At the start of the pandemic, many people thought it would destroy the coworking model with the advent of work-from-home policies. Two years later, it seems that many coworking operators have not only survived, but may be doing better than traditional landlords.
In mid-2021, the two largest global coworking operators, WeWork and IWG plc (formerly known as Regus), reported a rebound in occupancy, to 52% and 69%, respectively. They also reported revenue increases.
In fact, while physical office occupancy overall remains well below pre-pandemic levels, with average weekly footfall down 50%, coworking facility occupancy is significantly higher than office occupancy. traditional ones,” says Jacob Bates, flexible space manager for the Americas at JLL. Property management.
After a jolt during the Omicron wave this winter, coworking rental activity is expected to pick up in the next two months and some operators are already looking for spaces to expand, according to New York-based Americas Agile Practice Christelle Bron. leader with the real estate services firm CBRE. She notes that the availability of coworking spaces is already restricted in some markets, including Miami and Seattle, and that 26 new coworking locations opened in the fourth quarter of 2021 in the United States and Canada.
The availability of flexible office space inventory has remained suppressed in the wake of the pandemic due to repossessions and lease restructurings which have limited supply, while demand for flexible space options has significantly increased. increased in recent months, says Scott Homa, senior vice president and director of US office research with JLL.
“Today, the flexible office market represents around 5% of the entire core office stock,” he says. “But given the rise of hybrid working and increased demand for tenant agility, we expect 30% of office space to be consumed flexibly by 2030.”
Homa predicts that much of this new consumption will be in pre-built suites suitable for large corporate-type occupants.
Coworking operators are already benefiting from a more geographically distributed workforce and the entry of technology and other office-using industries into more secondary and tertiary markets.
Over the past month, there has been an increase in both physical occupancy of coworking facilities and inquiries from potential members, resulting in visits to the space above pre-levels. pandemics, Bates notes. “This is expected to rebound and grow over the next few years, with enterprise customers becoming the largest occupiers of flexible space.”
Where does the money come from
With flexible office spaces currently outpacing traditional offices in terms of occupancy, Bron notes that the coworking sector has become attractive to a wider range of investors. “We’ve seen a significant shift towards the adoption of flexibility by more traditional sources of real estate capital, as well as the usual venture capital-focused players,” she says.
This happens for two reasons. First, investors are more comfortable signing incentive agreements when they can take advantage of general market upsides. Second, investors are recognizing that they can survive and perhaps even prosper by backing properties that attract tenants with more flexibility.
Before the pandemic, coworking operations were largely capitalized by private equity and venture capital, but a major and unexpected shift in funding sources has occurred during the pandemic, according to Bates, with coworking operators s ‘associating or capitalized by commercial real estate service companies.
For example, last year WeWork entered into a strategic partnership with Cushman & Wakefield, which brought WeWork workspaces into the company’s global occupant portfolio. Newmark and a private investor acquired Knotel, which filed for bankruptcy during the pandemic. And CBRE acquired a 35% stake in flexible workspace operator Industrious, making CBRE its largest shareholder.
More recently, JLL created Flex by JLL, the most significant new entrant to the flex and coworking industry since the onset of the pandemic. Bates notes that Flex is an extension of JLL’s property management and experience services for asset owners, offering flexible office products and services to consumers and businesses.
Office owners/investors are recognizing the opportunity offered by flexible workspaces to attract new tenants, who may eventually switch to traditional leases, and are increasingly establishing their own flexible operations.
“Major real estate investors have and will continue their own assessments of buy, build and partner scenarios,” Bates adds. “But flex is much more of a hands-on approach to delivering a higher quality of service than traditional property management, so the long-term question is ‘how big and efficiently can landlords operate flexible office space without getting associated with a large real estate services company? »