A new report from CBRE predicts that the market for U.S. coworking space will continue to expand robustly over next decade, despite any coming recessions. The report's high-growth scenario has as much as 22% of office space occupied by coworking entities by 2030, and even the low-growth scenario puts the total by then at 6.5%, up from the current 1.8%.
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Much of that growth might not be by the coworking model pioneered during this decade by WeWork and others, the report also says. CBRE predicts a shift in the industry toward partnerships between building landlords and coworking companies, rather than coworking companies being tenants that then sublease.
If so, the trend would benefit CBRE itself, which launched a flexible office business last year. The business, called Hana, doesn't lease space directly, but works with property owners to design, build and operate coworking space for them.
According to CBRE, a recession would push more operators and investors toward a partnership model. That would allow investors to support operators through any potential slowdown and then share in the upside when the economy strengthens.
Besides being a consistent money loser as it has ballooned in size, one of the main criticisms of WeWork — which essentially brings in revenue through the arbitrage between what it pays to landlords and what coworking tenants pay to it — is that it is untested in a recession, when coworking demand will presumably shrink.
The deals WeWork and others ink with landlords have “completely misaligned incentives,” Hana CEO Andrew Kupiec told The Wall Street Journal.
Though CBRE is looking to grow Hana, its foray into coworking hasn't expanded as rapidly as some other brands. The company is currently mulling a location in New York, and it has locations in Texas and California. It aims to be in 25 American markets in the next three to four years, and will open its first three U.K. offices by the end of this year.
WeWork might founder in a recessionary storm, but proponents say coworking will not, whatever model becomes predominant.
“There’s little to no skepticism about demand for this product category," Industrious CEO Jamie Hodari told Curbed. "It’s here to stay.”
The CBRE report noted that there is room for coworking growth in almost every major U.S. market. Even markets where coworking is well-established, such as San Francisco at 4% of its office market and Manhattan at 3.6%, are lagging behind overseas markets like London and Shanghai, both at 6%.
Manhattan, Los Angeles and Chicago are the three largest U.S. markets for coworking by square footage, with 15M SF, 5.4M SF and 3.8M SF, respectively, the report says. The fastest-growing markets are secondary cities, however: Salt Lake City, Seattle and Sacramento. According to CBRE, Salt Lake City chalked up coworking space growth of 82.9% between Q2 2018 and Q2 2019, while Seattle grew 66.6% and Sacramento by 65.9%.
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