Advisory Banner

ADVISORY

ADVISORY NEWSLETTERS

Where to Work? Coworking Fills a Growing Need

Vendor Profile

Commercial real estate has always evolved in ways that reflect technological and social changes. The most obvious current examples revolve around how e-commerce has altered the landscape for retail and industrial properties, but no property type is immune. The trends impacting the office market are arguably subtler, but the sector is transforming to meet the shift in demand for lower costs, more flexibility for corporations, a more entrepreneurial workforce, and tenants that care more about community and the environment.

One trend gaining visibility, coworking, represents a small yet growing segment of the office market. However, data on the amount of such space within commercial real estate has been hard to come by. This paucity of information prompted Yardi Matrix to conduct a study of 20 major markets. It was one of the first attempts to quantify the amount of square footage of coworking space in relation to total office space within markets. The study found 1,166 coworking sites with 26.9 million square feet of space, which represents 1.2% of office space in those markets.

The study revealed that Manhattan has by far the most coworking space, 7.7 million square feet, followed by Los Angeles with 3.7 million square feet. Miami has the most coworking space as a percentage of stock, 2.7%.

Recession-Driven Expansion
Regus pioneered the “workspace as a service” concept in the 1990s, first in Europe and later in the Americas. The idea was to provide space for self-employed workers and the small number of corporate employees who traveled or worked remotely. Initial efforts were aimed at traditional office employers such as law and accounting firms that wanted to have remote offices.

Coworking is an evolved form of executive suites space that also encompasses increased amenities and more flexible leasing arrangements. It took off after the Great Recession due to a culmination of trends that increased demand, including:

  • Growth in the gig economy. The number of self-employed workers has risen dramatically in recent years.
  • Entrepreneurial workers, which include includes founders and employees of startup companies.
  • An increasing number of employees working remotely, made possible by technology that enables people to be connected.
  • Less commuting, as workers attempt to avoid long commutes for quality-of-life and environmental reasons.
  • Desire for a relaxed environment. Coworking provides a social work environment that is attractive, particularly to millennials. Community-oriented features include food and drink, presentations from local restaurants or farms, exercise facilities and social activities.
  • Cost-cutting. As office rents continue to rise, especially in city centers, companies try to reduce their footprint.
  • Large corporations that represent a growing segment of coworking demand. While coworking will never replace all or even most of the space leased by large companies, employers do enjoy the flexibility that comes with having coworking space.
  • Tax laws. Federal Accounting Standards Board rules also may play a role. Starting in 2019, corporations must treat lease obligations as debt on their balance sheets, which gives incentive to avoid long-term leases.
Coworking does carry some risks, including maintaining revenue during a downturn, the possibility of short-term leases cutting against the industry and the barriers to entry to compete. However, it provides a partial solution for the growing number of entrepreneurial and remote employees, can help attract talent and improve work satisfaction, and enable companies to reduce long-term fixed costs associated with leasing commercial real estate.

Evolving Trends
Demand seems to be based on a couple of main factors. One is the type of industries that proliferate in a metro. Demand is high in markets with concentrations of knowledge workers—especially information technology but also new media or industries such as biotechnology and telecommunications—that are friendly to startups. Demand is also higher in metros where space is at a premium, such as Manhattan, San Francisco and Los Angeles.

Coworking has proliferated more in cities, with leases encompassing 1.4% of urban office space and 0.9% of suburban office space. Few people commute long distances to coworking sites, urban areas have more workers, startups proliferate more in cities, and the social elements of coworking are more in tune with the urban environment.

That said, coworking is gaining traction in suburban areas, and the model that attracts users with extra amenities, a connection to other small tenants and a fun environment could prove attractive to suburban office tenants.

Coworking provides a service in line with the direction businesses are moving. It gives tenants flexibility and provides attractive space for young workers and the growing number of self-employed and remote employees. The number of locations and total space dedicated to coworking is impressive, given the industry’s youth. Over time, the industry is likely to develop its model to survive recessions and changes in business operational trends.

The full Yardi Matrix report, “Shared Space: Coworking’s Rising Star,” is available for download.

Paul Fiorilla, Associate Director, Research, Yardi Matrix
Paul Fiorilla is associate director of research for Yardi® Matrix, the data division of Yardi. Before joining Yardi in January 2015, he worked nearly six years as an investment vice president in the research group of Prudential Real Estate Investors (now PGIM), overseeing publishing of the firm’s outlooks and white papers. Paul is also editor-in-chief of CRE Finance World magazine, which is published twice a year by Washington, DC-based trade group CRE Finance Council.

This Week’s Sponsor

Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.

