Commercial Investment Real Estate Spring 2020 | Page 26

By Beth Mattson-Teig
DOWN BUT
NOT OUT
WeWork’s stumble may slow short-term
growth in coworking, but many see sustainable
W
eWork’s very public financial woes
have created some bigger ripple ef-
fects across the coworking/flexible
office space sector.
WeWork’s plan to go public last year
flopped when greater transparency into its
business model revealed a lack of profitabili-
ty that resulted in a sharp drop in the compa-
ny’s valuation. It has since canceled plans for
an initial public offering, laid off hundreds
of workers globally, and pulled back on ag-
gressive expansion. WeWork is now focusing
on a new strategy to get the company — still
estimated at about $7 billion — back on
track and generating positive cash flow by
2022. Yet that turmoil has sparked questions
about the future of coworking from tenants,
landlords, and investors. Opinions across the
commercial real estate industry are mixed.
Some see a market that is already oversatu-
rated, while others believe the potential for
growth lies ahead.
There is no denying the explosive
growth that has already occurred within
the coworking sector over the past decade.
According to Cushman & Wakefield, the
global inventory of flexible workspace is now
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COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE
approximately 125 million square feet, with
the U.S. home to more than 50 million sf.
“We’re seeing demand from occupiers that
is still growing, and much of that is being
driven by the future generations of workers,”
says Melanie Gladwell, executive managing
director, Flexible Workplace Solutions for
the Americas at Cushman & Wakefield.
Demand is coming from millenni-
als, as well as up-and-coming Generation
Zers who possess a value system and work
requirements that are putting more empha-
sis on provisional space as the office of the
future. In particular, Gen Z is a group of
“digital nomads” who have grown up with a
fully mobile lifestyle. The expectation is that
providing more flexible workspaces is going
to be a must for employers to attract talent in
the future, notes Gladwell.
In its December 2019 research report
on the flexible office space market, Cush-
man & Wakefield predicted that coworking
memberships in the U.S. will grow from
750,000 to 1 million by 2023. More impor-
tantly, the report highlighted a growing ap-
petite for space among large corporate oc-
cupiers. The report cited its survey of global
corporations conducted in collaboration
with CoreNet where respondents said 12
percent of employees use coworking space
on a regular basis now, and they expect that
to double by 2023.
Demand for coworking space runs
the spectrum from entrepreneurs and inde-
pendent contractors to startups and major
corporations. However, the growing demand
from corporate enterprise users appears to be
responsible for the meteoric pace of growth.
In some cases, corporations are locating en-
tire project teams or business units within
third-party operated facilities. “Corporations
are now looking at flex space as a component
of their overall portfolio allocation,” says Dan-
iel Levison, CCIM, CEO of CRE Holdings in
Atlanta. Coworking space gives large compa-
nies the flexibility to sign shorter-term deals,
as well as create different work environments
for specific groups. “You’re already seeing
more corporate users utilize this flex space,
and that is driving owners to figure out a way
to provide it,” he says.
Levison has a unique perspective into
coworking as a broker, landlord, and own-
er-operator of a coworking business. Over
SPRING 2020
demand ahead for flexible office space.