What will coworking look like in 2030? From only 14 coworking locations in 2007 to over 14,000 in 2019, coworking has been a fast-growing trend in the world of office work for just over a decade. Coworking offers professional office resources and a social environment for people in the rising gig economy and for those who work remotely for traditional employers. These flex workspaces, which often function on a month-to-month rental basis for desks and offices, have obviously helped fill a void for startups and individual working professionals.
Will the trend continue? What will the next ten years bring to this fast-growing and changing field? While no one has a crystal ball, a few possibilities seem to be moving in from the horizon.
Scenario 1: Recession Volatility
Falling interest rates and an inverted yield curve have experts waving flags of warning that a recession could be just around the corner. Recessions often mean that people lose jobs and businesses go under, and coworking spaces may be no exception. Most coworking spaces are not currently turning a profit which leaves these firms especially vulnerable in case of a downturn in the economy. The last U.S. recession ended in 2009, so the vast majority of coworking locations have never had to endure a recession. Their business model also has some wondering about their long-term profitability.
- Coworking locations sign long-term leases for commercial real estate.
- They then rent portions of the space on short-term leases to individuals and small businesses.
- Approximately half of their customers are startups and freelancers who may not be profitable themselves and could be likely to go under during a recession.
- These same customers have unpredictable office space needs. If they are trying to cut their own costs, they may return to working from home as opposed to paying for coworking space.
- Approximately 50% of coworking memberships are W-2 remote workers paid for by their employers. If a recession causes massive layoffs, the first thing coworking locations are going to see is a downturn in their memberships due to these layoffs.
If a coworking space is already on shaky ground financially, they may not be able to survive a decrease of membership revenue due to these conditions. Landlords expect their rent whether or not the desks in the office are filled.
On the other hand, the Great Recession actually helped to create and bolster the rise of coworking. The combination of unemployment and disruptive, portable technology allowed people in all sorts of professions to job hunt or freelance from anywhere with an internet connection. This was how the unemployed bounced back. For some, the freedom was too enticing to go back to a W-2 job, but they missed working in a social environment. Enter coworking, a modern office solution which provided the in-person social network for these gig workers and filled what may have been empty office space.
It is certainly possible that a recession would only see a huge turnover in the clients inside a coworking office, from W-2 to contract workers and freelancers, with old members leaving and new members coming in. It may make for a volatile market and bumpy ride, but it is possible some coworking locations could weather the storm.
The real question may be less about employment/unemployment rates and more about what happens in the real estate market.
If interest rates continue to fall or stay low, it may actually be easier for investors in the commercial real estate markets to turn a profit on their investments. This could keep rents low for both traditional renters and for coworking locations. However, if traditional employers go under and leave their offices, landlords are going to feel the pinch. They may work to entice more coworking into their commercial real estate openings and thus increasing competition. Landlords may feel the need to put pressure on their coworking tenants to pay rent they may not be able to pay if their membership drops. With coworking occupying an increasing amount of office space square footage, there is a lot of uncertainty how the next recession will impact the emerging industry.
Scenario 2: Full Steam Ahead
Given how technology has fueled the rise of coworking spaces – and this technology isn’t going away any time soon – it is certainly possible the coworking trend will only to continue to grow. Technology has allowed the gig economy to flourish, provided there is an opportunity for small startups to sell products nationwide – and even worldwide – and to facilitate remote workers for companies of any size.
Companies are also becoming more likely to embrace remote workers for the number of benefits it provides to both employer and employee. Since half of coworking members are actually remote employees of traditional companies, it makes sense that coworking locations will continue to serve an important role for these workers traveling on business, or simply working outside of a regular office.
If coworking continues to rise in popularity, there are a few things we are likely to see:
- Coworking locations in every borough, neighborhood and town. Big cities already have a number of locations, and that could continue to grow. In addition, remote workers and freelancers who seek wilderness and quiet places will appreciate having them even in small towns. Lower costs of living and doing business may be very appealing when needing the resources of the city is no longer as important. It won’t matter where a worker or a small business is, there will be a place to work.
- Niche coworking locations. There is already a movement in some markets to focus on a segment of people with the same needs. Locations specifically designed to serve health professionals, lawyers and artists have already been established. We may start seeing locations geared for childcare, tutoring/music lessons, outdoor enthusiasts, graphic designers, woodworkers and more.
