By Jacob Bourne
“Coworking started back in 2008, that was when we first started hearing about it,” said Kay Sargent, director of WorkPlace, HOK. “With low rents and high unemployment, there was a growth of people looking to work anytime, anywhere. People also wanted to be more connected with others and so there was a growth in demand for professional spaces for taking conference calls and holding meetings.”
Sargent’s view is that the emergence of coworking spaces during the Great Recession actually spurred growth in entrepreneurship, as well, because these places became a melting pot of people from different backgrounds, ages and skill-sets, united by the goal of advancing their careers under a new reality of economic constraint. Young people just out of college struggling for full-time positions had opportunities to interact with more experienced workers, many of whom had been laid-off but not ready to retire. At the same time, newly founded enterprises and budding companies found the temporary nature of renting office more appealing and flexible than traditional arragements or renting space over a span of years.
When the economy bounced back, coworking trends continued to evolve. Though these centers make up less than one percent of office space across the globe, they’ve exploded in a number of cities like London, San Francisco, Chicago, New York, Seattle and Portland where people expect a higher degree of options and flexibility in their work environments. The concept has extended beyond centers dedicated to coworking; now shared-use spaces can be found in college campuses, retail, coffee shops, financial institutions, lodging and libraries.
HOK, a global design, architecture, engineering and planning firm and CoreNet Global, an association of real estate industry professionals and economic developers, partnered to deliver Coworking: A Corporate Real Estate Perspective, a report examining this quickly growing sector of commercial real estate.
The report was officially unveiled at an event held on November 22, 2016 in London where people from a broad spectrum of the industry including architects, users and vendors were in attendance for discussion and presentations.
“What’s important is that there’s a good structure in place now,” commented Beate Mellwig, vice president, HOK, London. “We’re going to reconvene in early 2017 with roundtable discussions and another white paper, followed by an event at the end of the year. We’re trying to have a focused approach with quarterly meetings, one main event and something tangible resulting from the efforts.”
The report defines a coworking center as “a membership-based environment where the self-employed, or people with different employers, work in a casual, community atmosphere.” In terms of impact on commercial real estate, the report found that coworking spaces allow for repurposing of aging properties and bring functionality to underutilized spaces for a variety of real estate types. Another key finding is that engagement levels among users is highly dependent on rates of remote-working habits. Employees who never work remotely are the least likely to utilize coworking centers while the highest engagement levels are from those users who work remotely less than 20 percent of the time.
Overall, researchers expect coworking spaces to grow within corporate real estate over the next five years by 21 percent, largely due to the rise of the non-traditional workforce. Current estimates show that contingent workers currently make up about 40-percent of the U.S. labor force. According to Intuit 2020, 80-percent of corporations worldwide have plans to increase their use of contingent labor. Businesses also have incentives to prioritize workplace flexibility through the use of coworking spaces, because it has been demonstrated to reduce real estate costs, increase productivity, reduce absenteeism and attract the best talent.
On the supply-side of the equation, coworking effectively utilizes spaces that are more challenging to lease. The report mentioned that 55-percent of coworking locations were vacant for more than six months before securing leases. The current total value of these centers globally is $21 billion and is a business model with a relatively low average initial investment of $98,000, making it accessible to many potential center owners. However, an estimate from a Servcorp annual report shows that it takes two to three years for centers to break even and that the business model itself is volatile. Only a quarter of centers are profitable and workers’ loyalty to a preferred center has dropped from 81 percent to 67 percent since 2013.
In light of the 85-percent of coworkers who report market saturation in small cities in towns, the future of living choices by members of the Millennial generation will weigh heavily on the growth of centers. The current average space user is 37 years old, five years younger than average employment age, and reports suggest that a majority of Millennials envision themselves living in suburban areas rather than urban centers in coming years. Centers in cities currently make up 77-percent of the market.
The authors of the report expect center growth to result in about 26,000 coworking spaces globally by 2020. With the plethora of different types of spaces and a blurring of the lines between coworking and serviced offices, understanding the needs of users and matching them with the right center is vital. San Francisco-based LiquidSquare is attempting to tackle the job with an app geared towards matching coworking space seekers with the right venue.
A promising market research statistic is that 79-percent of coworking center members report feeling happy compared with only 57-percent of non-members. Other data indicates that more coworkers tend to be above-average earners with about 31 percent in a creative or professional service occupation. Knowing and understanding center users and their needs as well as attracting new members by offering satellite services will be key to the continued growth and profitability of coworking as a corporate real estate submarket.
The major challenge of coworking spaces as a business model is the high degree of instability regarding usage, with about 54 percent of coworkers moving on from a particular center within less than a year. This can make it difficult for centers to maintain a steady profit margin.
“Some U.S. markets are becoming saturated,” said Julia Cooper, senior specialist, WorkPlace, HOK. “A subset of centers are tailored to a very specific user type — these tend to be exclusive and high-end, catering to a specific clientele. Some have more restrictions than others. Many have amenities like childcare, lockers and feature pet-friendly policies. The evolution is in the competition to offer spaces and services you can’t find at a library or coffee shop. Coworking centers are becoming more savvy in terms of attracting users.”