This article is part of the Allwork.Space 2023 Future Of Work Forecast. Click here to read about other trends we expect to see in the new year and how they will impact the future of work.
- If inflation peaks sometime in early 2023 and then falls back, the effect on coworking is likely to be positive.
- The duration of this inflation is critical because if it does persist a long time, it will gradually degrade the economies of all developed economies. This would reduce the demand for work space in general.
- Price says “I see no reason to think that inflation is here to stay — and my confidence in the growth of coworking remains as strong as ever.”
PART OF OUR 2023 FUTURE OF WORK FORECAST
Publisher of Allwork.Space Frank Cottle knows more about coworking, serviced offices, business centers and managed offices — in short, about flex space — than anyone else alive on the planet. So, when he asked me for a piece on the effect of inflation on the coworking industry, I had to give it some serious thought.
The topic is not an easy one to address with any seriousness (as will soon become apparent), because what the effect of inflation is likely to be in 2023 and beyond depends on what has caused the current level of price increases that we are seeing today.
There are two basic hypotheses to consider. One that is favored by my friend and stock market pundit Tom Winnifrith — who is editor of the Shareprophets newsletter in the U.K. — is that governments have caused this inflation by their profligate money printing in the name of Quantitative Easing (QE). This is the monetarist view, held by followers of Milton Friedman, Walter von Mises, and the Chicago School, which says that, “inflation is always and everywhere a monetary phenomenon.”
The second hypothesis, what you might call the classical approach, regards the current burst of inflation as being simply a result of the rise in input costs, principally energy costs. Rising energy costs have been caused by the war in Ukraine and the sanctions on Russia, on top of a global economy where the supply logistics were already strained by the COVID-19 pandemic.
Why does it matter for coworking which of these hypotheses is correct? The significance lies in the likely duration of the inflation.
If the monetarists are correct, the inflationary pressures in the system will be considerable after thirteen years of QE, which has seen the U.K. money supply measured by M2 rise by 50% — from approximately £2 trillion to £3 trillion. If this really is driving inflation, it is going to be a very long haul to bring it under control, and we can expect growth-sapping high interest rates to continue for years to come.
If logistical blockages and the Russian situation are the main cause of inflation, however, it is likely to be a much shorter-lived problem.
Oil and gas prices have already fallen a long way from their peak, and the price at the pump is reflecting a more stable supply and demand balance — even if the price of diesel has not fallen back as far as that for gasoline.
The duration of this inflation is critical because if it does persist a long time, it will gradually degrade the economies of all developed economies. This would reduce the demand for work space in general, which cannot be good for coworking.
A long recession is also likely to push conventional landlords to increase the amount of space they are willing to let on flexible terms, and to reduce their rents. This would increase the competition with serviced flex space.
But if inflation peaks sometime in early 2023 and then falls back, before taking a permanent hold in the minds of the public, the effect on coworking is likely to be positive.
The COVID-19 experience will still be relatively fresh in the mind, and hybrid working will still seem exciting and modern. Employers working out how to make the best of their resources are likely to want ever more flexible space.
A short-lived burst of inflation would just be a blip on the long-term structural growth of flexible working.
So which hypothesis is the right one? My money is on the old-fashioned cost push inflation. I am unconvinced by the monetarist explanation, because if all that QE were to cause inflation as Milton Friedman predicted, it would have started long ago and not waited until 2022.
I also look at Japan, which has had experience of QE much longer than any other country, because it started much earlier.
In fact, the Japanese government has been deliberately trying to create inflation by printing money for over 20 years, with almost nothing to show for it.
To my mind, that tends to suggest that there is more to inflation than simply printing money, despite the oft quoted historical examples of Weimar Germany and Zimbabwe.
From where I sit at present, I see no reason to think that inflation is here to stay — and my confidence in the growth of coworking remains as strong as ever.