Co-Working: The Most Misunderstood Trend in Commercial Real Estate

The 1990s saw the rise of a cornucopia of new ideas and products. From the internet to the Nintendo 64, the decade saw a host of innovations change the way we live our lives. But one of those things that exploded in the 90s wasn’t so innovative after all, despite its incredible influence on how the modern (particularly urban) citizen lives his or her life: the coffee shop. Case in point, Starbucks had 425 stores in 1994, and over 10,000 by 2005. Talk about growth goals.

In addition to the benefits of lots of caffeine, coffee shops offer plenty of other perks. Their explosive spread ensured that one was never far from your office, transit stop, or university. They often serve a role as local community centers, with performances and meetings held amongst their benches and tables. There are enough of them for any person to find one with a unique style and atmosphere that matches their personality. And they’ve stood the test of time as a spot to be productive, whether for studying or working.

While coffee shops grew to become get-stuff-done meccas to rival libraries, the real estate world spawned another type of space, this one purpose-built to offer a workplace for entrepreneurs, freelancers, and agile corporations. As we all know, working in a flexible workspace, like a co-working office, has become part of the modern-day millennial dream. Head into the office and grab a complimentary coffee, grab any open workspace, be it a table, desk, or beanbag chair, and get to work, perhaps on a freelance design project or on your “stealth mode” side hustle. If you get thirsty, or bored, feel free to grab an IPA from the tap or challenge you someone to an impromptu game of ping pong.

That’s the romantic vision for these spaces, at least. Everyone knows of a co-working space or has a friend who often works out of them. They seem to have popped up within the last decade and have certainly taken the world by storm. In truth, co-working spaces are not all that new, in concept at least. Flexible workspaces stretch back decades to the 1980s with office provider Regus, who may have offered the concept but certainly lacked the attractive trimmings and specific service model we now know as co-working.

Since those early days flexible workspaces have come a long way, developing into the classic version we now recognize. But despite the prevalence of the idea of working out of a WeWork that seems to have permeated into today’s office ethos, the industry as a whole is still very young. What flexible space is and where it fits in our overall office landscape has largely been undefined and are subject to a range of external forces, as WeWork’s recent funding troubles demonstrate.

For one thing, the relationship between truly remote workers who choose to stay at home with their computers and those who require dedicated co-working spaces is as yet unclear. As remote-enabling technologies like gigabit internet connections and virtual reality continue to improve, the long-term future of flexible workspaces is less than certain. Perhaps this is because the firms think that their brand position as “the office of the future” will continue to help them grow, or perhaps they’re hoping to ignore a relatively existential challenge while they’re in the middle of their funding rounds.

With WeWork as the clear industry standout and a range of other smaller operators leveraging unique partnerships or operating models to stand out, industry observers have foreseen consolidation in the sector’s future. With that in mind, an even bigger and more exigent question is the full scope and characteristics of the market, which continues to require clear categorization and a comprehensive definition.

To answer these questions, we tasked our research team to take a deep dive into the flexible workspace market, as well as develop a narrative for the industry’s growth over the years. Through our research, we uncovered a mountain of useful data. The price spread for flexible workspace monthly access in the most expensive (Washington, DC) vs cheapest (Houston) major US city is over $600. This is a particularly intriguing data point in light of the expansion plans of some operators, like Industrious, into less dense markets. And it underscores the comparative dearth of flexible workspaces in truly rural or far-flung suburban areas. We also uncovered discrepancies in different measurement methodologies for which cities rank as the most expensive flexible workspaces markets out there, and a host of other conclusions as well.

Our full research report includes a comprehensive discussion on flexible workspace market sizing methodologies as well as a thorough meta-analysis of the existing body of research. We profile the history of the industry and offer some estimates as far as total market size and trends towards the future. Flexible workspaces have seen extraordinary growth, in many cases competing with the coffee shops that came before them. We hope our analysis will help shed some light on who might be the industry’s Starbucks, why they are, and how to map out the industry to identify other standouts in the future.