- Yardi recently published a special report focusing on the leases of 5.5 billion square feet of office space in the top 50 US markets.
- Over the last 18 months, coworking has reportedly accounted for one-third of office leases in the US.
- While coworking spaces typically grow faster in urban centers than suburban areas, Yardi predicts that coworking will rise in suburban office markets in the future.
Yardi recently published a special report titled “Shared Space: Coworking’s Rapid Growth Set to be Tested”. The report, which is based on a review of the leases of 5.5 billion square feet of office space in the top 50 US markets, takes a close look at the industry’s fast growth over the past two years and emerging trends in changing operation models.
According to Yardi, “the top 50 office markets contained a total of 93.2 million square feet of coworking space as of September, or 1.7% of total office space.” Also, over the last 18 months, coworking has reportedly accounted for one-third of office leases in the US.
Comparing this year’s data to that of 2017 and 2018, Yardi found that in 20 markets, “the footprint has grown 40% from 2018 and 100% from 2017.” The studied markets had 57.5 million square feet of coworking leases as of October this year, a significant jump from 26.9 million square feet in the fourth quarter of 2017 and 40.4 million square feet in the fourth quarter of 2018.
Where and Why Coworking Spaces Are Thriving
Some of the engines behind coworking’s growth include the rise of the gig economy, employment growth in the technology industry, the desire of corporations to have more flexible lease arrangements, and worker preferences for office buildings with more amenities and social elements.
Yardi found that the penetration of coworking spaces is highest in cities with new-market economies and tight vacancy rates, citing that in its three surveys to date, “there has been a strong correlation between markets with low vacancy rates and high percentages of coworking as a share of stock.”
The metros with the most coworking spaces as a share of office stock in the US include Brooklyn (3.9%), Manhattan (3.7%), Miami (3.5%), San Francisco (2.6%), Los Angeles (2.6%), and Seattle (2.5%).
Dallas and Atlanta have experienced substantial growth since the fourth quarter of 2018. Over the last year, Dallas grew its coworking stock by 62.4%, reaching 1.2 million square feet, while Atlanta grew by 52.8% and reached 1.1 million square feet of available coworking space.
While coworking spaces typically grow faster in urban areas than in suburban areas, Yardi predicts that coworking will rise in suburban office markets in the future. Currently, there are 63.2 million square feet of coworking spaces in urban submarkets, representing 2.7% of total stock. This number drops by more than half, to 30.4 million square feet, in suburban submarkets.
This is set to change as the amount of remote workers increases, pushing up demand from large companies that need small satellite offices.
Coworking spaces are not only growing in urban and suburban areas, but they’re also growing outside of traditional office buildings.
According to Yardi Matrix’s database, there are more than 1,500 coworking properties outside of traditional office buildings. This represents about 30% of Yardi’s database. “Shared and flexible spaces are popping up in properties such as multifamily, malls, college campuses, and hotels. New apartment buildings are adding coworking space as an amenity to attract tenants looking for short commutes, while malls are introducing coworking facilities to tap into the heavy foot traffic common in Class A retail. Even airports are incorporating coworking for commuters with long layovers.”
This expansion of coworking outside of office buildings is, in part, due to changing operator models. Hoping to offset some of the risks associated with running a coworking space during an economic downturn, coworking space operators have started to implement partnership models with landlords and property developers.
Luckily, landlords have been increasingly willing to work with coworking space operators, especially considering that reports have found that coworking can increase the value of a property — that is, as long as the share of coworking in the building remains below 20%.
While property owners have finally warmed up to coworking operators, the recent struggles of WeWork could lead to the cooling of property owners; though this is yet to be confirmed.
“WeWork will find it difficult to lease more space now, but the larger question is whether property owners will reject leasing to other coworking firms, as well. All indications are that office owners will give extra scrutiny to coworking leases, while large corporate users—which represent a growing share of the coworking market—are likely to think twice before getting involved in a situation that might create legal entanglements.”
Nonetheless, the coworking industry is expected to continue to grow — albeit at a slower rate. “The future of workspace will reward flexibility and design that helps employers attract workers in the knowledge economy. That would seem to guarantee a healthy future for coworking.”