An in-depth look at coworking and what corporate real estate executives need to understand about the hottest trend in commercial real estate.
In 2006, the Hat Factory and Citizen Space opened their doors in San Francisco and, in so doing, became two of the world’s first coworking spaces.1 A decade later there are some 11,000 coworking offices around the globe, and the movement shows no signs of slowing down. Just three years from now—by 2020—it’s estimated that the world’s coworking spaces will number 26,000 and membership will more than triple to 3.8 million users.2
Despite its impressive growth, coworking still represents less than 1 percent of global office space and will likely remain a sliver of the overall industry for years to come.3 This dichotomy—in which coworking is both the hottest trend in commercial real estate and a niche market—can present a dilemma for CRE executives. Is coworking something they should ignore or explore?
That’s what HOK set out to examine when it partnered with CoreNet Global’s UK chapter to produce Coworking: A Corporate Real Estate Perspective. The report (download it here
) takes a detailed look at the coworking phenomenon and the opportunities and challenges it poses to CRE leaders.
Before getting too deep, though, it’s worth taking a look at how coworking came into being.
THE COWORKING EVOLUTION
Today nearly 80 percent of global knowledge workers report working remotely at least one day a week.4
These professionals tend to think of their workplace as more than just the company office. It’s also their home, the neighborhood coffee shop or the local library—anywhere the Wi-Fi is fast and the atmosphere congenial. Often workers are also thinking of a “fourth place” beyond the office (first place), home (second place) or the local Starbucks or public space (third place).
Fourth places can take on a variety of looks and feels. They range from serviced offices with executive suites and shared receptionist services to hacker and maker spaces that give DIYers the workshops and tools necessary to build product prototypes. Coworking spaces, by comparison, tend to feature open layouts where workers can mingle and collaborate at shared desks and lounges. A social element is key, with 71 percent of coworkers saying they appreciate interacting with other members and 71 percent reporting they like the community element of their coworking space. Leading providers of coworking offices include Australia-based Servcorp (with more than 131 virtual and shared offices located around the globe5), Belgium-based Regus (operating 2,700 serviced offices in 106 countries6) and WeWork, a New York-based startup that launched in 2010 and today has 100 centers on four continents.7
In its earliest days, coworking appealed most to the huge pool of independent contractors and freelancers created in the wake of the Great Recession. These self-employed professionals needed an affordable and convenient place to office and network new job opportunities. Today, however, the balance has begun to tilt. Full-time employees now make up the majority of coworkers, according to industry publication Deskmag, with firms including KPMG, Delta Airlines and GE all having used coworking to house new hires or remote and traveling employees.
Employers themselves have begun experimenting with creating their own shared spaces as a way to connect with customers and stimulate employees. In Sydney, for example, the National Australian Bank transformed its lobby into public coworking space that places potential customers inside company doors.8 In Chicago’s Lincoln Park neighborhood, State Farm’s Next Door is a coffee shop that offers free coworking space in close proximity to the company’s investment and insurance advisors.9
AT&T’s six Foundry™ Innovation Centers seek to connect the company with “cutting-edge innovators and technologies” that might one day deliver new products to its customers. At Google campuses in Seoul, Tel Aviv, Madrid, Sao Paulo, Warsaw and London, the tech giant offers community hubs for entrepreneurs to learn, share and launch startups. Online retailer Zappos, meanwhile, invites the public to share its corporate offices and other spaces in hopes of making its employees smarter, happier, more productive and more creative.10
COWORKING RISKS AND REWARDS
Taken together, both coworking types—independent and employee—report being happier than non-coworkers (79 percent to 57 percent), according to Deskmag. In addition, 71 percent of coworkers say they’re more productive in a coworking space; 68 percent say they’re better able to focus; and 62 percent believe the quality of their work is better.
Research has found that remote work increases employee engagement, (see chart below) especially for those who telework one to three days a week. Flexibility is also a big draw for independent contractors and freelancers who continue to account for large numbers of coworkers. Eighty percent of independent contractors report being satisfied with their work because of the autonomy and flexibility it affords.
