High vacancy rates have plagued commercial real estate office owners since the onset of the COVID-19 pandemic, leading to an increase in coworking space demand, Bisnow reports. Coworking companies have seen large businesses turn their space into flexible workspaces and bring workers back at higher rates than traditional offices. The conversion could help the millions of square feet of office space quickly become occupied, according to market experts. Forty-three percent of the 1,100 corporate real estate decision makers surveyed in JLL’s The Future of Work Survey 2022 said they planned to invest in flexible office space during the next three years.
“The shift that we’ve seen post-COVID has been a shift towards flexibility,” said WeWork Senior Vice President Errol Williams. “What we are seeing and hearing more and more is that companies are increasing the share of flexible real estate that’s in their overall real estate portfolio strategy.”
WeWork has benefitted from more businesses embracing the coworking model, Bisnow reports. The flexible office space provider’s occupancy reached 72 percent of its real estate portfolio, which comprises more than 600 locations worldwide, per its earnings report. Meanwhile, WeWork said U.S. bookings for its WeWork All Access membership, which lets customers use any of its coworking locations, increased 64 percent year-over-year in September and 81 percent the week after Labor Day. The company’s WeWork On-Demand pay-as-you-go model also saw a 62 percent year-over-year increase.
All of this occurred as the company’s stock price dropped more than 70 percent since the beginning of 2022, but its market struggles do not reflect its fundamentals, according to Williams.
“There’s macroeconomic things happening right now, but that does not change the fact that we have fundamentally shifted, and the idea of how important flexibility is in the world of work right now,” he told Bisnow.
Coworking market grows across the U.S.
It’s not just the more populous states that are experiencing a coworking book, according to a recent CoworkingCafe Market Study. Nevada, Minnesota and Utah were all among the top 25 markets with the most coworking spaces. Meanwhile, coworking space increased 25 percent nationwide, according to Doug Ressler, senior research officer at Yardi Matrix, CoworkingCafe’s parent company.
“We really believe that coworking is one of the creative solutions that office owners and developers are going to use to be able to better utilize their office space,” Ressler told Bisnow.
More than half of the respondents to CBRE’s Spring 2022 U.S. Office Occupier Sentiment Survey said that coworking space would comprise a large portion of their portfolio in the next two years. Coworking companies are taking note — Industrious CEO Jamie Hodari said his company’s footprint increased 60 percent in the past year because office employers want to give their staff more workspace options. The flexible office space provider recently teamed up with Mitsui Fudosan America to grab 40,000 square feet on the 12th floor of the Homer Building in Washington, DC, Bisnow reports.
Hodari attributed the uptick in coworking demand to people wanting to work in different ways than they have in the past and not just hesitancy to sign a long-term lease.
CRE companies continue to enter coworking arena
A number of large real estate companies have noticed the growing demand for coworking spaces and are investing in the market, Bisnow reports. CBRE bought a 35-percent stake in coworking company Industrious last year and transferred its coworking brand Hana into the company. The firm also put another $100 million into Industrious — an indicator that it believes demand will only continue to rise.
Meanwhile, JLL opened a Seattle location for its coworking division Flex by JLL and plans to open a 15,000 square foot coworking office in New Jersey next year.
“The reason why we’re into flex is as we look at where the future office is going, we expect the industry to continue to grow,” Jacob Bates, head of Americas for Flex by JLL, told Bisnow. “We expect 30 percent of office space will be consumed flexibly by 2030.”
Bates also believes the coworking industry’s growth will help reduce the overall vacancy the office market has faced in recent years.
“It’s gonna help significantly,” he said. “It’s also becoming a big part of the amenity package of an asset, which also leads it to be a part of the leasing strategy for an asset.”