Can Real Estate Keep Up with the Coworking Craze?

The coworking phenomenon is here to stay although there is still a shortage of space for coworkers to work from.

You only have to step into a coffee shop to see that working outside the office is hugely popular. While sipping their lattes, customers are busy on their laptops, tablets and phones, or holding meetings, preferring the relaxed ambience to conduct business rather than the more formal office environment.

But as more providers enter the coworking market, the entrepreneurs and freelancers currently occupying the armchairs in coffee shops around the world may become fewer.
Over in the US, coworking is a much more established practice than here in Europe and consequently the market is becoming saturated with space providers, each with a different variant of the coworking theme.

However, due to a better understanding of the coworking sector and the influx of sharing-economy business models in America, there are now few opportunities for investment. However, in the UK and Europe where coworking is relatively new, the potential is huge. “Coworking is now mainstream across many European cities,” said Karen Williamson, Associate Director with JLL’s EMEA Research team.

“We’ve seen massive growth over the last few years with the number of coworking spaces expected to reach a million by 2018. If you believe these predictions, the case for investing in these types of business is strong – especially with more start-ups launching, the growth of the freelance and contractor economy, and more corporates adopting coworking models.”

The Coworking Model Appeals to the Untypical Investor

Williamson adds: “As a result we’ve seen a wave of providers enter this market with innovative models. Even some hotel operators are now offering guests a rebate for offering the room as a private office while they’re out during the day.”

Maciej Markowski, Associate Director, JLL Workplace Consultancy adds: “I’ve encountered one investor who planned to develop a commercial property in London into apartments, but having tested it out for coworking, realised he’d get a better return if he used it for that instead. He now plans to develop seven more coworking sites and includes co-working in his investment strategy.”

Much of the coworking craze has been driven by companies seeking out talent. There’s a strong desire among corporates, especially in the banking world, to tap into innovative ideas, technologies and collaborate with start-ups, perhaps through accelerating them while at the same time gaining knowledge and accessing talent.
Coworking has also taken off at a time when employees’ attitudes and corporate cultures have finally caught up with the possibilities offered by technology that allows people to work anywhere at any time.

Keeping Up with Occupiers Needs

The most successful coworking providers realise that occupiers’ needs change over time and so they cater for the journey from start-up to corporate by offering different levels of membership. Members may start using the café and tables, graduate to an allocated desk, and end up with their own branded coworking office. “However,” says Markowski, “there will come a time when providers will really have to differentiate themselves from each other because the market will become crowded.”

No longer will exciting surroundings near bars, restaurants and shops be enough to draw occupiers. “The providers who will really win,” he says “are those who provide a sense of community – a ‘soft layer’ to what they do. Building connections in a coworking space makes it more difficult for a person to move on. But if he feels coworking is no better than working at home, in the office, or in the coffee shop, the provider has failed.”

Already, coworking providers are matching occupiers together with like-minded people and creating apps to help prospective occupiers find space where they’ll fit in and meet coworkers in complementary fields. “Providers who want to do well in this market must really concentrate on what makes their coworking space far less formal and far more rewarding than any office,” adds Markowski.