The Future of Coworking Space and Flex Offices

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This year could see a massive shift in employees returning to work, as vaccines and common-sense policies help bring the pandemic under control. Flex office and coworking space providers may be first in line to benefit, as more than two-thirds of commercial real estate executives seek to incorporate flexible and coworking office space into their agile work strategies.

Impact of COVID-19 on Coworking

The pandemic hit the commercial real estate industry hard, and the coworking sector was no exception. More than 200 coworking locations in the US closed last year; consolidation in the coworking industry will likely continue through the first half of this year.

COVID-19 has accelerated existing industry trends such as shorter lease lengths and more flexible floor plans. The short-term lease nature of flexible rentable office space made the sector especially vulnerable to the impact of COVID. Demand for commercial office space for rent came to a halt, and occupancy levels sharply declined. 

Single-location coworking operators with cheap office spaces were forced to shut down. WeWork canceled its IPO, and flexible workspace provider Knotel filed for bankruptcy. Last month, a Delaware bankruptcy court approved Newmark Knight Frank’s acquisition of Knotel for $70 million.

Pandemic-related closures hit coworking locations in central business districts the hardest. Both workers and business tenants moved to the suburbs, implementing flex scheduling, to allow employees to work from home most days, and spend one or two days each week in an office closer to home.

While flex office markets such as New York City are still struggling to recover, other coworking markets in smaller cities are beginning to see growing demand due to easing government restrictions and vaccination campaigns.

Coworking is Growing in 2021

Despite these headwinds, the future looks bright for coworking in 2021.

Allwork is a publication devoted to the future of work, coworking, and flexible office space. According to a recent report, coworking is (still) the new normal:

  • Coworking space as a percentage of total office space nearly doubled from 1.1% in 2017 to 2.1% as of Q2 2020.
  • 67% of CRE decision-makers are increasing workplace mobility programs and incorporating flexible space as a central element of their agile work strategies.
  • 71.5% of workers who used coworking before the pandemic plan to return to it, while 54.9% of remote workers who didn’t use coworking before stated they would consider joining a coworking space as a remote work solution in the future.
  • Landlords will increasingly allocate 10 – 25% of their assets for flexible leases.  
  • 43% of workers would consider working from a company-provided location nearer to their home at least a few times a week.
  • Despite the COVID-19 pandemic, JLL still predicts 30% of all office space will be consumed flexibly by 2030.

Leading U.S. Flexible Office Markets

The most recent North American Flexible Office Market report from CBRE reveals that 86% of companies plan to incorporate flex space into post-pandemic real estate strategies. The firm notes there are several reasons why the flex office sector is resilient and continues to grow:

  • As companies shift back into growth mode, flexible office space will provide an agile tool for expansion.
  • The pandemic has pushed landlords and coworking operators to work together, with some landlords taking a more active role by sharing profits and losses or operating the flex space itself.
  • Supply growth of coworking space has slowed, with the industry consolidating to avoid a glut of unused flex space.

Largest flex office markets by inventory

*note: the following metrics are based on CBRE’s North American Flexible Office Market report 

Manhattan16,910,367 sf
Los Angeles6,437,204 sf
Dallas/Ft. Worth4,778,962 sf
Chicago4,625,924 sf
Boston3,984,326 sf
San Francisco City3,946,288 sf
Denver3,062,671 sf
Washington, D.C.2,936,616 sf

Overall flex office penetration

San Francisco City4.8%
Manhattan4.1%
Miami4.0%
Los Angeles2.8%
Denver2.6%
Washington, D.C.2.3%
Austin2.2%
St. Louis2.2%

Cities with the largest flex office growth (1 year)

Detroit33.6%
Tampa31.5%
Kansas City30.0%
Dallas/Ft. Worth17.3%
Nashville15.4%
Northern Virginia14.7%
Houston14.6%
Orlando14.6%

Largest Coworking Companies

The largest coworking companies positioned for success this year are those with multiple locations in major cities, who can provide flex space to members close to home or near travel hubs. Big coworking operators also offer flexible membership options and boutique, customized services to match the membership base. Per Coworking Resources, here’s a list of the largest coworking organizations in 2021.

Coworking companies active in 2021

  • Regus
  • Impact Hub
  • WeWork
  • Your Alley
  • Knotel
  • District Cowork
  • Make Office
  • Industrious Office
  • Techspace
  • Venture X
  • Serendipity Labs
  • Green Desk
  • SomeCentral
  • Spaces

With everything that happened over the past 12 months, it’s safe to say that this year will have its share of ups and downs as well. Based on what we’ve seen so far, here are some of the top coworking and flex office space trends to expect in 2021:

1. Coworking locations in the suburbs and closer to homes may benefit as workers split time between home and a flex office location. Although the vaccine may level the curve, not everyone will be in a hurry to return to the office. 

2. Coworking will continue to operate like a hospitality business. Valuation methodologies may change as flex office space operators continue to evolve, meeting tenant demand for more amenities and perks.

3. Landlords will become much more receptive to management agreements (M.A.s), where coworking operators receive space in exchange for the landlord sharing in the profits. The mindset of office building owners will likely shift from a short-term focus on maximizing NOI per square foot to building a solid relationship for the long-term.

Future demand for coworking and flexible offices will be driven by employees who want a location to work outside their homes. As vaccine rates increase and the curve continues to flatten, businesses will adopt a hub-and-spoke model, offering hybrid office experiences to their staff. Office landlords will joint venture with coworking operators by sharing profits and losses or operating the flexible office space themselves. With all these changes, we anticipate increased demand in both coworking and flex office space for some time to come.

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Shanti Ryle

Content Marketing Manager

Shanti leads Crexi's content marketing strategies with 7+ years of content development experience, creating everything from blog posts to award-winning podcasts. Previously, she worked on content teams at Snapchat, Weedmaps, and HopSkipDrive as well as developed copy, articles, and media for freelance publications.

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