in this segment. HOK’s report finds that challenges in the industry force companies to explore creative avenues that help establish the coworking model in their business strategies. According to Cooper, high turnover and tenant instability are challenging coworking centers to maintain profitability in an increasingly competitive market; and building owners and coworking operators are partnering to provide new uses and low-risk options for older under-utilized facilities, helping developers to generate interest around a space.
In fact, coworking has become such an established trend in the real estate market that it is approaching saturation in certain markets in North America, with San Francisco and New York two notable examples of that. And the current explosive emergence of large coworking centers might signal just the beginning of a new cycle, according to Sargent. “We’re starting to see the first wave of coworking centers, started about 10 years ago, going under or closing because they can’t compete with the emergence of big-box [centers],” she added. Additionally, larger companies—such as Microsoft, Verizon and Capital One—are leveraging coworking spaces as a real estate strategy to manage future growth and avoid risk in the long-term.
Even as the coworking movement gains momentum in the long-term—and as it becomes increasingly synonymous with workplace design and corporate strategies used to attract talent—there is more yet to come, according to Cooper. “Coworking is morphing and splintering in so many ways that it is hard to track,” she said. And although the competition between real estate companies and big-box coworking operators will remain intense and unpredictable, the driving principle behind coworking spaces is one element that will lend a measure of stability to the unfolding process, according to Sargent. “Engagement scores are highest among people who feel a camaraderie with their peers…and have an understanding about what the mission of the company is about.” Over time, it’s likely that, in spite of big-box operators and an increasingly saturated and competitive real estate market, this human element will continue to play a role.
“People like to come together. Most of us are going to continue to work as we get older, but we’ll want to work on our own terms. There are a lot of different coworking models being created [to meet that demand].”