The evolution of coworking space more than two and a half years into the COVID-19 pandemic is a great example of allowing the facts to speak for themselves, as opposed to prematurely pronouncing the irreparable conclusion of a trend. After all, great things often have humble and challenging beginnings.
In this particular case, working from home and working near home since the onset of the pandemic has not only sustained but also lifted the coworking scene nationwide, despite being pegged as the first commercial real estate sector to fall victim to pandemic physical distancing imperatives.
In fact, strong demand for hybrid working has reportedly driven significant growth in membership and revenues for coworking space providers: In its second quarter earnings call, WeWork reported that occupancy had surged to the company’s pre-pandemic rate recorded in Q4 2019. Similarly, International Workplace Group (IWG) — which owns and operates Regus, Spaces, and other brands — reported system-wide, year-over-year revenue growth of 22% during the first half of the year.
Accordingly, in its latest monthly office report, CommercialEdge analysts noted that they saw great potential for growth in the flex space sector in the coming years. And legitimately so, considering several factors in the current climate. For instance, young businesses might be more inclined toward shared space, as cheaper and more flexible alternatives to traditional leases can help them better navigate their initial growth phases with more agility. Meanwhile, larger firms that have found hybrid and remote work held up well during the last two years in terms of productivity and other positive results, have opted for setups that bring work closer to employees’ homes. Plus, coworking is a viable means to provide remote employees with meeting spaces, quiet work areas, and amenities, as needed.
To that end, according to findings detailed in the report, there is currently 117.5 million square feet of flexible and shared space, which represents 1.7% of all office space. What’s more, CommercialEdge and CoworkingCafe estimate that more than half of existing flex space is concentrated in the top 10 U.S. markets.
As you might expect, coworking space in Manhattan had the largest concentration with an estimated 15 million square feet, followed by Los Angeles coworking space, which encompassed roughly 7.9 million square feet. The third-largest inventory concentration was marked by the estimated 7.1 million square feet of coworking space in Chicago, while the Washington, D.C. market included 6.5 million square feet of flex space. Dallas coworking space rounded out the top five with 5.1 million square feet. Together, these top five markets accounted for one-third of the total estimated flexible and shared space in the country.
Meanwhile, in the traditional office sector, CommercialEdge reported that the listing rate growth for office space in Charlotte topped national rankings for the fifth consecutive month: The 16.8% year-over-year increase brought the local market average full-service equivalent listing rate to $33.62 per square foot in July. What’s more, the vacancy rate here also dropped 130 basis points year-over-year, even with an infusion of nearly 5 million square feet of new office space delivered in 2021. Further, CommercialEdge research indicated that the strength of the city’s office-using financial sector was a major influence on this success.
Notably, only two other markets saw their local listing rates grow by double digits during the same time frame: Listing rates for office space in San Diego and Boston increased 13.9% and 15.2% year-over-year, respectively. Moreover, both of these bio-pharma powerhouses ranked among the top cities for life sciences in the U.S. In Boston, nearly 25 million square feet of office space serves life sciences tenants, ranking it as the largest life sciences real estate market among the cities surveyed. At the same time, life sciences office space in San Diego amounted to 12 million square feet, which accounted for 11% of existing inventory in the market.
Visit the CommercialEdge blog to download the full August 2022 national office report and tap into extensive and current research on performance across U.S. office markets.