View our 2019 Coworking Market Forecast
The workspace hustle of 2017 has set the stage for what will be a promising new year for the flexible workspace market. There’s no crystal ball to tell us precisely what will happen in 2018, but we can predict what to expect using projections based on past growth and tendencies. The proliferation of corporate Coworking, market growth, and staying ahead of the curve are just some things to keep our eyes out for in 2018. We spoke with the savviest leaders, movers, shakers, and newsmakers of the workspace industry to get a better idea of where the market is heading in the new year.
Our predictions below are based on insight from Ryan Simonetti, CEO & co-founder of Convene, Liz Elam, Coworking space owner and founder of GCUC, Richard Smith, founder and CEO of Search Office Space & MeetingRooms.com, and our own, David Kinnaird, veteran workspace operator and President of essensys.
Growth of Flexible Workspace Market Globally
The amount of flexible workspace on the market will continue to rise. Based on research from JLL, Ryan Simonetti, CEO of rapidly expanding workspace brand Convene, explains that “30% of all commercial office real estate will be defined as ‘flexible’ by 2030. JLL’s research shows that the square footage of flexible office space has grown at a rate of 22% over the last seven years” versus a 1% growth rate of traditional office space during the same period. According to Simonetti, “There’s clearly a strong demand for shorter and more flexible-term lease options, and in 2018 we expect this trend to accelerate as larger global enterprises commit to flexibility as part of their long-term real estate strategy.”
With 25 years in the UK workspace market, Richard Smith, suggests the further expansion of the market in 2018 by existing operators as well as new operators in the form of real estate owners who are just entering the market. In addition to “investors such as Blackstone, Brockton and British Land taking and funding space within the industry,” Smith points to “large corporate companies with excess space” within their own real estate portfolios to partake in the letting of flexible office space.
Speaking of corporate companies, according to Liz Elam, Coworking guru and founder of GCUC global, “corporate adoption,” a proven driver of market growth during 2017, “will continue to fuel the Coworking industry” in 2018. “Savvy operators will offer build-to-suit and floors of managed space” capitalizing on the increased demand for flexible workspace for corporates and landlords alike.
Portfolio Differentiation and Diversification
All signs point to growth. And the factors stimulating market growth, as indicated above, higher demand for flexibility, new players and corporate adoption will drive operators to fine-tune their offerings. “Due to the sheer level of competition, we will continue to see an increase in the quality of space,” says Smith. Whether it’s quality control, serving a niche market or a greater focus on member experience, operators will work harder in 2018 to differentiate their workspace from the competition.
Simonetti, who pioneered the concept of on-demand conference and event space with Convene, envisages the integration of meeting and collaboration space, flexible workspace, coworking, executive clubs, curated retail spaces, and in-building social programming under the same roof to become the norm as current providers look to create best-in-class experiences for their customers. “The race to integrated platforms has already begun, and several companies will fight to become the dominant, global “workplace-as-a-service” platform. As that race intensifies, we will see smaller providers, with a more focused offering, emerge to cater to specific gaps in the flexible workspace market.”
Smith agrees. “We’ve already started to see office sectors converge over the past year or so, and we’ll continue to do so in 2018. That said, there will always be exceptions, like LEO (London Executive Offices) who continue to expand but offer only private office space. We expect to see growth in bespoke larger private office spaces within new buildings.”
Landlords Step Up
In previous years, a landlord involved in shared workspace and coworking was the innovator, the early adopter, brave souls venturing into new and unknown CRE territories. In 2017, the rise of the coworking model and increased categorization of office space as flexible across the globe has been vital in nudging landlords into the game. Looking to 2018, Ryan Simonetti explains how the landlord will need to continue evolving with the dynamic office sector. “In the past, landlords have stood on the sidelines while the serviced office sector catered to the flexible requirements of companies.” Today, however, landlords “look to evolve their offerings to meet the changing needs of today’s companies and their most valuable asset – their people. As the role of the landlord changes and flexibility and experience become a requirement in any office building, landlords will move aggressively into the sector. The ‘buy, build, partner’ analysis will prove fruitful for many providers in the industry as landlords go from ‘space’ sellers to ‘place’ makers.”
