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Co-Working Space: The Future of Real Estate 02/06/20

Co-Working Space: The Future of Real Estate

With the very nature of work continually changing due to increased connectivity and self-employed workers, co-working spaces are popping up at an exponential rate across the country.

According to an industry survey, co-working spaces are growing by 22 percent per year - while membership grows by 40% per year. Statistical projections indicate that by 2020, an estimated 40 percent of the American workforce will consist of the self-employed: independent contractors, freelancers, on-demand workers, and entrepreneurs.

This trend is also occurring globally. Small Business Labs, an organization that analyzes coworking spaces around the world, projects the number of people leasing such spaces will grow from under 1 million in 2016 to nearly 4 million in 2020. Flexibility and cheaper cost is certainly part of the appeal of co-working space, as monthly membership means avoiding a long-term financial commitment. Another aspect to address is the culture. A professor of business and faculty director for positive organizations at the University of Michigan Ross School of Business, Gretchen Spreitzer, puts the allure of co-working spaces bluntly, “millennials simply didn’t like the corporate environment.” Essentially, co-working spaces are company or corporate offices without the hierarchical politics. Allowing the self-employed, entrepreneurs and remote businesspeople a space to work in freedom, the majority of millennials quite like the flexibility and openness these creative spaces provide. They also provide other subtle benefits to the self-employed: social interaction.

According to a variety of studies about working from home alone, isolation and loneliness are the chief complaints. Co-working spaces give the self-employed - who in a previous era or even a few years ago might have worked from home - a chance to get out of their homes and interact with other entrepreneurial-minded people. Surveys show that 70% of co-working space users reported they felt healthier than they did working in a traditional office setting and  68% of coworking space users reported that they are able to focus better while co-working as opposed to working from home or a traditional office. While consumers certainly like the spaces, they have also proved fruitful in growth and innovation. To give two notable examples, Uber and Instagram were born in co-working spaces.

The popularity of these spaces is driving demand and the markets are responding. They have become an attractive choice for investors as more traditional tenants, such as retailers, close up shop. US statistical projections indicate that these new spaces may account for as much as 2% of the office market by 2020. To meet the rising demand, landlords have begun to renovate and market their real estate to these workers. Landlords are also beginning to partner with more experienced operators to deliver the final product to consumers. WeWork, the largest co-working space company, is currently valued at $20 billion and has 221 offices globally. SoftBank, the Japanese behemoth, recently invested $4.4 billion into the company. While WeWork’s valuation may be high, the average cost of a desk in one of these spaces in the U.S. is roughly $387 a month but varies depending on the city. Overall, the cost is cheap, the leases are flexible and people both enjoy and derive significant benefits from them, driving immense demand. John Arenas, CEO of Serendipity Labs Inc., a lifestyle hospitality company that offers co-working spaces, described the movement, “Over the past five years, the co-working industry has grown from a hip, creative class movement for techies and millennials into a mainstream workplace option for the U.S. workforce.” Though largely filled with start-ups and entrepreneurial types, corporations and businesses of all stripes are increasingly experimenting with these spaces. Large corporations such as Microsoft, IBM, and Verizon are testing co-working spaces to support innovation and idea exchanges outside of traditional offices. Microsoft made news headlines in 2016 with the decision to give their New York City sales department (30% of all NYC Microsoft employees)  access to WeWork locations. Corporations also have other motives as they want to be street-savvy. Renting a co-working space can allow them to accomplish multiple objectives simultaneously: attract talent and incubate innovation (all while potentially creating happier workers) and monitor both competition and potential acquisition targets.

The new movement is having an impact on the entire real estate industry. One hotel industry executive quipped, “Hotels and co-working space will be merging. We can see developing a hotel with developing at least one floor to a dedicated co-working space.”

Largely, however, the popularity of these spaces are driven by two demand factors: the increasing percentage of workforce self-employed and people love these spaces while having shown to thrive in them. One co-working space owner put the attraction of working in these spaces quite simply, “Virtual connectivity isn't enough for people. They need a sense of purpose, and to connect with others who are doing the same type of thing they are.”

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