Since 2017, the Yardi Matrix team has released reports detailing the rise of coworking and its penetration into the total office space of 20 major U.S markets. This year they have analyzed the top 50 major metro markets, putting together the most comprehensive study of the coworking industry to date.
Here are some of the major takeaways from the report:
Continued coworking growth
According to the Yardi Matrix database, there are 93.2 million square feet of coworking space in the 50 markets studied, representing 1.7% of total office space. The first coworking study, published in the last quarter of 2017, revealed 26.9 million square feet of coworking in 20 markets. In just two years, those same 20 markets more than doubled their coworking space to 57.5 million square feet.
Manhattan continued to lead the nation not only in total amount of coworking space, but also in adding 3.6 million square feet year over year. Two West Coast metros — Los Angeles and Seattle — also made the top five, while high demand for Atlanta office space for rent led to the city finishing in the third-place spot.
The growth of the industry is due in part to three factors:
- The rise of the gig economy has increased the number of remote workers, independent workers and digital nomads needing flexible workspace.
- Corporations are seeking more flexible lease arrangements. With the need for remote offices rising, companies are willing to pay for shorter-term leases.
- There is a growing preference for more amenities and social elements within a building or office space.
Expanding beyond urban areas
As expected, coworking has blossomed more in urban cores than in the suburbs. The study found 63.3 million square feet in urban markets, representing 68% of total coworking space and 2.7% of total office stock. Suburban areas rose to 30.4 million square feet, representing 1% of total office space.
The study predicts a continued upward trend in suburban markets, and one of the main reasons is that several large national coworking providers are already expanding into these areas with 7,000 to 13,000 square foot locations.
A continuing theme of the Yardi Matrix coworking reports is the strong correlation between markets with low office vacancy rates and a high percentage of coworking space. Manhattan, San Francisco, Seattle and Boston are among the leaders in coworking as a percentage of total office stock, and each has vacancy rates below 10%, significantly lower than the 13.5% national average.
The WeWork effect
WeWork and Regus are the dominant players in the industry, accounting for 47% of total square footage. Additionally, WeWork has added 13.4 million square feet in the last year, even while its tumultuous financial situation has unraveled publicly, leading to CEO Adam Neumann’s resignation and a takeover by Softbank Group of Japan.
As much as there are very successful operators who continue to expand and profit from the growth of coworking, it is fair to ask if landlords will begin to question or reject deals with coworking operators due to the stumble of the industry’s best known name. The study explained that while WeWork’s financial crisis will likely slow that company’s rapid growth, it should not change the benefits that coworking brings to the workforce, nor should it stunt the sustainability of shared workspace models.
Evolving business models
As the coworking industry continues to grow, new business models are becoming more common, such as partnerships in which a landlord teams up with a coworking brand to fill vacant space. The coworking operator builds out the space and a well-known brand name, will fill the space relatively quickly.
Real estate giant CBRE is one of many companies that have started coworking models, using their existing relationships with tenants and property owners. The Matrix report emphasizes that this flexibility will help attract workers as the knowledge economy continues to grow.
Overall, the Yardi Matrix report paints a positive future for coworking, indicating that the volume of shared spaces will continue to rise nationally, as will the evolution from the urban core to more suburban markets.
To read the full report, Shared Space: Coworking’s Rapid Growth Set to be Tested, please visit Yardi Matrix.