Coworking Spaces See 10% Quarter-Over-Quarter Growth: Yardi

Yardi, through its CoworkingCafe site, released a new report that seems like one of the rare bits of good tidings for the office sector: the coworking subsector saw a 10% quarter-over-quarter growth in the number of flex workspaces during 2023 Q2. By the end of June 2023, there were more than 6,100 flex workspaces.

When it comes to bad-sounding news for the office sector, it’s hard to keep up with the incoming tide of new entries. Class A values are down 35% from the pre-pandemic peak. The latest estimates say the office sector overall could lose $800 billion in value by 2030. PGIM Chief Executive Officer David Hunt’s June take on the future of office properties was a “big workout for that purgatory set over the next 24 months,” with the vale of punishment between office heaven and hell comprising as much as 60% of office buildings by his estimate.

So, yes, here’s some good news for a change. The total space they span is about 120.1 million square feet, a 6% increase over the first quarter. That’s about 1.74% of all office space across the country. Not enormous in that context, but still, something is on its way up.

“In terms of pricing, the national median rate for a virtual office was $143, while open workspaces went for $149 and dedicated desks for $329,” CoworkingCafe wrote. “Notably, all three of these rates went up in the second quarter of 2023, with the most pronounced increase seen in virtual offices.”

The bigger surprise is how much of a jump that was. In March, the median rate was $94, so this was a 51% increase. “Virtual office memberships stood below $100 in Miami, FL and Orange County, CA, with $99 a month,” the site wrote. “Meanwhile, virtual office options in Washington, D.C. stood well below the national median, at only $80 per month, which is the lowest rate among the 25 markets analyzed.” But then, open workspaces in D.C. went for $225, far above the $149 national rate.

The top five metros for number of coworking spaces currently are Manhattan (305); Los Angeles (269); Washington, D.C. (261); Chicago (234); and Dallas-Fort Worth (231).

Not all went up. In Raleigh, N.C., there was an 8% decrease in flex spaces, from 86 in Q1 to 79 in Q2.

That brings up a question not addressed in the report: Is the increase in volume actually good news in the long term?

Not to throw darts at the fun balloons, but one pattern in CRE is that sometimes concepts or property types become a fad with too many jumping on the bandwagon, creating too much inventory that can eventually degrade values and rents.

The increase in rents seems to support the actual use of the spaces, but, as Yardi Matrix Business Intelligence Manager Doug Ressler tells GlobeSt.com, ”Currently, we don’t have any data on detailed occupancy,” making it hard to know whether usage will ultimately support further expansion.

“The coworking market is very diverse, with many operators focusing on a single location or within a single city and only a few national players, so compiling data on how these spaces are being used across operators at scale is still out of reach,” Ressler continues. “CommercialEdge has a project underway to provide more occupancy detail in the Coworking Office space and this is estimated to be available in Q4 2024. We will be including this information in future reports when sufficient data becomes available.”

The issue of whether space is being leased at a rate that supports the increase of inventory would likely become a local or regional question.

“We see coworking as a viable method which has and continues to provide a proven solution to the occupancy and utilization issues confronting office,” Ressler adds.

Still, the amount of flex space remains a tiny portion of overall office. Those rushing over may be hoping to establish themselves while there still seems to be a market gap in their areas.