- Technology in the spotlight. As technology continues to advance, location won’t matter as much as it used to. Teams can communicate with each other from anywhere, with one in a shared workspace location in San Francisco, while another is in St. Louis. Top-notch technology will be required, and the coworking locations that own it and stay on top of the changes will have an edge for high-tech professionals.
- Flourishing support businesses. If coworking flourishes, than the businesses that offer supportive services to coworking locations will also grow. Businesses that offer coworking space software to manage reservations, remote technologies and more will be in a great position for profitability.
It is also possible that by 2030, the market will hit its saturation point, and flex workspaces as a whole will no longer expand. Some locations may close due to lack of growth, while others may remain profitable, but stagnant. The goal at this point will be to make sure the business model of each location is sustainable and stable.
Perhaps one of the most interesting trends in coworking is that of the enterprise office partnering with a coworking location. Already, companies like Pinterest, Facebook and Microsoft are choosing to lease space with more flexible shared office options, like WeWork, to avoid signing long-term leases themselves. This trend may continue, with coworking finding itself the biggest real estate game in town.
Big companies reap several benefits when they choose to work with a flex workspace partner, especially one with a national or global footprint that matches their own employee base.
- Reduced real estate holdings: Companies that have traditional bought or built their own offices no longer have to hold real estate, and instead can focus their financial and business efforts on business tasks.
- Flexibility: The business world can be incredibly volatile. When a company is adding employees, the coworking model allows them to quickly obtain workspace for these employees. Renting a few more desks is easy. On the other hand, if the company is experiencing a downturn, they can choose not to renew spaces to reduce their workforce and their financial liability.
- Outside Forces: Depending how the company structures its partnership, its employees may be working alongside startups, freelancers and others. This type of diversity can offer opportunities to work collaboratively with others in a noncompetitive Innovation thrives when diverse ideas come together.
- Location, location, location: As companies embrace remote work, their employees may simply be more far-flung. Having all employees together in one spot simply won’t be as important to achieving, at least not all the time. Recruiting may no longer require asking the best candidate to relocate.
How will all this enterprise change affect coworking? In addition, how will all this coworking affect real estate?
If enterprise companies stop signing long-term commercial leases, that either leaves the building owner with empty space, or it leaves coworking locations signing for those leases themselves. Coworking locations then accept the risk of the lease, while the enterprise companies get the benefit of the flexibility coworking offers.
Circumstances could really go either way for the coworking world.
- By signing contractual agreements with enterprise companies, flexible offices could guarantee itself at least some revenue stream, but it may or may not ensure it can meet its own lease agreements.
- If real estate values start rising at a quick pace, coworking rents could go up, putting them in a bind. On the other hand, empty space may make it easier for flex workspaces to negotiate favorable lease terms with building owners.
- At the moment, coworking is seen as a gamble by most real estate professionals.
Most disruptive could be coworking locations choosing to buy or build their own spaces. If enterprise companies and small businesses choose to continue to work with coworking locations for their flexibility, a coworking company that owns a building outright may be in a favorable position.
- Owning a building with low mortgage payments could put coworking light years ahead in terms of profitability. There would be less negotiating leases at all.
- If coworking continues to take over market share, traditional building owners may have to forgo traditional long-term commercial leases and favor short-term or flexible lease agreements themselves.
This final scenario of owning buildings may only be in reach for the most profitable coworking locations. Continued low-interest rates could make it more affordable, but if property values or interest rates go up, it may be less feasible. And of course, commercial real estate would have to be available and affordable. Currently, WeWork, one of the largest organizations, does not appear to own any of the property it sublets. However, by 2030, it is certainly possible that we will start to see coworking organizations purchasing properties outright and disrupting the real estate model even more than it already is.
Conclusion - Coworking Continues
Recession, market saturation or coworking real estate disruption are all very real possibilities in the next ten years. Whichever way the trendline goes, innovation and a financial cushion will help push coworking forward.
Volatility is only likely to increase. Whether a recession is on the horizon this year or ten years from now, organizations that are financially capable of riding it out will be the best situated to increase business with the rise of layoffs and startups.
It is also possible that coworking will rise to greater heights, perhaps reaching unsustainable levels and falling back. Such stability will be welcome for existing business owners.
The real estate market is going to continue to watch as coworking occupies more space. The space required by large, traditional companies will make coworking less volatile, but it also may make it even more threatening to traditional real estate owners.
The least likely scenario is one that is not listed: the disappearance of coworking. It’s been around long before it was ever recognized, and it fulfills a need that is growing with the way work and technology are changing. Coworking is not going away any time soon.