Even As The IPO Abyss Approached, WeWork Leasing Was In Overdrive
Coworking companies continued leasing at a brisk pace during the third quarter, taking 4M SF during Q3. That is up 4% from a year earlier, and up 9.4% from the previous quarter, according to a new report by CBRE, which uses the term "flexible office."
According to the report, more than two-thirds of all the space leased during the quarter by coworking operators involved WeWork. Specifically, is was 69% — up from 60% of all space for WeWork during the same quarter a year ago.
WeWork was also the top lessor of space in nine of the top 10 markets for coworking growth. All together, WeWork leased about 2.8M SF during the quarter.
The question now is what happens to the velocity of leasing by coworking operations in the face of WeWork's difficulties.
“It is not surprising that flexible office space transactions in Q3 remained strong despite the recent developments in the market," CBRE Senior Director of Research Julie Whelan told CNBC. "A slowdown in activity can be expected as we end the year.”
At the end of Q2 2019, WeWork had $17.9B in long-term lease obligations, according to CBRE, thus controlling about a third of the entire coworking market.
Though still the largest coworking operator, WeWork was hardly alone in expanding its footprint during the third quarter, the report says. Knotel, Spaces, Industrious and CommonGrounds Workplace were all active lessors during Q3, representing a combined 17.2% of the total leasing.
Fast-growing startups in the coworking business include Venture X, Office Evolution and Bond Collective, each of which leased 200% more space year over year during Q3.
WeWork's largest market, Manhattan, accounted for 21% of all leasing activity in the coworking sphere during the quarter, and markets with the largest increases in leasing over the past year were Manhattan (up 947K SF), Los Angeles (up 646K SF) and Washington, D.C. (up 568K SF).
Up-and-coming coworking markets during the quarter included Detroit, Miami and Salt Lake City, which all experienced coworking leasing increases of more than 700%.
A separate recent report on coworking by Cushman & Wakefield says that regardless of the fate of WeWork, the sector is firmly established; so much so, that traditional real estate firms are increasingly entering coworking.
“This model has been embraced by much of the corporate real estate community and is serving a diverse clientele, long comprised of a mix of global enterprises alongside small and medium firms,” the report noted.
Currently, according to Cushman & Wakefield, 57% of corporate real estate executives have a positive or very positive view of coworking, and overall companies have around 12% of their employees using coworking on a regular basis.
Moreover, the median percentage of employees regularly working out of a coworking location is now 3%, a total that is expected to balloon to 15% in five years, the report says.