Shared Offices are Getting a Second Chance, and This Time It Will Stick

This particular recession will have unique ripple effects on the commercial real estate market that mirrors what we often see in the rental and shared markets.

In general, recessions push businesses to preserve capital and tighten budgets. This often leads to more rental and fractional usage. This is particularly true in the US, which has been an ownership economy that is slowly transitioning to more shared. Sharing is more comfortable for millennial and younger generations. Rental / Shared / Fractional use industries experience their biggest expansions during tough economic times. The equipment rental industry really got its start during the depression, and Airbnb and Uber started in 2008 during the credit crisis.

Initially, utilization and occupancy will suffer in all segments. The ones hit the hardest long term are likely to be higher-cost commercial office space where longer commutes are common. There was already a trend towards more remote work, and now forced work-from-home scenarios will give companies greater comfort with the concepts and technology, as well as the time to work out the kinks. This will make owning commercial real estate (especial office space) a bigger liability on the balance sheet. Suburban markets should have an easier time because people will be looking for space closer to home and out of higher cost (and higher health risk) urban markets. With current technology, there is no need to make long commutes to expensive offices for many businesses.

Fractional use of office and conference room space will continue to grow, and at least temporarily (although I think long term), you will see everyone shift down a rung on the ladder (see graphic).

Companies that have diverse office spaces in suburban markets will be able to retain customers by offering options further down the ladder. You will also see companies with multiple spaces offering memberships that allow use of multiple facilities depending on needs. For example, one location may have a podcast studio and another a larger conference room. The companies that will outperform are the ones that are able to build upon traditional office space with offerings that support remote work and help foster the local community feel that workers will often lose when moving remote. 

We Work note — The scenarios above are focused on traditional commercial real estate rental markets. The collapse of We Work has a temporary cloud over the shared office space market for investors. The problem with We Work was that they tried to be a trendy technology company, when really, they were an over funded Regis with very inefficient cash management. The collapse of We Work isn’t the collapse of co-working. 

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