Realcomm News

UPCOMING REALCOMM WEBINARS

Achieving Optimum Energy Efficiency in Buildings - New Benchmarks Being Set - 7/26/2018

Five years ago, the driving factor for smart buildings was energy costs. While operational efficiency and occupant experience have been added to the discussion, energy savings still play an important role in the smart building strategy. Energy usage in buildings accounts for over 40% of electrical consumption which has ties to coal, natural gas, petroleum and nuclear energy. Energy waste in buildings is easily evident and provides great opportunities when addressed. Advanced energy analytics, enhanced building automation monitoring, new lighting solutions, low voltage infrastructure, micro grids and other technologies are reshaping the building energy landscape. This webinar will bring best practices and new benchmarks into focus.

headshot for Tom Shircliff
Tom Shircliff Intelligent Buildings
Tom Shircliff Co-Founder Tom Shircliff is a co-founder and principal of Intelligent Buildings, a nationally recognized smart real estate professional services company that was
headshot for Tom Shircliff
Tom Shircliff
Co-Founder
Intelligent Buildings
LinkedIn

Tom Shircliff is a co-founder and principal of Intelligent Buildings, a nationally recognized smart real estate professional services company that was started in 2004. Intelligent Buildings provides planning and implementation of next generation strategy for new buildings, existing portfolios and urban communities. Tom is a speaker and collaborator with numerous universities and national laboratories, a gubernatorial appointee for energy strategy and policy and founding Chairman of Envision Charlotte, a Clinton Global Initiative.

headshot for Kevin Bates
Kevin Bates Sharp Development
Kevin Bates Owner Kevin Bates is the owner of Sharp Development company. Over the past six years, he has concentrated on retrofitting older generation concrete tilt-u
headshot for Kevin Bates
Kevin Bates
Owner
Sharp Development
LinkedIn

Kevin Bates is the owner of Sharp Development company. Over the past six years, he has concentrated on retrofitting older generation concrete tilt-up buildings that are carbon neutral, have a net zero energy bill as well as a strong emphasis on the health and wellness of the interior environment for the occupants. The driver for Kevin is to demonstrate that this way of repurposing existing building stock can be done in a manner that is more profitable for the ownership than the less expensive way of building to meet minimum code.

headshot for Dana Jennings
Dana Jennings LinkedIn
Dana Jennings Project Manager, Global Sustainability Dana bridges the gap between buildings and their occupants through fun initiatives that drive energy efficiency across LinkedIn’s global portfolio. W
headshot for Dana Jennings
Dana Jennings
Project Manager, Global Sustainability
LinkedIn
LinkedIn

Dana bridges the gap between buildings and their occupants through fun initiatives that drive energy efficiency across LinkedIn’s global portfolio. With over six years of experience in corporate sustainability at both startups and large corporations, Dana understands the crucial role that business plays in addressing climate change. She is excited about how technology is transforming the built environment, and looks for opportunities to scale innovation and to help LinkedIn and others achieve audacious sustainability goals.

headshot for Matt Eggers
Matt Eggers Yardi
Matt Eggers VP, Yardi Energy Matt Eggers is currently VP, Yardi Energy where he leads the development of software for energy management and high performing buildings at Yardi. He
headshot for Matt Eggers
Matt Eggers
VP, Yardi Energy
Yardi

Matt Eggers is currently VP, Yardi Energy where he leads the development of software for energy management and high performing buildings at Yardi. He has extensive experience in leading teams to record sales and growing operations and market share.

headshot for Chris Phillips
Chris Phillips ICONICS
Chris Phillips Strategic Accounts - Building Automation With over 30 years of experience in commercial real estate and IT/Internet-based building services, Chris leverages his deep rooted knowledge of what
headshot for Chris Phillips
Chris Phillips
Strategic Accounts - Building Automation
ICONICS

With over 30 years of experience in commercial real estate and IT/Internet-based building services, Chris leverages his deep rooted knowledge of what is important to building owners and operators. He will discuss how ICONICS advanced building optimization software solutions with real-time Fault Detection and Diagnostics (FDD) help customers by integrating information from all disparate building equipment systems and energy metering into a uniform building automation system. Automated FDD visualizes in a meaningful manner what is critical to achieving energy reduction, operational efficiency and sustainability goals. Chris holds a BA from the University of Pennsylvania.

headshot for Ralf VonSosen
Ralf VonSosen Lucid
Ralf VonSosen CMO & VP of Customer Operations Ralf VonSosen has 20 years experience in technology product, marketing and customer operations. He is passionate about transforming data into actionab
headshot for Ralf VonSosen
Ralf VonSosen
CMO & VP of Customer Operations
Lucid

Ralf VonSosen has 20 years experience in technology product, marketing and customer operations. He is passionate about transforming data into actionable insights. Ralf leads Lucid's customer onboarding and professional services.

headshot for Karthik Rao
Karthik Rao EnerNOC
Karthik Rao Director of Energy Management Solutions Karthik is the Director of Energy Management Solutions at EnerNOC. His team works with large energy users in the Commercial and Industrial sectors to
headshot for Karthik Rao
Karthik Rao
Director of Energy Management Solutions
EnerNOC

Karthik is the Director of Energy Management Solutions at EnerNOC. His team works with large energy users in the Commercial and Industrial sectors to deliver outcomes using energy intelligence software, utility bill management, smart building solutions, microgrids, and more. Karthik has over 10 years of experience in the energy industry and holds a Bachelors in Engineering Physics from Queen’s University and a Masters in Systems Engineering from Cornell University.