CoStar Insights

Shared Office Space: Fueling Creativity, Collaboration – and Market Change

by Shara Dahl | May 11, 2016
CSG-032-16_05-10-16_SharedOffices

Entrepreneurs.  Creatives.  Self-Starters.  Networkers. No matter the role or the profession, more and more members of the “contingent workforce” – self-employed or unincorporated workers – are looking for exceptional city-based spaces to get their jobs done.

Coworking space firms are meeting that need, and then some.  They combine aesthetic, decidedly cool office and desk spaces with wide-open shared areas that make collaboration, networking and talking shop easy and fun. 

Add to that built-in peer networking, high-end membership perks, and events that foster community and connections, and you’ve got a highly attractive proposition for people who thrive on innovation, interaction and professional-yet-forward-thinking environments.

The success of the shared workspace model so far is nothing short of breathtaking, really, if you look at the numbers.  WeWork, for example, took more office space share than any other tenant in New York City in 2015. In last year alone, the company counted for 20 percent of the US office market.  At $16 billion, their market value is comparable to that of some of the nation’s largest REITs. 

And they continue to expand at an almost unimaginable clip.

Right now, the demand and the rate of growth are relatively well matched.  According to “Emerging Trends in Real Estate:  2016,” the US Government Accountability Office estimates that the aforementioned “contingents” comprise eight percent of the nation’s workforce.  That’s roughly 11 million jobs.  Knowledge workers including coders, consultants, engineers, writers and other niche professionals are seeking out – and leasing out – shared space at an increasing rate.  Entrepreneurs are flocking to such spaces as well to get their ideas and brands launched.

“Shared office companies offer the type of collaborative environment that people don’t mind paying a membership for,” said JJ Sollazzo, CoStar Portfolio Strategy Economist.  “The model works especially well for contractors and start-up businesses seeking a true collaborative environment where they can network and connect in a professional space.”

As for the future growth and viability of the shared-office market, however, Sollazzo noted a few factors for consideration.

“In the event of a recession, shared office providers will likely be paying for office space and taking a pretty significant hit if leases dip,” said Sollazzo.  “They’re extremely well valued today, although we’re seeing some slowing in venture capital and tech spending.  Right now, it’s just a matter of ensuring they don’t get too far out ahead of themselves as they grow.”

This model represents a benefit for the consumers who pay for shared office space; in the instance of a market downturn, they’re not tied to a lease and have the flexibility to end their memberships if needed.  “In an instance like this, we expect occupancies would be similar to that of the hotel sector, with a lot more cycle-based market activity,” Sollazzo explained.

Even in a worst-case market scenario, however, the shared spaces created by coworking sponsors yield attractive investment opportunities. 

“What you’re looking at are fully built-out office spaces in highly desirable locations that one could rent out the next day,” Sollazzo said.  “As shared office space providers continue to expand it’s just important to ensure they can stay ahead of the curve as the market evolves.”

Either way, the emergence of the shared office has further transformed the way people interact and innovate.  For those who are inspired by community and ideas, the shared workspace offers a hybrid of office and social, uptime and downtime, and work and play that’s blurring the lines of yesterday’s office market.

Looking further ahead, the idea of shared work-and-living spaces is growing at a fast clip.  Just recently, WeWork began offering WeLive, which offers furnished living quarters and amenities alongside access to common areas to work, socialize and hang out.  Residents live month-to-month rather than signing one-year leases.  For the right market, the prospect is attractive, and growing. 

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