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NKF’s five scenarios for the future of coworking

Aayat AlibyAayat Ali
January 7, 2019
in News
Reading Time: 2 mins read
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Daily Digest

Coworking offices have increased exponentially, and industry experts at Newmark Knight Frank and JLL are evaluating what the future of this sector of commercial real estate holds.

Newmark Knight Frank Associate Director Bethany Schneider and author of NKF’s report says that in just five years, coworking has taken up a huge portion of the market demand including almost a third of office leases in Manhattan alone.

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A JLL survey found that corporate spaces are underutilized 60% of the time. Doug Sharp, JLL Corporate Solutions President, said that flexible offices are not just a trend, but will surely reshape the future of workplaces.

The industry has given a look into what a nontraditional office environment can look like. Sharp says that flexible work creates an engaging space that empowers employees “to trade traditional work-life balance for work-life integration.”

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According to the 24 U.S. metros NKF studied, coworking takes up 49.7 million square feet of office space. Schneider’s report provided five potential scenarios for where coworking could be by 2023.

First, coworking could continue its rapid growth. Offices occupied by coworking could increase by 20% in 2023, with 718 million square feet of space in major markets, but some experts say they could see the industry taking up as much as 30% of space.

The second scenario could see coworking continue to grow, but consolidate as well. 9.7% of offices would be occupied by coworking spaces by 2023. Coworking operators would find it difficult to compete in such a saturated market and seek out consolidating.  Newmark Knight Frank Senior Managing Director of National Research Sandy Paul said that of the five scenarios, this one seems most likely.

Another scenario sees coworking growth decreasing with large companies remaining successful, but halting their growth plans. By 2023, 1.8% of the market would consist of coworking. If coworking’s growth decreased from its current 47.5% per year to 5% per year, it would mean the current acceleration of growth is happening too fast, which could hurt niche operators.

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If occupancy reduces in the next economic downtown, office occupation could be somewhere around 1.2% by 2023. A recession would lead startups to lower costs and lower demand would inevitably lead operators to major consolidation.

The final scenario sees the coworking industry completely disrupted and cutting occupancy in half. 0.7% of office inventory would be occupied by coworking spaces. A national recession would lead startups, corporations and contractors to cut coworking spending. While midsize companies would still use coworking, large tenants would begin leasing directly from owners. On the other hand, startups would begin simply working from coffee shops and home for free.

The NKF study also found that management agreements were becoming popular over traditional leases.

“These agreements reduce risk for the coworking firm,” Paul said. “That coworking operators have been successful in securing these arrangements, which have some benefits for asset owners but more for the coworking operators, is a sign of how much influence coworking firms wield in today’s office market.”

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Regardless of how the economy affects coworking, Schneider believes that the workplace revolution has been changed permanently and will continue to shape office space models.

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Aayat Ali

Aayat Ali

Aayat is an editor for the Daily Digest based in Lexington, Kentucky. She has worked with local coworking spaces since August of 2017 and enjoys taking her firsthand knowledge to write about the fascinating, constantly evolving world of flexible workspaces.

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