5 Flexible Workspace Markets to Watch in the U.S.
Undoubtedly, flexible office space is no longer a niche market. With commercial real estate companies integrating flex space in their portfolios and investors taking part in parallel, all eyes are on flexible workspace markets, and new workspaces are opening weekly. In fact, based on research by JLL, the US is now the largest flexible workspace market, clocking in at approximately 51.2 million square feet at the end of 2017. Regus and WeWork alone manage 17 and 5 million square feet.
The consumption of office space has changed so dramatically in such a short period, yet it has only begun to transform the commercial real estate market. Whether you’re a commercial property or asset manager, an investor, a consultant or flexible workspace operator, understanding the flexible workspace market is essential to growing and sustaining a successful shared office brand.
Historically, New York and San Francisco have led the ranking for both number and cost of shared workspaces. However, these stats are changing. We spoke to key market influencers in five regions about how coworking and flexible workspace has adapted over the years and what’s causing such a dynamic and prosperous environment for the office sector evolution. Below we highlight the top five US markets to keep your eyes on.
In this article:
Austin, Texas – A Coworking Frenzy
It’s no doubt that a large part of Austin’s growth in the coworking sector can be attributed to WeWork’s aggressively expanding footprint. However, according to Liz Elam, Founder and Executive Producer of the Global Coworking Unconference Conference (GCUC), WeWork was good news for the Austin coworking scene. “We Work came into the market, and they spread the word about coworking.”
When Elam decided to open a coworking space in 2008, she was torn between Austin and Atlanta. At the end of her lengthy deliberation, she settled on Austin. For one, the entrepreneurial tech scene was booming there, and at that time, the first Link Coworking was only the fourth coworking space in the city. Today there are more than 68 spaces in the metro area.
Liz owes a great deal of coworking growth in Austin to the city’s great workforce and incredible corporate adoption. “Large corporations – like Facebook, Apple, and Google – came to Austin in droves thanks to our great workforce. “What people don’t realize, is that coworking is more than just tech or freelancers. It’s everybody. As coworking becomes a household term, its adoption has become really interesting.”
The number of flexible workspaces in Austin grew 16% year over year, making it one of the top cities for growth, while its workstation rates remained relatively steady at $968. We Work runs four locations and plans to open more in Austin this year. Independent operators with their eye on growth and a specific workspace approach are starting to appear in Austin. For example, Muslim Space ATX, Austin’s first and only all-inclusive third space for Muslims from all walks of life, and work well win, the latest niche brand to focus on wellness will now be operating a center in Austin.
“From the quality of life to the weather, Austin is one of the top places to live and grow your business,” says Elam. “The only thing holding back more progression of market growth in Austin is the infrastructure.” When expanding a workspace brand, Elam does, however, caution about the “tipping point” of the markets and to keep in mind the potential for coworking growth in suburban areas. “It’s starting to take hold and will continue to take hold.”
Dallas, Texas – A Growing Hub
While we’re on the subject of Southern US, we couldn’t help but notice the popularity of DFW. It’s one of the largest growing hubs for tech and innovation and its appeal to startups and corporations alike is owed to its strong economy, quality of life, no state income tax, low cost of living, and abundant job opportunities.
According to Instant’s recent US market research, hybrid and coworking centers are creating the most considerable growth over the serviced office model. According to JLL, this is the ninth consecutive year of expansion in the office market. In DFW there is a total of 7.5 million square feet of new office space under construction in Dallas. This accounts for 7.14% of the total construction across the US, with Dallas ranking 6th out of US markets.
In part, corporate relocations and expansions have fueled his growth. Giovanni Palavicini, Regus veteran, and workspace real estate strategist, of Fronteras Commercial Real Estate, maintains that the Dallas Fort Worth marketplace will continue to see flexible workspace industry growth.”
“The State of Texas has no state income tax and the cost of living is significantly lower than the East and West Coast. DFW is also centrally located and serviced by DFW International Airport and Dallas Love Field. In addition, Fort Worth has Alliance Airport, which services cargo and private business travel. DFW cities are business friendly and are willing to work with corporations to incentivize them to come to do business here. These factors all play into the interest of flexible workspace operators’ desire to grow in DFW.”
The vast array of product type offered in the flexible workspace is notable in DFW. Regus runs over 50 traditional executive suites in the region while independent operators such as Executive Workspace and Meridian Business Centers, trail them with 15 and 13 centers respectively. Meanwhile, growth among hybrid centers such as Serendipity Labs, Industrious and “the giants” like WeWork and Spaces has been notable. Dallas has also been in the headlines for the growing trend of integrating unique amenities and services into coworking. Longtime Dallas-based coworking provider Common Desk recently acquired a coffee brand and is now looking to take coworking mobile.
“With approximately 377 million square feet of office space in DFW”, Palavicini explains. “If only 5% were offered as flexible workspace, that leaves 19 million square feet at the market’s disposal. Meanwhile, the current market is currently 20% less than that at 19 million square feet.” For Palavicini, the opportunity for an expanding workspace brand in DFW is tremendous.
Denver, Colorado – Coworking Boom
According to recent US Census Bureau reports, Colorado has growth at the seventh fastest rate in the country. With this growth has come a stronger workforce and new corporations seeking to settle in a city where the talent has settled. In 2018, companies such as Accelo, Slack, Strava and Maxar Technologies will call Denver home. This flourishing tech scene has sparked a fire in the property market, especially in the flexible workspace sector.
