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How Coworking Spaces are Reshaping Commercial Real Estate Decisions

coworking
April 10 2018

Dallas Coworking Spaces Soar to Meet Demand

The concept of shared office space originated in 1995 when a commercial office building in New York City began to offer desks that could be rented for short leases. By 2005, the first official coworking spaces – defined as working spaces often occupied by employees from different companies – appeared in San Francisco as well as in European cities. By the end of 2018, the number of coworking spaces is expected to reach 37,000 spaces worldwide, a significant leap from 13,800 in 2017. What is driving this trend, and what will its effect be on the commercial real estate industry in Dallas and throughout the U.S?

Factors Igniting the Coworking Movement

Technology has played a major role in enabling employees to work just about anywhere. By the mid-2000s, laptops, cellphones, internet access and the ability to hold remote meetings made it possible to work away from a traditional office space. After the Great Recession, companies looking to cut costs began to consider flexible working environments. And let’s not forget that roughly 35 percent of the U.S. workforce are freelancers or self-employed individuals seeking coworking environments.

However, millennials – expected to make up half of the workforce by 2020 – are behind the great surge in coworking spaces. In seeking flexible work arrangements, the idea of the traditional commercial office building environment is not as appealing as it once was. Think of it as a desire for work/play/entertainment accessibility. Millennials want workout classes, nearby restaurants and social amenities in one convenient location. They don’t want to be tied down to one work environment for a long period of time. For established businesses, it is often less expensive to offer these amenities in coworking environments than to add these amenities to existing buildings.

Without a doubt, the commercial real estate industry is taking note that coworking spaces have gone mainstream. Tenants now have available a wide range of options, from just a few coworking spaces to entire floors leased by one company. It becomes more interesting in the flexibility in leasing arrangements; rather than committing to a traditional five- to 10-year commitment, tenants in coworking environments often pay monthly.

The Dallas Coworking Scene

In Dallas, the coworking trend has flourished in recent years, with many new operators coming into the market. In North Texas alone, more than 60 coworking spaces translate to more than one million square feet.

Now that shared spaces have become much more mainstream, the value of these tenants has made the idea much more appealing to property owners. There is also a ripple effect for retail property owners who want to locate close to coworking locations to serve the desire of tenants to be close to shops and restaurants. 

Global real estate company Cushman & Wakefield estimates that coworking companies occupy over one million square feet of the Dallas-Fort Worth office space market. New York-based WeWork, the largest coworking operator, has many new locations in Dallas. Popular areas for coworking include Plano, Uptown, the Central Business District, Deep Ellum and the Design District. City Central’s Dallas coworking offices boast fully furnished meeting rooms, plentiful meeting spaces, state-of-the-art internet—even beer on tap and ergonomic furniture. Other Dallas locations include micro-roast coffee and rooftop gardens.

Looking Ahead

Is coworking a trend that the commercial industry expects to fade? Not likely, at least in the near future. Given the desires of millennials and the generations behind them, commercial property owners should certainly plan to incorporate creative coworking spaces into their plans. One of the advantages is that these shared spaces are lowering vacancy rates in many markets and can help property owners shoulder any future economic downturn. Many discarded buildings can be reconfigured into coworking sites.

Even traditional real estate owners are beginning to adopt some of coworking’s greatest attributes by improving employee work experiences through shared resources, offering new shared working spaces and adding lifestyle amenities, such as social events. Expect to see a blend of traditional office space with floors dedicated to coworking in the months and years ahead.

Lenders tend to view coworking environments as safe investments because of the diversification of office space. Rather than everything riding on one tenant, there is less risk when the space is occupied by a variety of tenants.

Given the proven profitability of coworking operators, we can expect to see joint ventures between operators and landlords in developing (or repositioning) buildings to focus on coworking spaces. Short-term leases will become more prevalent for tenants of all sizes, as flexible, coworking spaces increasingly become a viable alternative to the traditional office space.

Questions about real estate issues? Contact the real estate team at Goldin Peiser & Peiser for further information.

Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.  

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