Experts predict a future global market share of 10 percent for flexible offices
Coworking is a relatively new phenomenon. The development has its origins in the major US metropolitan cities such as San Francisco and New York. In the mid-nineties, office space operators began offering start-ups, the self-employed and freelancers workstations and the associated office infrastructure on a temporary basis. Coworking offices are usually open-plan, enabling users to benefit from each other and open up new networks, whereby lawyers are brought together with programmers, graphic designers and start-up entrepreneurs.
Worldwide growth in coworking
The market for coworking has been experiencing massive growth for several years. The online magazine Deskmag conducts an annual survey among coworking operators. Although many experts expected the market undergo consolidation in 2018, Deskmag’s research continues to see significant continued growth. By the end of the year, experts expect 1.7 million people worldwide to be working in around 19,000 coworking spaces, a huge rise from the 1,180,000 users in 2017. Globally, coworking is expected to achieve a market share of around 10 percent in the next few years.
Cushman & Wakefield confirms record demand for flexible workspaces in its Coworking Report, published in May 2018. The market leading location in Europe is currently London. On the Thames, 10.6 percent of all office space is now occupied by coworkers. 21 percent of office letting was to coworking space providers last year. Cushman & Wakefield is also seeing strong growth rates in other European cities. In Amsterdam, the segment accounts for six percent of the overall market, in Dublin, take-up of flexible workspaces increased from 0.7 percent in 2016 to 7.9 percent in 2017 and in Munich, take-up in 2017 was around 35,000 square metres; a massive rise from 7,200 square metres the previous year.
Large companies are increasingly relying on coworking
As a result of the strong growth, coworking areas are becoming ever larger. Deskmag determined in its survey that a coworking space currently accommodates 82 users on average, which is an increase of ten percent on the previous year. Almost every fourth coworking community now has 140 or more members. Operators in the market are increasingly large, international companies, including Mindspace, Regus, Rent24 and Spaces. The market leader is WeWork with 50,000 members at 90 locations in twelve countries. The company was founded eight years ago in New York, with German operations in Berlin, Hamburg, Frankfurt and Munich. In Berlin alone, WeWork intends to expand its operations to a total of up to 100,000 square metres.
The idea of coworking not only inspires freelancers and start-ups. WeWork reports an increase of 30 percent in use by large companies. Established companies use coworking as an incubator for new ideas. The employees are transferred to a new environment, re-networked and thus develop inspiration for their projects. When growing or downsizing, coworking offices or flexible workspaces provide the adaptability required to help reduce costs. In such cases flexible workspaces are no longer coworking in the traditional sense, as companies usually rent separate work space.
Increasingly, companies are opening up coworking spaces themselves. TUI Deutschland GmbH has opened an Open Work Space in Hanover with its “Modul57”. The management consultancy Roland Berger resides with its own coworking space in a former post office building in Berlin Kreuzberg.
Successful with hybrid rental models and service
The current report by Cushman & Wakefield sees few providers at present who are achieving success in the market with a pure coworking model. The trend is towards hybrid models where landlords offer coworking space as well as traditional business centres or office models. Coworking creates new business options for providers beyond traditional office real estate. For example, vacant retail space, hotels or cafés can generate additional revenue by providing flexible workspaces. Due to coworking the business model for office real estate is diverging ever further from merely providing space to becoming a provider of services. The operators build their own palette of competencies or seek cooperation partners in the fields of health and fitness, office technology, food, training or finance. Some market participants also specialize in particular niches. They develop flexible office solutions for architects, technicians or media professionals and offer tailor-made service to the target group. For architects, for example, this would involve the sharing of plotters or 3D printers.
Lifestyle and design are important branding tools for coworking providers. WeWork also sets standards here. The company cooperates in interior design with the currently very successful Danish design studio Hay. In addition, WeWork recently succeeded in acquiring Bjarke Ingels as chief designer, a Danish-born architect. Ingels was named as one of the world’s 100 most influential people by Time magazine in 2016.
Too little office space in the major cities
Growth is currently particularly slowed by high rents in the city centres. In some cases, coworking operators are seeking out former commercial buildings or industrial lofts, as open office landscapes can be realized without costly conversion measures. This type of space has become extremely rare in the inner cities. Inevitably, operators will have to turn to peripheral locations with good transport links. There are currently also increasing numbers of projects attempting to implement coworking concepts as innovation drivers in rural areas.
Coworking has established itself as a segment in the office real estate market within a very short time. The model reflects the changes in the world of work through digitization. Currently, the start-up and tech scene is booming, as is project-based work with freelancers in many companies. The segment will thus continue to see major growth opportunities for the foreseeable future.
You might also be interested in our report “Coworking 2018 – The flexible workplace evolves”.
By Matthias Huss, International Partner, Branch Manager and Head of Office Agency Hamburg at Cushman & Wakefield
Matthias Huss joined Cushman & Wakefield in January 2017 as International Partner, Branch Manager and Head of Office Agency Hamburg. His responsibilities include the management of the branch and the Office Agency team in Hamburg as well as project and object acquisition, owner advice and tenant acquisition and support of search mandates.