Flexible workspace—also known as coworking—is firmly established with providers and those seeking such space growing at a frenetic pace. According to Colliers’ U.S. Flexible Workspace Report, the number of coworking spaces in the U.S.—the birthplace of the movement—has soared from less than 300 in 2010 to more than 4,000 at the end of 2017, for a compound annual growth rate of almost 50%.
Growth outside the U.S. has been even faster, climbing from less than 200 to more than 10,000 spaces during the same time period, for an annual growth rate exceeding 80%. Operators are expanding aggressively in most major cities, landlords are building flexible workspaces into their portfolios and corporations are incorporating flexible solutions into their real estate strategies.
Aggressive expansion and increasing competition are driving continued evolution in the flexible workspace sector as operators and landlords strive to distinguish their offerings, and occupier demands change. The industry is also contending with threats and opportunities, both internal and external, including changes to lease accountancy that may encourage more large companies to migrate to flexible workspaces. This will encourage the development of alternative leasing models that blend flexible and traditional spaces in innovative ways, with significant implications for regional markets and working environments.
So, what are the leading types of flexible workspace product, how do they vary and what do they cost?
Most Common Flexible Workspace Product Types
Flexible workspace operators provide different types of space to serve different types of occupiers, broken down into three basic environments:
- Executive suites/traditional—As the name suggests, this is the most traditional type of space with separate offices connected to a shared communal amenity area. IWG/Regus has long been the leader in this format.
- Curated—High-end space and services are offered here. These spaces cater to both individuals and organizations needing to provide a level of amenities on a global scale both for individuals who travel often, and for groups of flexible workers who need to come together in a central location but who do not need their own office. Though there is no leader globally in this space, the focus here is an avoidance of the cookie-cutter feel while maintaining a consistent experience across locations. Providers such as Knotel and Convene have taken this concept a step further, providing bespoke flexible workspace solutions for individual firms and managing all aspects of their office space needs.
- Mainstream coworking—While encompassing a wide gamut, these types of spaces are communal in nature, designed to have a high worker density and offer physical flexibility, in which desks and offices can be moved around. WeWork is by far the dominant player here, although there are other models, based on client preferences. Other providers include Impact Hub, MakeOffices and Serendipity Labs, plus localized and niche-specific operators.
How Much Does Flexible Workspace Cost?
Fees for coworking space vary considerably by market. Much of the variation can be explained by the costs of the underlying rent. No surprise then that the average fees per desk are highest in Manhattan and San Francisco, two of the most expensive office markets in the country. Fees are also high in other expensive rental markets like Boston and Los Angeles.
How do fees for flexible workspace compare to conventional office rents? The monthly cost of leasing a single office from a coworking provider, across the 19 markets surveyed in our report, ranges from $480 per month in Chicago to $1,160 per month in Manhattan, equivalent to a high to low ratio of 2.4:1. The spread in Class A rents is significantly wider, ranging from $17.80 per square foot per month in Minneapolis to $97.10 per square foot per month in San Francisco, with a high to low ratio of 5.5:1. The average ratio of annual flexible workspace fee to conventional office rents is 3.2:1.
No Glass Slipper
Not all flexible workspace product types are created equal and there are marked variations in operator offerings. There is more to consider than just what the space looks and feels like (although an important factor in itself). While it’s likely a combination of both, is your space requirement driven primarily by short and flexible lease options or the nature of the space itself? Other factors such as budget and amenities are high on the priority list. Although no product type will check every box, there is enough variation out there of physical space and providers that you will be able to find the optimal fit.
This article was co-written by Stephen Newbold, National Director of Office Research and Ron Zappile, Vice President of Corporate Solutions, Strategy and Innovation.