Coworking Trends: Coworking is on the Rise. What does it mean and who will win?
The COVID-19 Pandemic proved the flexible office and coworking trend was toward flexibility. Was the COVID-19 pandemic a devastating blow to flexible office and the office, or a temporary blip that helped to accelerate a longer-term trend? All trends point towards the latter.
Q3 2021: What Do North American Coworking Trends Look like?
1. Coworking operators are seeing increased revenue from new agreements and occupants.
Our Q2 2021 data release reported that North American Quarter-over-Quarter demand and shopping activity increased 41{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84}. The most important outcome for operators in Q3 was revenue. We don’t have figures on revenue for all operators. However, we do know that occupancy increased in most markets and that vacancy decreased.
2. Trend in coworking: Inventory stabilized for the first time since early 2020.
Nearly every quarter during the pandemic saw the number and severity of the closures of flexible offices and coworking spaces. had lost 25{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84} of its coworking and flexible offices locations in North America by the end of Q2 2021. This trend stabilized in Q3 when we monitored 24 new locations opening and 21 closings. In New York, for example, 5 new locations were opened, while 3 closed.
3. Trend in coworking: Prices are not falling for the asking.
The stabilization of prices inflexible and coworking offices in the United States has been aided by increased occupancy. While many operators offered two to three months for a 12-month term, in Q2, these operators and others began reducing their discounts to just two and even one month in Q3. The benchmark 4-person suite in the US went up in price from $1,625 per month in Q2 to $1.665 in Q3, which is a 2.5{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84} increase quarter-over-quarter.
4. The Delta Variant and the normal seasonal fluctuations held back new demand.
The average market saw a drop in shopping for coworking and flexible office spaces in Q3 after a 41{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84} increase in demand. Although this was not the case for all markets (see Atlanta below), North American average shopping activity fell 25{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84} between Q2 and Q3. While some may argue that the lower office demand is to blame, we believe it is due to 1. Normal seasonality – July & August are historically slow months for commercial real estate new tours, and 2). Multiple companies have delayed office reopenings due to fears about the Delta Variant.
5. North American markets recover at different rates
New York City has the largest flexible and co-working office market in North America. New York City saw an increase in occupancy and a decrease in demand in Q3. Average prices rose.7{59d5fe09af3719deb1dce66a591b325aa20119f67775f5bbaa07f200cd03fe84}, and there were more locations opening than closing.
Toronto has the largest flexible and co-working office market in Canada. Toronto experienced a slight increase in occupancy in Q3, a seasonal drop in demand, lower average prices, and more closures than new offices. The operators in Canada’s largest markets are more likely to be able to recover later than those in the US.
Los Angeles North America’s the second-largest flexible and co-working office market. Los Angeles saw a slight increase in vacancy, lower demand, and more closings during Q3.
Some markets saw a surprising amount of price growth. The San Francisco Bay Area and Tampa markets experienced significant price increases.
There were more openings in other markets than in others. New York was North America’s leader in new openings. It was followed by Dallas and Washington DC.
The strongest demand growth was seen in Silicon Valley, Raleigh Durham, and Tampa.
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6. Some of the top submarkets are already at or near capacity
The Signature Workspace team noticed a real shortage of supply in key submarkets, which is a first since the pre-pandemic period. These markets are the first to experience what we expect will be a larger trend in Q4 2022 and Q1 2022: A shortage in coworking space and flexible office space.
- Midtown Atlanta
- Tampa, Florida
- SoHo, Manhattan
- North Austin
- Cherry Creek, Denver
What Does This Mean For The Coworking Trends And The Flexible Office Market?
1. Prediction: Revenues and occupancy of flexible offices will rise in the fourth quarter and 2022.
Operators can expect to see higher occupancy and more agreements as 2021 draws to a close in Q4, setting up for growth in 2022.
2. Prediction: From now on, occupiers will plan for flexibility.
COVID-19, The Delta Variant has hampered occupiers. Long-term leases and uncertainty about how much space they need for their businesses, as well as how to support them, have weighed on their shoulders. Employers will be able to plan for flexibility in their future real estate plans, as some of these variables become clearer. Companies like Motley Fool or Live Ramp are great examples of this. Watch the webinar ” back to anywhere” that we recorded with refineRE online. Learn more.
3. Prediction: Closures will be outpaced by new openings dramatically in Q4 and 2022.
We expect substantial new supply to be available in the fourth quarter of 2021 and beyond. It could be from large operators such as Signature Workspace, which went public on October 24. Many of these people are in possession of fully-built out flexible office spaces.
5. Prediction: In Q4, the average seat price will rise in most markets
We are anticipating that average seat prices in most markets will rise in Q4, which is good news for operators and the opposite for occupiers. Price increases may be held back by factors such as the availability of sublease space.
Trends In Coworking: Who Will Win In Q4 And 2022?
1. Operators who have sold assets that were not performing well and secured new high demand locations
We have previously discussed the fact that many large operators deliberately shed underperforming assets during pandemics. They are now moving to better locations in high-demand areas. As the recovery progresses, you can expect to see these operators grow rapidly.
2. Class A property owners who take advantage of their prime locations and “Buy Low”.
We’ve already mentioned that building owners are poised to capitalize on their prime locations and low entry points (by buying out spaces that were partially or fully funded by others). The pandemic correction will in many ways accelerate the trend towards more coworking owners.
3. New Entrants who buy cash-poor operations just as the market is turning.
New entrants that take over cash-strapped businesses will be another winner in the next phase. Signature Workspace is one such new entrant. It has taken over many spaces from other operators during the downturn and often took over quality assets to turn them around quickly to meet growing demands.
4. Asset light “Space Providers”
The market recovery will also bring out the best in space providers who aren’t actually space providers.
This post was written by Tara Kintz. Tara is a director at Signature Workspace which is a Shared office space Tampa. Signature Workspace, owned and operated by Cantor Fund Management, offers services and amenities such as private offices, flex space, co-working space, virtual offices, meeting/conference rooms, and more.