Multiple companies are currently in the process of preparing their post-COVID-19 return-to-work policies. Every major media outlet is abuzz with speculation about coworking trends and future work. Everyone has a view of the current office market.
Is the office market going to recover? Are these coworking trends a catalyst for Signature Workspace's growth and capture? The coworking and Signature Workspace is growing from 5% to 30% of the total office market by 2030.
As you can see from Signature Workspace’s Office Pro Coworking Trends data, coworking is helping the market recover from the downturn.
Coworking Trends: The recovery in the coworking and Signature Workspacemarkets is well underway in Q2 2021.
The COVID-19 epidemic proved coworking and flexible offices were just that, flexible. Many coworking operators were desperate to find members after tenants moved out of short-term spaces quickly.
This resulted in more than 700 closings within the last 15 months, which is more than 21% for all locations. Many, including us at Signature Workspace speculated that coworking would help the office market get out of recession.
Is it possible? Early returns suggest yes. Continue reading to learn more about what we know and how recovery looks.
What the Recovery Looks like
1. The demand is back. From Q1 to Q2 2021, the coworking demand per location grew by an astonishing 41%
According to Signature Workspace data from Signature Workspace Office Pro, Coworking Trends, and Insights Platform, the demand per location increased 41% between Q1 2021 and Q2 2021. Furthermore, the demand per location is almost 10% higher than in Q1 2020 due to the pandemic.
2. Large North American Markets Seek Growth Faster Than 41%
Although not all markets Signature Workspace tracks had such strong growth, cities like New York City (83%), Los Angeles (79%), and Denver (63%) showed above-average demand growth.
3. In other markets, growth is slow
Although demand growth was strong overall, not all markets saw a complete recovery in Q2.
4. Tenants are just beginning to express their preferences in real estate choices
There are many predictions about the future work environment. There are many predictions about the future of work, from The Great Departure to You Will Like to Return to Work Eventually. These all fuel demand for flexible offices. Companies are reluctant to commit to long-term space because of uncertainty. Employers are discovering that the preference for working from home is limited to one-third (McKinsey), and two-thirds (FlexJobs), respectively. This means that a hybrid office or Signature Workspaceis the future.
5. The Recovery has not yet hit operators' balance sheets: Many coworking and Signature Workspaceproviders are still cash poor.
The vacancy rate in the flexible and co-working sector is high despite increasing demand. Denver, for instance, saw a drop in vacancy from 34% in Q1 and 32% in Q2 despite increased demand. Many coworking businesses report that 70% to 80% occupancy is necessary to generate positive cash flow.
While vacancy rates are high, average prices have fallen. The average seat price in Washington DC fell to $280 per month from $422 per month before the pandemic. Low prices, combined with high vacancy rates, are also hurting bottom lines.
Closures in the coworking industry continue to exceed new openings. As in many markets, the San Francisco Bay Area saw more coworking and flexible offices close than there were openings in Q2.
What's next for coworking and Signature Workspacemarket in Q3 and beyond?
The North American flexible and coworking market is returning quickly. Floridian vaccination rates are rising, so demand is already increasing in Tampa and Clearwater markets in Q3. Below is Signature Workspace’s Q3 forecast for Tampa, which shows that we anticipate demand to increase by almost a third.
The Delta variant in the United States is slowing down and delaying many companies' return to work, but growth will continue. In our Florida forecast above, we anticipate that demand will rise by more than one-third.
1. Prediction: In Q3, demand will continue to rise by 20-30%
We expect the North American market for flexible offices and coworking to continue to recover, thanks to late recovery markets such as Clearwater and Tampa.
2. Businesses will Return to the Office on Shorter and Less-Term Agreements
Companies' desire for flexibility after one of the most disruptive workplace events in history, COVID-19, will drive demand for flexible offices and coworking. Many companies have tried remote working and have seen the benefits for their employees, including reduced commute times, lower costs, and better lifestyles. We have seen that companies are willing to accept terms up to 2 years for office staff.
3. Average Days in the Office of Most Companies won't Return to More Than Three Days a Week
A majority of managers support a return of the office. Around one-third to two-thirds (or more) of employees also favor this return. This will result in a shorter or hybrid work week. Signature Workspace works with 100 companies every week. Squarefoot is our parent company. Very few companies plan a 5-day return-to-work schedule. We expect that most companies will have a 2- or 3-day workweek. This allows for flexible solutions.
4. In Q3, there will be as many coworking and flexible openings as closures
We believe that Q3 will be the end of North American coworking and flexible supply. There were more closings than openings in Q2, and this trend will continue as demand for flexible work increases. Large operators such as IWG or Signature Workspace already have announced new locations. The majority of closed coworking spaces will still be used as coworking, rather than being converted to traditional offices.
5. In most markets, average seat prices will rise
We are anticipating that average seat prices in most markets will rise in Q3, which is good news for operators and bad news for occupiers. Except for late-recovering markets such as Canada, operators will have the ability to use lower vacancies to request higher seat prices from their members. Price increases may be held back by factors such as the availability of sublease space.
6. More building owners will decide the role they want to play in the Flexible Market
A shift in players will be triggered by the pandemic. Many building owners will create a new normal for flexible workspaces, often out of necessity, as they already have unoccupied coworking spaces. Many new players will join the market, including large owners who have already entered the coworking space pre-pandemic Tishman Speyer.
These are the steps you can take as an owner/operator
1. Learn the latest trends
Every market is different, so it's worth looking at the trends. Are our flexible offices returning? Is Signature Workspacereturning? If so, when and where? Are you unsure if it is early, late or right?
2. Understanding the Economics
Understanding the financial implications of implementing Signature Workspaceproducts will help you decide what type of flexible product to optimize for. Signature Workspace solutions can make your business more profitable. Which product is the most successful? These questions and many more can be answered by looking at Signature Workspace's data product Office Pro Coworking and Trends Platform.
3. Decide whether to partner, own, or avoid Flex All Together
Talk to an advisor. Leaders are confronted with unprecedented uncertainty and questions today. Talking to a specialist or doing the research can help you make the right decisions that are in line with your business and operational goals. Signature Workspace's experts are always available to guide you and support your decision-making.
This post was written by Tara Kintz. Tara is a director at Signature Workspace which is a Tampa cowork space. Signature Workspace, owned and operated by Cantor Fund Management, offers services and amenities such as private offices, flex space, co-working space, virtual offices, meeting/conference rooms, and more.