Even with the COVID-19 pandemic continuing to linger and cause disruptions, a growing number of companies have already returned to the office or are thinking about what it will be like to go back. Many experts say that a hybrid model is quite likely to be the new reality, with employees splitting their time between the office, home and coworking spaces.
This hybrid model makes sense for employees who have grown accustomed to giving up their commute and working at home for at least a few days a week. But there is a catch for some employees who like ditching the commute. They may be finding it difficult to work from home due to limited space, a lack of connection with other employees, poor technology, and the distractions of kids and pets.
An increasingly popular answer to this problem is coworking space. The coworking movement includes freelancers and workers for various companies who share the same professional office space. The practice is cost-effective because participants rent space in an office building and pay for the costs of common infrastructure, such as the office space itself, equipment, furniture and custodial services.
When reviewing a loan proposal, a commercial mortgage lender will look closely at these co-working models because they impact an office property’s financial performance. Consequently, mortgage brokers who help clients acquire, refinance or renovate these properties will need to understand the basics as well.
There are many iterations of this model, ranging from individuals who rent a desk in an open, shared space to more sophisticated models in which companies or freelancers can rent individual offices in high-end office buildings. Spaces can be rented for an hour or for years, depending on the needs of the tenant and the policies of the coworking company.
The idea of shared office space has been around for decades, but the term “coworking” is said to have been coined in 1999 to describe collaborative work. In the mid-2000s, coworking spaces began to pop up in San Francisco and other cities to meet, in part, the growing demand of freelance technology workers looking for inexpensive office space. Since then, the idea has spread quickly around the world.
According to Statista, a marketing- and consumer-data specialist, the coworking movement in the U.S. grew from about 331,000 people in 2015 to 542,000 in 2017. Prior to COVID-19, the number of coworking users was expected to rise beyond 1 million by 2022. Some experts predict that by 2030, coworking spaces could account for 30% of tenant usage across U.S. commercial offices.
Like many aspects of the office sector, however, coworking has taken a hit during the pandemic. Major industry players such as Knotel filed for bankruptcy as the market for shared office space took a nosedive.
Now that commercial real estate is beginning to recover from the pandemic, many coworking companies are experiencing strong growth as they take advantage of the changing office environment. This includes the development of coworking spaces in suburban areas, where companies are renting offices for workers wanting to get out of the house while avoiding commutes into urban centers.
The pandemic’s impact on office space also has created an opportunity for coworking firms. Property owners find themselves with an excess of empty office space. Add in new construction that is currently under development and the total square footage available is creating downward pricing pressure on rents.
One model that is doing well in this sector includes property-owner partnerships with coworking companies to rent out vacant office space. The owners provide the space and the third-party management firms handle all day-to-day responsibilities, including amenities, membership management, marketing, payment collection and reporting. This model focuses on the renting of individual offices to tenants as opposed to shared open spaces. Due to health concerns, the latter scenario has lost much of its luster during the pandemic.
Opinions vary as to how hybrid employment models will impact the return of office workers for the remainder of this year and in 2022. But multiple underlying trends are contributing to the continued growth of shared office spaces.
One of the main factors is the growth in the gig economy, characterized by independent contractors and freelance workers, which is expected to continue to expand in the coming years. The McKinsey Global Institute estimates that between 20% and 30% of the working population in Europe and the U.S. are involved in some form of independent work. This is not only food-delivery businesses and ride-sharing services. The sector also includes lawyers, accountants, home-care nursing services, and other types of small-business owners, entrepreneurs and craftspeople.
Many of these workers need spaces where they can build their businesses, but they often can’t afford to commit to a long-term lease for traditional office space. This is where coworking models can help fill the gap.
Technology has changed the way we work, allowing people to have more autonomy and freedom. It also is shifting the landscape further toward enterprising professionals who are able to strike out on their own. With Zoom, Salesforce or many other technology tools now at our fingertips, it is easier than ever for individuals to start and run their own businesses. And while many of these tools are helpful, companies both big and small often still benefit from having an actual office where they can hold meetings or where employees can work more collaboratively.
There is even some anecdotal evidence that productivity may have improved during the pandemic, especially among companies with fewer than 50 workers. A side benefit is the reduced overhead corporate costs.
Today, whether it’s in the heart of Seattle’s South Lake Union district, along the Chicago Loop or in the suburbs of Washington, D.C., freelancers and entrepreneurs are flocking to coworking offices. This trend of shared space is surviving the pandemic and now appears poised to reach new heights. ●