JLL, a financial firm that specializes in commercial real estate services and investment management, recently conducted a study on coworking space growth, how coworking will keep growing, and some issues that could arise in the long-run.
A few months ago, we published an article exploring how the gig economy is driving flexible workspace growth. JLL’s study parts from this same premise:
“Over the course of this current economic cycle, there has been a significant shift in both the way people work as well as where that work gets done. Paired with a rise in entrepreneurialism and the new sharing economy, shared workspace has emerged in recent years as the perfect answer to small business needs.”
The ‘serviced office’ increased demand has been particularly observed in the rise of coworking spaces, both in the US and globally. The main finding of JLL’s study is that shared workspaces are growing, and they’re doing so at an unprecedented rate.
“Since mid-2014, shared office companies have leased more than 3.7 million square feet in leases of 20,000 square feet and larger, bringing the total size of this industry to more than 27 million square feet.”
“928,471 square feet was leased in 2016’s first quarter alone.”
Even better news is the fact that this growth is predicted to continue, at least for the next 3-5 years. “The pipeline of potential customer demand is only expected to increase as small businesses and freelancers continue to require more customizable space.”
“The U.S. Bureau of Labor Statistics estimates that the number of freelancers, temps, independent contractors and solopreneurs will grow from 30 percent of the workforce today to 40 percent of the total workforce over the next five years.”
Yet, the downside to this growth is the uncertainty surrounding the model’s stability through an economic recession.
“The model’s staying power at this scale and with this workforce demographic is untested through a downturn.” Which means that there’s no knowing whether members and operators alike will be able to afford the costs of shared workspaces and their premiums, which could potentially lead to volatility of the industry and the market.
Nonetheless, JLL believes that the demand for shared workspaces will continue even if we face another economic recession. “There may be a new supply of customers to be captured as companies shed leased space and wait for an economic downturn to pass.”
But, like with any other industry, JLL concludes that there will be winners and losers both as the industry continues to grow and also whenever it’s turn comes to face a recession. And, according to the study, a determining factor in the success of a shared workspace is the size and the location.
“There are some companies that lease more space than others and with size and scale come certain advantages. A well known brand cultivates a stronger customer base and makes it easier to capture a higher share of demand. Additionally, location remains key. (…) Over the past two years, 90 percent of leasing activity in this sector has taken place in Class B and C buildings, and two-thirds of leasing activity is within urban and mixed-use submarkets.”
So, what can we deduce from all this?
For one, that demand will continue, but this means more operators, therefore more competition. Workspaces will need to find ways in which to differentiate themselves and scale as the market grows.
Secondly, that the volatility of the industry is yet unknown and operators need to keep this in mind when planning their business and growth strategies.
And lastly, independent operators need to create and foster their own brand in a way that will allow them to compete against larger players.