Employers, too, like the flexibility of contract workers, especially when it comes to the cost savings provided by a scalable workforce. According tothe Intuit 2020 Report, 80 percent of global corporations plan to significantly increase their use of contingent labor in the future.11 Such a forecast could bode well for future coworking demand. As Deskmag recently reported, 63 percent of coworker members worked at home, a coffee shop or on the move prior to joining a coworking center.12
As a business model, though, coworking is not without a number of risks. The concept largely came online in the wake of recession when vacancies were high and rents low. Nearly half the leases of U.S. coworking spaces are now up for renewal by 2018, when terms likely won’t be as favorable.
The coworking industry is also dependent on a relatively large number of members to cover its lease obligations and other operating expenses. In the U.S., typical coworkers pay a low monthly fee (as little as $220 a month at WeWork) and remain fee-paying members of a coworking space for an average of 19.7 months. The challenge is for coworking operators to find new members to offset turnover and provide an experience that could justify future fee increases. Evidence suggests the latter may be possible, as 94 percent of full-time coworking members believe they’re getting a good value.13
Competition could soon prove to be a factor, too, as more coworking hubs come online and free and nontraditional spaces enter the market. Public libraries in New York and Washington D.C., for example, have recently opened free coworking centers. Other locations have opened in hotels, gyms and restaurants. If Spacious has its way, tables will be full of people hours before its restaurants open. For $95 a month, members will have access to upscale space in trendy eateries in London and across the U.S. Memberships include a receptionist, Wi-Fi, refreshments and earlybird access to the restaurant and bar.
In smaller urban areas, coworking may have already reached saturation. Eighty-five percent of U.S. coworkers say there is adequate or too much coworking space available in cities with fewer than 1 million inhabitants.
Additionally, just one in four coworking spaces currently in operation is profitable, though that could be because so many of them are recently opened. Servcorp’s annual report indicates it takes two to three years for a new office to break even.14
The biggest uncertainty, though, may be the attitudes of future generations toward coworking. While the majority of today’s coworkers (76 percent) prefer to work in an open space rather than a private office, will that trend continue into the future? Or will today’s “we space” employees eventually want more “me space”?
CONSIDERATIONS FOR CRE LEADERS
In spite of the risks, coworking may hold solutions for CRE leaders — considering that 96 percent of companies expect them to improve workplace productivity and 66 percent of CRE leaders report being charged with increasing portfolio flexibility.15
To date, coworking has been an effective way for portfolio managers to fill hard-to-lease space. More than half (55 percent) of coworking locations were vacant for more than six months before being leased, and nearly half (45 percent) are in buildings more than 50 years old.16 Startup expenses for coworking spaces are far cheaper than traditional office space, with average opening costs under $100,000.
To help CRE leaders decide what action—if any—they should take with coworking, HOK and CoreNet Global’s UK chapter developed the following suggestions and best practices:
- Look to established coworking spaces for ideas about what people do and don’t like.
- Think about how second, third and fourth places can increase portfolio flexibility.
- Ensure corporate brand and culture are reinforced both physically and virtually.
- Be intentional: Make change happen rather than allowing it to happen.
- Evaluate needs of introverts as well as extroverts.
- Because people cost far more than office space, make sure the choice of spaces maximizes employee productivity, engagement and satisfaction.
- Remember that people’s preferences change as they age.
- When asking people to change, ensure that they understand why and the benefits for them.
- Establish goals, pretest and measure results. Will the use of coworking be used to monetize unused space? Increase diversity and foster creativity? Engage with the community? Or test new workspace ideas?
A decade after its arrival, coworking has clearly established itself as a valued workplace model for contractors and employees who seek flexibility and for employers attempting to foster creativity and engagement among workers. It would be wrong, however, to conclude that coworking signals the demise of the traditional corporate office. Better, perhaps, would be to think of coworking as the newest addition on the evolutionary tree of work, which now branches far beyond the traditional office.