“In 2018, flexibility and tenant experience will go from being a part of the landlord conversation to the ‘only’ conversation,” put quite simply by Simonetti. “We expect more new shared workspace players to emerge, as landlords will be focused on finding the right partners to help them respond to changing market demands.” This leaves a wide range of opportunity for successful workspace operators to leverage new and existing relationships with landlords, assisting in the conversion of current CRE portfolios to Coworking or shared workspace.
David Kinnaird, former Operations Director for Avanta Serviced Offices, predicts that convention commercial real estate companies such as JLL and Colliers will move deeper into Coworking, advising conventional clients on shared workspace options, and even running their own spaces.
Flexibility in Design
When it comes to new technologies, we can expect to see products that deliver higher quality services to their members. According to GCUC founder Liz Elam, from an operator perspective, movable walls that can slice a workspace into offices, meeting rooms or hallways on the fly will be more economically accessible, allowing operators to reconfigure their space to fit new and existing tenants’ continually changing needs and demand for flexibility. Open space not working anymore? Modern office furniture technology makes it easy to divide the area, offer greater privacy, and encourage activity-based working environments without committing to a complete remodeling effort.
Elam also notes the stark requirement for phone booths going into 2018. Noisy members and frequent phone calls are prompting the need for booths where members can seek peace and quiet while taking an important call. It’s worth noting that with the influx of corporate adoption of Coworking operators are increasingly looking to offer VOIP phone solutions to be the go-to for all things office-related. The less your tenants have to worry about, the happier they’ll be.
Software integrations that streamline business processes and conserve resources for workspace operators will be essential in 2018. Market growth and competition will demand operators focus more attention on service and hospitality, leaving low margin for operational distractions. Workspace management software will be the go-to tool for Coworking operators as the industry becomes more mainstream.
A platform that manages the day-to-day administration of the complicated workspace business processes and enables integration with other tools allows operators to dedicate more time to their members and even save money. For example, RentShare, the latest in advanced technologies for payment processing, is helping operators save a notable amount of money in credit card and ACH processing fees. As workspace businesses tighten their belt to face the competition, technologies such as RentShare will help them to save money without cutting corners. The added benefit to RentShare is that it facilitates the way members can execute and manage their rent payments. A win-win for all.
In 2018, market players will identify the need for additional technology infrastructure that can support a member-base and increased bandwidth consumption. Wi-Fi in a Coworking space will always be a requirement but cabled internet connections will be more common in shared workspaces, where more extensive file sharing and increased content consumption clogs traffic and slows connectivity speeds. Top-tier enterprise-grade technology underlined by fiber connectivity and redundancy strengthens the technology offering and guarantees the security of the network. Landlords and operators will also seek to implement smart technologies that further connect their building and existing technologies to their tenants – from door access and climate control to Alexa integrations and third-party food ordering applications.
Coworking: The Umbrella Term
2017 proved that Coworking is more than a buzz word, a trend in the office sector or the millennial’s preferred choice of office space. Coworking has matured and is mainstream. It’s been plugged into real estate portfolios of CRE market players, investors, conventional landlords and operators across the board. What defines a Coworking space may have shifted, for example, from open spaced to hybrid, and these aspects may continue to shift. However, “we will continue to see a convergence under the term Coworking” explains Liz Elam. “I believe the executive suite nomenclature will go away and people will embrace the terms flexible and shared.” Richard Smith agrees, “the language attached to office space is changing – for instance, Coworking has taken on a more generic meaning. It no longer specifically refers to open collaborative spaces.”
