Coworking office providers like WeWork and Industrious have seen a sales bump over the summer due to U.S. companies looking for flexible, short-term lease agreements amid the COVID-19 pandemic, The Wall Street Journal reports. Hundreds of businesses, the tech industry in particular, have reserved coworking spaces, from a few “hot” desks to more than 50,000 square feet for as little as one month. Additionally, individual workers are leasing desks at their company’s expense while their employer decides on when they feel it is safe for employees to return to their physical locations.
Meanwhile, businesses are using coworking spaces to prepare for a post-COVID world where a lot of employees have enjoyed working remotely.
“In a time of uncertainty, we provide flexibility to corporations and small businesses trying to figure out what their employees want,” Melinda Holland, WeWork head of sales for the U.S. and Canada said.
WeWork saw revenues of $215 million in July—a $209 million increase from June. Industrious meanwhile had its best sales week during the final week of July. It’s not just the coworking giants enjoying a sales boost, however. Smaller firms like WorkHouse, which has locations in Manhattan and Bedford, NY, rented approximately 120 desks since July 1.
“Inquiries are off the charts with very short lead times,” WorkHouse Chief Executive and founder Debra Larson told The Wall Street Journal. “Companies are solving for September.”
There are no guarantees that the leased space will be used in September, however. News of the Delta variant of the coronavirus has led a lot of businesses to push back their return to office dates.
“We’ll see if these people decide to push the pause button” on flexible space as well, Larsen said.
The appeal of the co-working space
There’s no one reason why companies find coworking spaces appealing. Some businesses want to give their workers and option besides their home to conduct business. Others have simply changed their workplace strategies based on lessons they learned during the COVID-19 pandemic. For example, cloud business communications platform Dialpad is replacing its San Francisco headquarters with three WeWork locations.
“It gives us the ability to recruit in areas anywhere in the world where we find talent,” Craig Walker, Dialpad’s chief executive told The Wall Street Journal.
There’s also a stark contrast between flexible office space demand and traditional commercial real estate office space. Businesses leased 102 million square feet of office space in the U.S. during the second quarter of 2021. That was a 118 million square foot decrease from the same time period in 2019, but a 69 million square foot increase from the second quarter of 2020, according to data firm CoStar Group. Meanwhile, U.S. office vacancy jumped to 18.5% during the second quarter of 2020, which is inching towards the record 19.7% reached in 1991, per Moody’s Analytics.
“It is likely that this property type will go through a relatively challenging period over the next couple of years,” said a recent Moody’s report.
Coworking spaces still have their struggles
Flexible office space providers might have seen a sales bump, but they’re not immune to leasing slowdowns, according to The Wall Street Journal. Many workers are still avoiding the office, which led to coworking giant Knotel filing for bankruptcy protection and Newmark Group acquiring it. Meanwhile coworking space providers like WeWork, IWG PLC and Knotel had to return 10.1 million square feet to landlords during the pandemic, according to CBRE Group.
Coworking space companies also had to decrease rents to attract tenants. WorkHouse cut its prices by one third after its occupancy fell to 25% during the pandemic, Larsen told The Wall Street Journal. Recent flexible space demand led to company’s occupancy reaching 60% however, allowing Larsen to raise prices again.
Meanwhile, investors are betting that high coworking space demand will continue. CBRE acquired a stake in Industrious earlier this year. Cushman & Wakefield is negotiating a $150 million merger deal with WeWork.
“Companies are still in that discovery phase that work is going to be done differently,” Julie Whelan, global head of occupier research at CBRE Group told The Wall Street Journal. “The beauty of these providers is that if something doesn’t work, they can bail and try something new.”
Joe Dyton can be reached at firstname.lastname@example.org.