For real estate leaders, the coworking trend is certainly worth watching and, perhaps, exploring. For some, it will offer a way to add flexibility to their portfolio and help them better match the ebb and flow of supply and demand. Others may find it a solution to some of the challenges posed by the changing nature of both work and worker.
In the end, though, the question of whether or not coworking belongs within an organization’s ecosystem depends on the individual traits and goals of the business. Like any real estate decision, the answer must be founded on a solid understanding of the company’s business goals, its culture and people, and the market.
About the Authors
, ASID, IIDA, CID, LEED AP, MCR.w, is a senior principal and director of HOK’s WorkPlace
practice. With more than 30 years of experience, Kay is a recognized expert on workplace design and strategy issues. Based in Washington, D.C.
, she was recently named to CoreNet Global’s board of directors.
, LEED AP, is a vice president and regional leader for HOK’s interiors
practice in London
. With more than 25 years of interior design experience, Beate has led the delivery of many high-profile projects worldwide.
1 NAIOP Research Foundation. (2014, January). Workplace innovation today: The coworking center.
2 Small Business Labs. (August 2016). Coworking forecast – 26,000 spaces and 3.8 million members by 2020. http://www.smallbizlabs.com/2016/08/coworking-forecast-44-million-members-in-2020.html.
3 Jones Lang LaSalle. (2016, May). Shared workspaces. http://www.us.jll.com/united-states/en-us/Research/US-Shared-workspace-2016-JLL.pdf?469a8209-e847-4cf7-9ae9-09deb6f990d9.
4 PGi. (2015). 2015 PGi global telework survey. http://img03.en25.com/Web/PremiereGlobalServices/%7B7e70c99d-24b4-43c3-96f9-4c3a24698cf4%7D_2015_PGi_Global_Telework_Survey.pdf.
5 Servcorp. (2015). Annual report of 2015. http://www.servcorp.com.au/media/1409/annual_report_2015_asx.pdf.
6 Regus. (2015). Annual report and accounts 2015. http://www.regus.com/images/Regus_plc_consolidated_report_and_accounts_2015_tcm304-58776.pdf.
7 WeWork. (November 2016) WeWork at 100 https://www.wework.com/blog/posts/wework-at-100
8 eOffice. (2016, January 27). Top 3 banks embracing coworking. http://blog.eoffice.net/2016/01/top-3-banks-embracing-coworking/.
9 Moore, A. (2014, April 10). What you may not know about your neighbor. Crain’s Chicago Business. http://www.chicagobusiness.com/article/20140410/issue01/140409709/what-you-may-not-know-about-this-next-door-neighbor.
10 Lindsay, G. (2013, February 8). From Zappos: 4 simple hacks to foster office collaboration. Fast Company’s Co.Design. http://www.fastcodesign.com/1671797/from-zappos-4-simple-hacks-to-foster-office-collaboration.
11 Intuit. (2010, October). Intuit 2020 Report. http://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/intuit_2020_report.pdf.
12 Deskmag. (2016, May 5). Coworking in the U.S. 2016. http://www.deskmag.com/en/2016-forecast-global-coworking-survey-results.
13 Deskmag. (2016, May 5). Coworking in the U.S. 2016. https://dl.dropboxusercontent.com/u/64387613/Coworking%20Survey%20Results/DESKMAG%
14 Servcorp. (2015). Annual report of 2015. http://www.servcorp.com.au/media/1409/annual_report_2015_asx.pdf.
15 Jones Lang LaSalle. (2015). Elevate to excellence: Global corporate real estate trends 2015. http://www.jll.eu/emea/en-gb/global-cre-survey-2015/download.
16 Deskmag. (2016, May 5). Coworking in the U.S. 2016.http://www.deskmag.com/en/2016-forecast-global-coworking-survey-results.