Coworking: A Shifting Market Brings the New Norm

By Amanda Fanoun
26.07.17 ·

Coworking and CRE

The growth in the shared workspace market over the past two years has been significant. More recently there’s a new type of activity that demonstrates where Coworking currently falls in its lifecycle as a product and service. From the nearly-official adoption of the term Coworking to encompass all shared workspace to the recent announcements of equity firms entering the market by way of landmark acquisitions, we’re entering into a new phase of Coworking. We’re coming out of the early stages and moving past what many refer to as a “movement”. What lays ahead will be the by-product of new market players and a stronger capitalization on once long-term commercial real estate transactions.

Change-driving Factors

The are many reasons for the market growth we’ve seen. Mostly cited are evolving labor trends that are driven by changing work dynamics. A millennial approach to work that empowers professionals across the board to be selective of where they work is continually impacting the expansion of the marketplace. Corporates who seek to embrace a collaborative and community-based environment are driving demand and encouraging development as well.

New Players Flex their Muscles

Commercial real estate players are realizing that there is colossal opportunity to monetize the space assets sitting on their books. From their perspective, renting commercial real estate at $50 per square foot and then seeing it re-leased at double the price by their tenant is a compelling enough reason to get in the game; to an extent, cutting out the middle-man operator. As noted in the GWA Financial Industry Survey results, increasing rental rates will drive operators to engage in innovative methods of working with landlords, from joint-ventures to creative lease negotiations.

More broadly, the general financial investment in flexible workspace has been telling over the past few weeks. Blackstone, the largest real estate private equity firm in the world managing $102 billion of assets, recently announced their acquisition of London’s The Office Group. With a portfolio of 36 buildings, the acquisition gives The Office Group the punch they need to globalize their brand. Meanwhile, the US-based private equity fund Carlyle purchased three London buildings to bring a new brand Uncommon to London, a predominant market for flexible workspace.


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Capitalizing on Shared Workspace

Where commercial real estate was traditionally a long-term asset on the books, with long transactions and a fixed approach to managing the property, the shift today is to a more short-term holding that allows for flexibility to change with trends. Taking a stake in flexible workspace, CRE and equity firms are able to capitalize on new varieties of real estate assets in the form of space-as-a-service, and expand their property portfolio while gaining access to new industries and markets.

Initially, they’re not pointing to a new member community or collaborative space, but from a business perspective, they’re applying that model to the assets on their books and going global with it. In this sense, for the Coworking market, it’s not so much about getting people on board with what you’re offering, as it is getting it right. Coworking is the new norm.

Traditional Operators React to Shifting Market

As we commented a short time ago, operators are having to to differentiate their offering to meet market demands. We’ve spoken with a mixture of operators in the US market about what market shifts in commercial real estate means for their businesses. From traditional and hybrid operators to property companies specializing in space, these shared workspace operators shed light on the next shift in the market and how they operate for success. Click here for the full report.

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