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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.

• Less commuting, as workers attempt to avoid long Demand is also higher in metros where space is at a
commutes for quality-of-life and environmental rea- premium, such as Manhattan, San Francisco and Los
sons. Angeles.

• Desire for a relaxed environment. Coworking provides a Coworking has proliferated more in cities, with leases
social work environment that is attractive, particularly encompassing 1.4% of urban office space and 0.9%
to millennials. Community-oriented features include of suburban office space. Few people commute long
food and drink, presentations from local restaurants or distances to coworking sites, urban areas have more
farms, exercise facilities and social activities. workers, startups proliferate more in cities, and the social
elements of coworking are more in tune with the urban
• Cost-cutting. As office rents continue to rise, especially environment.
in city centers, companies try to reduce their footprint.
That said, coworking is gaining traction in suburban
• Large corporations that represent a growing segment of areas, and the model that attracts users with extra ame-
coworking demand. While coworking will never replace nities, a connection to other small tenants and a fun
all or even most of the space leased by large compa- environment could prove attractive to suburban office
nies, employers do enjoy the flexibility that comes with tenants.
having coworking space.
Coworking provides a service in line with the direction
• Tax laws. Federal Accounting Standards Board rules businesses are moving. It gives tenants flexibility and
also may play a role. Starting in 2019, corporations provides attractive space for young workers and the
must treat lease obligations as debt on their balance growing number of self-employed and remote employ-
sheets, which gives incentive to avoid long-term leases. ees. The number of locations and total space dedicated
to coworking is impressive, given the industry’s youth.
Coworking does carry some risks, including maintaining Over time, the industry is likely to develop its model to
revenue during a downturn, the possibility of short-term survive recessions and changes in business operational
leases cutting against the industry and the barriers to trends.
entry to compete. However, it provides a partial solution
for the growing number of entrepreneurial and remote The full Yardi Matrix report, “Shared Space: Coworking’s Rising
employees, can help attract talent and improve work Star,” is available for download at: www.yardimatrix.com/
satisfaction, and enable companies to reduce long-term Publications.
fixed costs associated with leasing commercial real
estate. Paul Fiorilla is associate director of research for
®
Yardi Matrix, the data division of Yardi. Before
Evolving Trends joining Yardi in January 2015, he worked nearly
Demand seems to be based on a couple of main fac- six years as an investment vice president in the
tors. One is the type of industries that proliferate in a research group of Prudential Real Estate Investors
metro. Demand is high in markets with concentrations of (now PGIM), overseeing publishing of the firm’s outlooks and white
knowledge workers—especially information technology papers. Paul is also editor-in-chief of CRE Finance World
but also new media or industries such as biotechnology magazine, which is published twice a year by Washington,DC-
and telecommunications—that are friendly to startups. based trade group CRE Finance Council.

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