Colorado Coworking Checkup
A Q&A with Cushman & Wakefield on the commercial real estate craze
Recently, Michael Coppola, senior research analyst at Cushman & Wakefield shared with ColoradoBiz his stance on the growing trend of coworking:
COLORADOBIZ: WHAT COWORKING TREND DO YUOU SEE CONTINUING TO BE IN THE FOREFRONT?
MICHAEL COPPOLA: "Coworking will continue to grow for the foreseeable future. One trend that I see continuing to be at the forefront of coworking is the ongoing diversification of the tenant mix that utilizes these facilities as they attract larger, corporate users. In fact, WeWork members [that] work for a corporation (100 employees and greater) have quadrupled from 2010 to 2017, accounting for 12 percent of memberships. Over the same time period, memberships of freelancers/independent workers have decreased from 68 percent to 39 percent.
The growth of corporations using these spaces [is] due to a handful of reasons, but the main driver is the flexibility in lease terms. Flexible leases not only reduce long-term obligations on a balance sheet, but also allows for corporations to test a market’s employment base. For instance, in Denver, we have seen large companies like Facebook and Amazon use Spaces and WeWork as 'swing space' before signing long term leases in Denver."
CB: AT THE BEGINNING OF 2015, THERE WAS ONLY 21,381 SQUARE FEET OF COLLABORATIVE WORK SPACE IN DENVER'S CENTRAL BUSINESS DISTRICT. SINCE THEN, MORE THAN 607,000 SQUARE FEET HAS BEEN ADDED, WITH MORE THAN 117,000 PLANNED FOR 2019 ACCORDING TO CUSHMAN & WAKEFIELD'S REPORT. IN YOUR OPINION, WHAT HAS CAUSE THIS GROWTH?
MC: "Coworking, even just a few years ago, was nothing like it is today. Most followed the executive suite model, which proved impractical for most users and could never have sustained the explosive growth we’ve witnessed. Companies like WeWork have found a setup that appeals to the masses, have watched demand continuously increase and are capitalizing by expanding as quickly as they can.
A huge driver behind this mass appeal is the flexibility these spaces offer. Coworking has tapped into a market share that traditional office has not. By tapping into the entrepreneur/freelance and start-up market, coworking has allowed companies/individuals who would otherwise be operating out of their houses, the ability to have office space and staff up or down as needed. Coupled with the interest from large corporations due to the flexible terms, it has continued to drive growth."
CB: WHAT HAS ALLOWED COWORKING TO BE SO SUCCESSFUL? OR WHY DO YOU FIND COWORKING TO BE SUCCESSFUL?
MC: "Aside from flexibility, I believe that coworking’s success can be largely attributed to the expanded services they offer. The amenities range from complimentary refreshments such as snacks and beer, to networking events and in some cases, even discounts on health insurance and other services. Coworking companies continue to bring added-value to members that typical executive office suites did not. In short, Coworking is now viewed more than just office space, but rather as a business partner that offers a variety of benefits to the shared community."
CB: DO YOU THINK COWORKING PROVIDES A FRESH ALTERNATIVE TO CURRENT OFFICE ENVIRONMENTS?
MC: "I do think that coworking has provided a fresh alternative to current office environments. I think the biggest impact of coworking outside of the previously mentioned flexibility has been the success of the amenities they offer. Companies and landlords alike have taken notice of these amenities, and in some cases (landlords) are partnering with coworking companies in buildings to help run their tenant amenities. Currently 11 percent of all global coworking locations are joint ventures between a coworking provider and 5 percenmt of locations are operated through a management contract with a building owner. I believe this trend will continue, as landlords continue to find innovative ways to attract tenants on the amenity front."
CB: WHAT ARE THE WEAKNESSES OF THIS ASSET CLASS?
MC: "There’s no ability to brand specifically to company culture, little to no privacy, extremely dense space along with cybersecurity and intellectual property data risks."
CB: WHAT DOES THE FUTURE HOLD FOR COWORKING?
MC: "Growth will continue, albeit at a much more stable pace, compared to the torrid growth exhibited in the past three years. Coworking space currently accounts for less than 1 percent of total U.S. office inventory. Cushman & Wakefield is forecasting that over the next decade total inventory could increase to over 5 percent of office space in many urban markets, reaching as high as 10 percent in some markets."