Denver was one of the first US cities to see smaller coworking spaces pop up in 2011, shortly followed by larger 20,000 square feet spaces. By 2013, Denver’s medium-sized market was seeing 80,000 square feet spaces open around the city. Craig Baute, founder of Creative Density and Denver Coworks, a local alliance offering networking and joint events, has witnessed the shift in the Denver coworking scene. “What was once several smaller coworking spaces serving neighborhoods throughout the city has now become larger spaces concentrating downtown, catering to larger companies.”
The opening of big-named “giant” brands like WeWork and Spaces, has created a window of opportunity for independent operators to open smaller, niche spaces that are focused on industries such as construction, wedding, the outdoors or fine arts. While there is plenty of opportunity, Baute explains that these smaller operators are also taking on bigger spaces and, therefore, more risks in order to compete.
Market competition is driving operators to broaden their amenities offering with yoga studios, massage areas, podcast and photography studios, or marijuana-focused industry events.” Competition is also impacting the type of stakeholder opening new coworking spaces in Denver. Despite the market opportunity, competition “has led to a decrease in smaller coworking entrepreneurs opening new spaces. Most of the people opening spaces today in Denver are growing brands or people already in property development.”
A saturated market may be the cause for Denver ranking as one of the highest workstation rates for a US city at $1250 in the Instant Offices recent report. When it comes to hot desking, however, Baute noted a drop in hot desk spaces that include amenities from between $300 and $400 to $125, meanwhile, while private offices are being given premium pricing.
Denver’s coworking boom and pricing shifts can be attributed to corporate adoption of coworking. For Baute, successful operators in Denver who focus on traditional coworking values like putting members first and providing a community for remote workers and freelancers will remain “relatively unaffected by the increased competition.”
Boston, Massachusetts – Small Town Coworking Vibe
Boston is a market that catches the eye considering its $1,889 average desk rate, the highest in the country according to Instant Offices 2018 market summary. Mark Wiatrowski, veteran workspace operator and Co-Founder of Boston Offices attributes exorbitant office rates to all the construction happening in the city today. “The underlying cost of real estate is through the roof. Construction costs are a big part of the high expense of workspace.”
“What’s happened in Boston is a bit different than in other markets,” explains Wiatrowski. “There’s a limited supply of quality offices. However, new constructions are yielding a huge supply of office space coming into the market.” While workstation rates have skyrocketed, and construction is bustling, especially on the Seaport side, not much has changed in the business. “You still have to pay your rent and have at least 1.8 times your rent in revenue if you want to make any money.”
Looking at the big picture of the Boston market, Wiatrowski puts things into perspective: “when I got into the business, the US population was 220 million people, and today there are 100 million people more. There is more of everything.” Despite the fast market growth and increased demand for coworking and shared workspace, a flexible workspace won’t run on its own.
“To survive, you need to view this as a business, and if you can’t drive the revenue, you won’t survive. That hasn’t changed.” The difference today, according to Wiatrowski, is that operators need to be driving even more revenue and sales, whether virtual or coworking and they need to be appealing to a greater variety of clients. There are those who want community-centric environments and those who opt for private spaces; operators must decide and focus if they are going to succeed. It all starts with a good lease.”
Another reason for higher pressure in the Boston market is the increase in team users, which drives costs higher. Boston Offices has seen a trend in companies taking a more substantial amount of space for a smaller team. It’s not uncommon to see 10-person office occupied by a team of only six people.
Boston has maintained a relatively small-town feel with deep-seeded roots. Local and original workspaces anchored in the area such as Cambridge Innovation Center and WorkBar continue to add space and grow organically. Institutional sponsorships and partnerships are typical in the Boston market, especially in the incubator and startup environments. Success in the Boston market is dependent upon sufficient funds or investment to meet the high real estate costs, a seamless operation that continuously increases revenue, and strategic partnerships with the local institutions, while also delivering the infrastructure and network required to bolster the city’s both corporates and startup communities.
New York, New York – Coworking Capital of the World
As the world’s business capital, it’s no surprise that New York makes our list of top markets to watch in the US. CBRE just reported that coworking and flexible workspace operators occupy 9.2 million square feet in the Manhattan office market. That amount accounts for a mere 2.5% of the whole of Manhattan’s office occupancy. We’ve alluded to many market stats in the past, but the growth seen in the New York market is tremendous.
Lucas Seyhun, co-founder at NYC coworking space The Farm, said: “In New York, we’re seeing a huge rise in demand across the coworking sector. But this is no longer the domain of only freelancers and startups – we also see an increasing number of established corporates use flexible workspaces to help grow and run their businesses.”
“Such diversification is now spreading out around the world. As so often is the case in this market, what happens in New York is often a precursor for the wider workspace market.”
According to research conducted by Instant Offices, New York continues to lead the US market with the highest number of sites and fastest growth compared to other markets in the country. The flexible office sector in Manhattan alone has grown 600% since 2009. Office uptake in New York city shows no signs of slowing down. While corporates continue to jump on the coworking wagon, traditional office space leases under 5,000 square feet dropped by 42% between 2013 and 2017, according to CBRE, an indication that shorter, flexible workspace options are becoming a go-to solution for Manhattan occupiers.
Despite rapid expansion of well-funded and highly valued workspace brands, New York City and its surrounding areas remain a viable market for new entrants to the market, given that demand hasn’t slowed despite increased supply. We can expect to see greater differentiation among workspace brands, an increased focus on hospitality and amenities that cater to a wider-range of end-users. Many brands are differentiating by focusing on health and wellness or social impact causes. The team at The Farm Soho backs the All Good Work cause. “We donate seats in our space to nonprofit organizations. We expect other workspaces will start to embrace such social impact causes, particularly independent spaces like The Farm, where our community is central to everything we do and achieve in New York City.”
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