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Flexibility Meets Profit: How Coworking is Changing the Commercial Real Estate Landscape

Coworking spaces are one of the most popular trends in commercial real estate right now. These shared work environments allow diverse groups like entrepreneurs, remote workers, freelancers, and even enterprise teams to work flexibly alongside each other in a collaborative setting. In this article, we dive into the rapid growth of coworking spaces and how this trend is transforming the commercial real estate landscape. Read on to learn more.


The Growth of Coworking

The coworking concept has absolutely exploded over the past decade. Industry research shows there are now over 19,400 coworking spaces worldwide, with growth rates of over 29% between 2012 and 2018. By 2022, industry forecasts predict there will be over 30,000 global coworking spaces. Currently, nearly 2 million people around the world use or are members of a coworking space, with almost 50% being located in the United States.


WeWork is by far the dominant global operator of coworking spaces. WeWork has over 5 million square feet of coworking space across 425 office locations in over 100 cities worldwide. However, WeWork has also inspired a plethora of competitors and imitators in the coworking space. Major players include startups like Industrious and The Wing, corporate operators like IWG and Serendipity Labs, and even traditional commercial real estate landlords who are now getting into flexible office offerings.


In major US office markets, coworking spaces now account for almost 5% of occupied office space, according to industry analysts. In prime commercial real estate cities like Manhattan, the coworking market share is even larger. Recent leasing data shows coworking represents nearly 10% of all office leasing activity in Manhattan. Landlords and developers are increasingly finding they need to offer quality coworking options within their buildings in order to stay competitive for tenants.


What's Fueling Coworking's Rise?

There are several key factors driving the massive demand for collaborative workspaces:


Cost Efficiency: For many individuals and small companies, coworking offers much more flexibility and cost efficiency compared to traditional office leasing. Desk fees at coworking spaces average around $300 per month, versus several thousand dollars for conventional private office rentals. This makes coworking extremely appealing for bootstrapped startups, freelancers, and remote workers seeking to avoid major upfront costs and long-term leases.


Changing Workforce Dynamics: Trends like remote and gig work are making flexibility and mobility increasingly important for today's workforce. Nearly 50% of U.S. workers are projected to be freelancing or working independently by 2027 rather than being traditional full-time employees. Coworking spaces cater perfectly to location-independent workers and companies with distributed, remote teams.


Focus on Amenities: Coworking spaces feel more akin to swanky hotels or university campuses than stuffy offices. They offer attractive amenities like lounge spaces, cafes, fitness centers, entertainment venues, networking events, and concierge services. This creates an appealing "office experience" that many find more enjoyable than working from home or in a corporate space.


Sparking Innovation: Having diverse groups of professionals and companies working closely together in a shared space fosters creativity, collaboration, and innovation. Coworking spaces facilitate valuable networking and community-building within and across industries. This synergistic effect is especially useful for entrepreneurs and startups.


Impacts on Commercial Real Estate

The coworking explosion is significantly disrupting traditional office and retail leasing models across the commercial real estate sector:

  • Landlords and developers are increasingly partnering with coworking operators or launching their own flexible space offerings. Coworking partnerships help landlords diversify their tenant base and guarantee leased space. However, this also exposes landlords to more operational risks as coworking memberships fluctuate.

  • Underutilized retail spaces like enclosed malls and big-box stores are being retrofitted into vibrant coworking spaces. This adaptive reuse helps revive and generate revenue from outdated properties. However, the high costs of redeveloping and redesigning retail spaces constrain this opportunity to Class A malls and premium urban locations.

  • Coworking is allowing office landlords to generate reliable income from spaces traditionally deemed less desirable, like lower floors or fragmented spaces. However, some building owners become overly reliant on coworking tenants, leaving significant vacancy risks if the operator folds.

  • Many landlords are now offering their own flexible workspace options alongside coworking in their buildings. This provides choice to tenants but also pits landlord offerings directly against experienced coworking operators.

  • Short-term coworking leases disrupt the traditionally stable, long-term office leasing model. This increases the asset management workload for landlords dealing with fluctuating space usage and more tenant turnover.

  • Coworking spaces allow landlords to tap into the growing demand from smaller companies and solopreneurs. However, this fragments revenue streams compared to leasing whole floors or spaces to major corporate tenants.

In essence, coworking and flexible space are transforming landlord-tenant dynamics. Commercial real estate owners must adapt and embrace experiential, agile workspaces to stay competitive. Coworking offers opportunities but also exposes landlords to new risks and operational challenges.


For savvy real estate investors and developers, the coworking boom also presents opportunities to profit from repositioning underutilized properties. There are many overlooked office, retail, and industrial assets that have redevelopment potential for adaptive reuse or conversion into shared workspaces.


At GAIN CRE, we specialize in transforming undermanaged real estate assets into highly functional and profitable investments. With over 35 years of experience, our team has a proven track record in value-add redevelopments, opportunistic acquisitions, and ground-up development projects. For accredited investors interested in investing in strategic value-add commercial real estate deals, our $100 million GAIN Opportunity Fund II represents a compelling option to consider. Get in touch with us for more information at tad@GAINCRE.com.

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