Co-Working Spaces: How Co-Working Affects Commercial Real Estate

Coworking spaces are more popular than ever before. Here's how commercial real estate investors can get a piece of the action.

Co-Working Spaces: How Co-Working Affects Commercial Real Estate Close
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Co-Working Spaces: How Co-Working Affects Commercial Real Estate

Posted by Gary Ashton RE/MAX on Wednesday, April 20th, 2022 at 8:48am.

How Commercial Real Estate Owners Can Prepare For Co-Working Office TrendsThe concept of co-working spaces has been on the upswing for a few years for freelancers and startups, but demand for this type of working structure continues to extend to other workers. This is happening for various reasons, and many businesses are moving towards remote work structures and hybrid structures.

As a result of these trends, businesses are downsizing physical space to cut overhead expenses. Yet, people are finding they still want to work outside of their home or with the company of other professionals, at least for a part of the time. Co-working is going to be one of the top office trends that attract tenants; keep reading to learn why commercial real estate investors should be prepared.

How Big is the Co-Working Market?

In past years, co-working was viewed as more of a movement than a business model. Many believed it was a mere fad when the idea first started to gain traction in the early 2000s. Since that time, the co-working market has consistently demonstrated it is not simply a passing trend, especially after the global pandemic began in 2020 and many businesses had to temporarily close their physical offices. The question is whether they'll return. Many will, but others are ditching the physical office concept altogether.

Co-working commercial spaces can fill a market need. According to All Work, as of March 2021, there were an estimated 35,000 flexible workspaces across the globe, suggesting that co-working is the new normal. Furthermore, as of Q2 in 2020, the co-working footprint "nearly doubled" since 2017 to 86 million square feet. Analysts predict the industry "is expected to continue growing and thriving" in upcoming years, with some suggesting these spaces may double or triple in the next five years.

Co-Working Provides Freedom & Community: The Best of Both Worlds

In an era where people want flexible work options as a condition of employment, co-working spaces provide them with camaraderie, socialization, networking opportunities, collaboration tools, and equipment options while maintaining flexibility and freedom. For people who work independently, co-working spaces allow them to work within a community setting while still maintaining their independence and simultaneously eliminating the distractions from home. Furthermore, individuals choosing to work in co-working spaces interact with people from a variety of career backgrounds who possess a range of skillsets, enabling them to gain new perspectives and be more creative.

It enables businesses to reduce their physical footprint as their teams increasingly go remote, at least for a part of the time. Company decision-makers also find renting co-working spaces provides cost-efficiency, saving up to 30% of operating costs. Essentially, they can cut overhead expenses and many other costs that come with leasing or owning traditional office space since they relieve themselves of those responsibilities. As a bonus, it enables them to deliver the flexibility a growing number of employees demand, making it a win-win scenario.

Small businesses and startups, who sometimes can't afford physical office space, find co-working provides the environment and space they need within their budgets. Gen Z is the up-and-coming generation that will be the largest demographic in the global economy by 2030. It's anticipated this will spur a new flurry of startups in upcoming years, and the co-working space will be the ideal in-person work solution for these new businesses.

Commercial Real Estate Business Opportunities

Owners of commercial retail space may find it a lucrative option to jump into the co-working space business. The All Work report noted that the global market value of flexible work structures is worth approximately $26 billion, and 67% of CRE decision-makers are "increasing workplace mobility programs and incorporating flexible space" as a primary element of their agile work strategies. Additionally, 86% of CBREs perceive flexible office space as a "key component" of their future real estate strategies. The most successful co-working companies are looking for rentals that design offices for lower stress.

Opportunities to integrate co-working real estate are plentiful. They could be a smart strategy in an age where businesses are letting go of physical workspaces, causing some landowners and investors to worry if they'll struggle to find commercial tenants in upcoming years. As a result, many commercial real estate owners, investors, and even companies leverage their properties or excess space to deliver to a new market.

These individuals and businesses are opening co-working spaces in the suburbs to cater to a growing demand of workers who no longer desire to commute to cities. Department stores are getting in on the action, too. In August 2021, Saks Fifth Avenue partnered with co-working giant, WeWork, to turn sections of its retail space into co-working spaces. It doesn't stop here. Other reports indicate co-working companies are actively looking to partner with shopping malls, restaurants, hospitality spaces, and other creative locations. This means a potentially new way for CRE investors to develop revenue streams for their commercial rentals.

Commercial Property Owners: How Will You Prepare For Co-Working?

Work flexibility will play a significant role in the future, and co-working space appears to be a considerable part of the future narrative. It's something CRE owners can consider as a potentially profitable opportunity.

 

Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 RE/MAX team in the World!

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