Is Coworking at Risk Or Not?

Over the past decade, coworking has grown dramatically, becoming a critical demand driver for offices. Despite the troubles of WeWork, the sector appeared to have long-term staying power and growth potential.

Then COVID-19 hit, and flex spaces sat empty. But a school of thought emerged that coworking would be an essential part of the new way of working, making it easier for firms to socially distance their employees and serving as outposts in the suburbs. 

The debate continues, though, as to coworking’s ultimate role.

In their recent COVID-19 Commentary, ASB Real Estate Investments Chief Investment Officer David Quigley, Senior Vice President and Portfolio Manager Larry Braithwaite and Head of Research Cassidy Toth, write that coworking might be the most at-risk segment in the office sector. 

Landlords had successfully promoted the benefits of flex office space to freelancers and small companies by offering the ability to work in collaborative environments and enjoy office amenities, such as meeting rooms and administrative services. 

“Arguably, this innovation in the office format brought many workers out of their homes and back to the office environment,” Quigley, Braithwaite and Toth wrote. “The pandemic has precipitated a meaningful pullback in demand for this month-to-month space as tenants revert to the rent-free work from home alternative. Any longer-term contraction in coworking catalyzed by the pandemic could further disrupt certain office markets [particularly New York City], which had become dependent on growth in this space.”

On the other side of the debate, while coworking may see less demand from freelancers, it could get a boost from companies looking to utilize the hub-and-spoke model.

Joe Brady, CEO Americas for The Instant Group, a workspace innovation firm, sees an opportunity for some firms to bring their office costs down to five or six percent by relying on spokes, which could be coworking spaces. 

“With this idea of the hub and spoke, if you’re reducing expensive real estate in the prime core business districts, the urban cores, and you’re moving out to first string suburban, you’re going to see some, some cost savings,” Brady says.

Larger CRE firms are also making bets on coworking. Cushman & Wakefield recently launched an alliance with coworking firm Industrious to offer landlords integrated management of traditional and coworking space. 

Last week, The Connell Company announced that it has partnered with Hana to open and operate Round Table Studios, a shared flexible workspace at Connell Park in Berkeley Heights, NJ. Round Table Studios provides curated office spaces, amenities and hospitality services for coworking, mid-to-large tenants and their guests. 

“We have been hearing from many tenants that they are increasingly looking at flex to help address the increase in remote work, the need to be in the office a few days a week for collaboration and meetings, and to be in a conveniently located, highly amenitized area like The Park,” says Connell Executive Vice President Shane Connell.