United States: Coworking: A Real Estate Revolution?

Perhaps never before has the real estate industry seen a market disruptor wield such significant influence over long-standing fundaments. The explosive growth of coworking office ventures is dramatically changing the way real estate investors and lenders value assets and how companies think about space for their employees, according to a new report released today by Ropes & Gray. Research in the report, Coworking: A real estate revolution?, reveals important and far-reaching trends amid the extraordinary impact that coworking is having on the entire commercial real estate industry.

The report is the result of an in-depth a survey of 100 senior executives in real estate, including investors, lenders, landlords, brokers and, of course, coworking companies. The study examines key growth drivers, potential risks and challenges, the likelihood of consolidation and how coworking will fare in a market downturn. Findings indicate that corporate tenants are increasingly turning to coworking operators for shorter-term and flexible office arrangements. Coworking has also disrupted traditional methods of real estate valuation and has created downward pressure on the average term for office leases.

Other important findings reveal that:

  • 89% agree that traditional office landlords have adopted service innovations and amenities inspired by the coworking sector.
  • 61% of lenders believe that coworking is less vulnerable than traditional office space in an economic downturn, and 73% of all respondents believe an economic downturn would have a positive effect on the coworking sector.
  • 70% agree that the trend of coworking providers buying—not leasing—assets will accelerate over the next three years.
  • 67% of real estate investors and landlords expect significant consolidation in the coworking sector through M&A over the next three years.
  • The leading risks that coworking companies may face in the years ahead are rising interest rates, increased leasing and construction costs, competition from new market entrants and traditional real estate companies that are launching coworking brands, and the vulnerability of small business and start-ups in a downturn.

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