The co-working market in Europe: broad-based growth

Co-working is a way of working which was transformed in the early 2000s when the two concepts: “Third spaces” and Business Centres joined forces. It unites the advantages of both types of space (flexibility, accessibility to all companies, hosting events, user community….) and is today establishing itself, across Europe, not only as a new way of working but also as a newtype ofreal estate. So much so that the co-working trend over the last few years has experienced unprecedented growth: from 1,000 co-working spaces worldwide in 2012, to the 2017 Deskmag Coworking Survey reporting 14,000 in 2017 and 18,000 in 2018. While, as for all markets that reach maturity, the growth of co-working is expected to slow down, the recent study conducted by us at BNP Paribas Real Estate shows significant growth. London, Paris and Warsaw are the most concentrated markets with a significant amount of co-working spaces, notably run by the main international players. The fast-paced growth of co-working is an interesting area to look into and worth understanding the European co-working figures and what they really mean.

Why has there been a surge of co-working in Europe?

Today, it’s difficult to ignore the co-working phenomenon. This dynamic trend that started in San Francisco in the middle of the noughties has transformed itself into a movement that has steadily gained in momentum and as a result is attracting attention in every market. This is reinforced by the European economic climate which has notably led to a significant increase in the number of new businesses, as well as the growth of large corporations who are also taking an interest in co-working.

The needs of each of these players being unique, the co-working structures specialise, and focus on specific niche markets, in order to provide customised solutions for each company's requirements: aimed at a specific target, in suburban areas, themed co-working centres, this is even more true for independent players.

The acquisition of space by major international players

While the number of co-working spaces is increasing in a significant way, this is also the case for surface area, on account of the adoption of this trend by the main international players, who favour large surface areas. As a consequence, the average reported surface area in Europe for these spaces is 818 m2. A trend in larger rental surface areas has also been observed, in particular in Vienna, where a recent transaction came close to 5,000 m2.

In Amsterdam in 2018, transactions were carried out at around the 3,500 m2 mark (+29% vs 2017). Then there’s Madrid, where the average surface area for a co-working space is 2,701 m2, showing an increase of 10% in comparison to 2017.

Furthermore, we can see that the main market players tend to internationalise. In particular the WeWork model renamed The We Company at the start of 2019, is inspiring many, and has experienced an impressive expansion. This American giant will have reached a total value of 47 billion dollars, which equates to nearly 27 billion dollars more over the next 2 years (Source: AFP) and is poised to become the primary office rental company in New York in terms of surface area.

Spaces, Bureaux à Partager, Morning Coworking, Secondesk, The Bureau and Wojo (previously Nextdoor) are some of the main providers in Europe with Wojo (previously Nextdoor) expected to expand at a record rate by 2022, with a predicted 40,000 subscribers and more than 50 sites.

Regarding their sites, the co-working players largely choose well-established business districts and other central business districts of large European cities.

Another key development: co-working spaces expand their services and use inventiveness to compete in order to enhance their additional service offers. Some of these are connected to running a business: registered address, administrative and technical assistance, offices and private conference rooms, specialised training, and individual coaching. Other activities and amenities are aimed at improving well-being within the work environment: concierge service, crèches, bars, canteens, kitchens, libraries, and fitness suites.

London, Paris and Warsaw: the top three co-working capitals

Even though London is still undeniably the capital of co-working in Europe with 70 signed transactions in 2018, representing more than 182,567 m2 (+13% vs. 2017), co-working is also becoming the norm everywhere else in Europe. We can see evidence of this dynamic market most notably in Brussels, Madrid, Milan or even Munich who have reported 3 figure growth rates.

Vienna and Milan have reported record performances with 30,365 m2 and 38,211 m2 respectively reported in connection with co-working spaces, meaning an increase of 449% and 294% compared to 2017. Six transactions were carried out in Cologne in 2018 comprising a total surface area of 29,200 m2 (+161% vs. 2017). Finally, eight transactions for 43,338 m2 (+122% vs. 2017) have just brought dynamic growth to the Dublin market which has reported an average surface area per transaction of 5,417 m2, the biggest in Europe.

Let us take a quick tour around Europe to better understand the co-working figures.

A co-working tour of Europe

Let us take a quick tour around Europe to better understand the co-working figures.

• United Kingdom: users seeking flexibility

The co-working market and business centres are mainly concentrated around the City zone with a surface area of 73,637 m2 leased in 2018 as co-working spaces.

Faced with buyers who are increasingly looking for less conventional spaces, investors are also going to have to adapt in order to promote their buildings and offices. This means shorter leases and the development of service offerings. As a consequence, the owners who enter this market now consider the location of their assets in relation to co-working brands as a way of providing real added value to the users of the building. Big companies such as Facebook, Dell, KPMG, Compass and Red Bull are already among those who have taken this step.

• France: great development potential

In France the number of co-working spaces has experienced vast growth according to the recent report released by Julien de Normandie last September. There are reportedly 1,800 co-working spaces in France. That's without including the 110-million-euro funding plan from now until 2021 announced by the government with the goal of creating or strengthening 300 flexible work spaces.

• Central Europe: high-quality spaces in Poland and Warsaw

The co-working market in Poland is driven by large international players such as WeWork, Spaces, Rent24 or Mindspace but equally by locally-founded brands.

In Prague as in Warsaw, most co-working spaces are situated in the central office sector. If, for Warsaw, around 70% use class A buildings, most of the co-working centres in Prague are in class B or C post-industrial buildings. This trend should, however, evolve in the coming months with the arrival of large international brands to the Prague market (BusinessLink, HubHub and Spaces) whose premises are principally found in Class A buildings.

In most worldwide tertiary markets, the co-working spaces’ momentum, even though relatively recent, already appears very strong. Numerous premises are still expected in the main European cities in 2019 as well as in the years to come. However, some players could rethink their models and their development in the medium term, because only 42% of co-working spaces in the world are considered profitable with an average monthly revenue of €317 per co-working customer and average monthly membership fees of €328 (source: Deskmag Global Coworking Survey 2018). That is why the market should enter a maturity stage and progression should slow down in many locations, while stabilising and consolidating its presence in others over the next few years. For, while the co-working customer benefits from the flexibility that this model provides, the co-working brands are committed to fixed leases and must make a profit from their investment in the long-term. This will not always be a simple equation. Therefore, the independent players who don't always have the power to compete with the big brands are also, without a doubt, going to have to differentiate themselves by focusing on specific niche markets. Nonetheless, the trend is unquestionably moving towards new forms of work organisation, and co-working is establishing itself as a permanent fixture in the service sector landscape.

Antoine Brasseur & Richard Malle

To go further, download our study "Co-working Trendbook & Other Co"