When it comes to differentiating a workspace offering based on Coworking versus traditional flexible office space, David Kinnaird suggests the trend of dabbling in both offerings will decline. “We can expect to see the continued success of existing executive suite brands despite remaining aloof of Coworking,” David explains. “Staying conventional without attempting to offer typical Coworking value-adds such as day-passes or open spaces has kept traditional flexible workspace operators relevant within the office sector.” As Spaces spun out of Regus, reaching a different target market and offering a more diverse workspace environment, we’ll see more brands providing distinct workspace and services.
On the Radar
Thanks to its mainstream status, Coworking will no longer fly under the radar. Government and tax agencies have begun to take notice of the industry. In fact, the Real Deal just reported on an upcoming change to United States federal accounting rules that will hit the books in 2019. The changes would require public companies to list an office lease as a liability on their balance sheet, unless the lease is with a Coworking space provider, and the operator can move the tenant. This could give Coworking companies a leg up, becoming a more attractive workspace option for larger public companies to lease Coworking space. The downside for Coworking operators is if they are acquired or go public, their own liabilities would increase.
Meanwhile in China, authorities have suspended the issuing of business licenses to companies who file using a virtual address. The measures are being taken to address tax issues associated with companies registered to a virtual address and to tighten up regulations around shared workspaces, and to put structure around the Coworking industry – a relatively young but rapidly growing market in China.
Hotels Test the Waters
The impact of Airbnb on the hotel industry has driven hospitality providers to seek new ways to attract customers. Offering new and compelling amenities such as Coworking in a hotel space attracts business travelers who need both a place to lay their head and a workspace to touchdown at. Moxy hotel, freshly opened in NYC, for example, is a chic hotel that offers Coworking and social areas in addition to fairly-priced lodging and high-end restaurants. We can expect to see more Coworking being integrated into hotel space layouts as hospitality and workspace continue to collide across the world.
While the confidence in coworking persists, the uncertainty in an up-market continues to lurk in the background. Operators will always have a challenge in running a business. When it comes to shared workspace, in 2018 the U.K. market may experience tensions due to geopolitical pressures resulting from Brexit. It’s still uncertain how negotiations will impact the market. According to David Kinnaird, longtime British operator turned U.S. market guru, shifts in the London property market resulting from Brexit will reverberate and set the trend for the rest of the U.K. office sector. Uncertainty may lead businesses to leave London, affecting license fees, and therefore space availability. In this case, David suggests that cheaper conventional office space may trump expensive Coworking space as an option for businesses especially if space becomes cheap enough.
Regarding space management, Liz Elam, predicts a scarcity of personnel resources in the flexible workspace market. “We need more staff. And they need to be multitasking, hospitably-minded rock stars.” Staffing the workspace with the right people is an essential pillar to running an effective Coworking space; your team curates the experience, serves the face of your brand, and contact point for your members, and keeps you running. Will 2018’s Gen Y and Z labor force be able to deliver this caliber of skills?
Operational challenges will continue to burden workspace operators and owners. Member demands for quicker and easier access are likely to increase, and operators will struggle with managing the day to day operations while supplying services to their occupiers. Technology platforms that simplify management processes and give members access to their own services will be a necessity. We can expect to see more on-demand, self-service apps and integrations to third parties that help operators deliver services faster and easier to their member-base.
Recapping the Flexible Workspace Market
As long as we’re in an up-market, we put our bets on the continued growth of the serviced and flexible workspace market – grouped under the term Coworking. Investment and funding will grow as big operators put more stakes in the ground and prove profitable workspace models and maximum occupancy. As partnerships and new leasing models become the norm, Coworking operators will more readily facilitate flexible workspace to corporate tenants. “The flexible workspace industry will solidify itself as a viable, sustainable segment of the future office market,” says Simonetti. “We are in the first inning of a massive shift in the flexible workspace industry, and co-working is just in the first step.”
Stay tuned for continued market updates from essensys as 2018 comes and goes.