Collaborative workspaces are changing the way millennials work and ultimately creating a snowball effect that is changing the way everyone works. Recent studies reveal that over 1.2 million people worldwide have worked, or currently work, at a co-working space. In fact, Emergent Research forecasts that by 2020, co-working memberships will rise to 3.8 million people and 5.1 million by 2022. As collaborative spaces become increasingly popular, it’s not surprising that this has also impacted the commercial real estate industry in a big way – from increasing property demand for older buildings to establishing a brand new niche market.
Here are four ways the collaborative workspace movement is impacting CRE in both a positive and negative way.
Increasing Property Demand
The popular demand for collaborative workspace environments is benefitting CRE by also increasing the demand for older properties. Many companies that prefer collaborative space will take old industrial warehouses and repurpose them into premier locations for their team members. In fact, recent reports show that there’s a clear shift in tenants’ preference for older office buildings, as the existing old-world charm and flexible, open layouts are attractive to those seeking a collaborative environment.
Along with these older spaces, companies can also utilize floors and areas of existing office buildings to offer more collaborative spaces for meetings, communal work areas, and so forth. Overall, this is increasing the leasing and sales action within the market, as many companies continue to demand large square footages.
Establishing a Niche Market
Co-working and collaborative spaces have also proven to benefit brokers in that this new trend has created a niche market. Commercial real estate is built on relationships and many building owners and brokers have established strong networks with companies looking for this particular type of space. What’s more, there are entire brokerages, websites and platforms built to help fill collaborative spaces.
Additionally, large co-working companies also have broker referral programs, allowing brokers to maintain the client relationship while still earning commission. As most companies outgrow co-working spaces, these tenants will likely need the broker’s services down the line when they’re ready to lease a more traditional space.
There is No Guarantee for Long-Term Sustainability
Collaborative spaces are generally not for long-term leases. Many companies will lease out these spaces for a short time period, which means there is no guarantee for long-term sustainability. Tech startup companies are the biggest utilizers of co-working space. The challenge that this brings to CRE is the question of who to lease the office space to and which businesses will be able to overcome any economic downturn. This can be a gamble for brokers and landlords to determine if the company will be able to uphold their lease if a time comes when the market takes a dip.
Joint Ventures Between Landlords & Operators
The success and profitability of co-working space has increased the partnership between landlords and operators. These two groups work together to buy, develop and reposition buildings to transform them into co-working space, which allows the opportunity for both the landlord and the operator to better monetize on this trend.
Co-working has altered the way startups and small businesses approach office space. This has helped to reduce vacancy rates while also establishing new companies in many markets. Co-working companies such as Regus and WeWork are some of the most desirable tenants in the market in this day and age, with valuations often surpassing the traditional brick and mortar landlords.