Coworking...why hasn't it taken off?

If you’re a commercial real estate industry nerd (points if you’re not!), you would know that 仲量联行 predicted that the flexible office space sector (aka coworking) would grow to 30% of office inventory by 2030.

And if you are even nerdier (points AGAIN if not…), you’d know that office demand data circa 2021 showed that flexible office space was outpacing traditional demand.

But both of these scenarios were blips…

WeWork ’s failed IPO was always gonna be forthcoming and would thus squash the hype around JLL’s 30% office supply shift and structured/inflexible hybrid work mandates were always going to slow down the pandemic-fueled increase to flexible office demand.

Has coworking died? Absolutely not—it’s still alive and well. But its meteoric rise has been grossly overstated.

And while that’s true…the lack of growth in the coworking sector is a BIG problem:

• employees will never tolerate the commuter life ever again…
• companies continue to hire further and further away from their central offices
• traditional office vacancy continues to increase as companies further consolidate locations and downsize overall

All these factors will continue to put a strain on cities/governments, office landlords, and productivity/engagement/well-being.

The world of work undeniably needs more flexible and on-demand solutions.

Consumers (employees) need and want it. Our economies can’t thrive anymore in a “what’s mine is mine world”. Employers need to consider how they support increasingly distributed workforces more seriously.

So what is holding coworking back?

I think it’s the following macro factors:

• Many companies still have their elbows up when it comes to how they define culture—offices are their (cult)ural shrines
• The way office buildings are valued and leveraged is broken (value is only created through long-term leases from high-credit tenants)
• Employees might say they like the idea of putting on a fresh pair of jeans, grabbing a coffee, and bopping on over to a coworking space but when given the option (some companies are offering it) they just aren’t doing it enough to prompt companies to double or triple down on this approach

Like everything in this life…it’s going to be a slow burn…

New companies that are more receptive to sharing economies will incrementally prompt the growth of the coworking sector.

Office values will continue to crater and won’t recover the way residential real estate does after an economic cycle—this will force valuation methods to evolve (it’s still gonna be painfully slow though).

As we settle into flexible working being the norm, people will slowly adjust their habits to aid in their mental/physical well-being (aka leave their homes more regardless of going to a corporate office or not).

My prediction? By 2030, flexible office space will make up roughly 10% of a smaller office market.

I predict this for 3 obvious reasons:

• The existing Fortune 100 will continue to over-index on offices equaling their culture
• The capital markets system will continue to evolve at a snail’s pace (no one wants to do the work to change it and if we look at the residential sector, Airbnb should have already caused residential valuation methods to evolve, but that hasn’t happened…)
• People will continue to be creatures of habit until there is enough objective value and ease to be able to book and access coworking space on their terms, not a company or landlord’s terms

There are examples all around us though about how important this problem is to solve. My gurl, Annie Dean nailed it when she said: ”The second space is declining in civic importance — we used to spend most of our time in offices, and it gave us our identity. How we dress, what we ate + who we saw was defined by where we worked.” (full post here)

She goes on to illustrate that she couldn’t provide a solution to a mobile knowledge worker who needed a space for an impromptu call (that required privacy) on demand.

This is a genuine problem that has existed for many years but is now rearing its “ugly” head in a work-from-anywhere world.

In closing: total shameless plug…Kadence can help knowledge workers solve impromptu space needs through our Kadence Flex product feature.

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