June 27, 2016
We’re witnessing a significant shift in the way people work and where they get work done today. The rise of entrepreneurialism and a growing contingent workforce is leading small businesses and freelancers to turn to shared workspaces as an alternative to the traditional office – and its accompanying lease.
Yes, freelancers aren’t just writers, they are business consultants, graphic designers, ad creatives, html coders, even HR specialists. In fact, about 30 percent of the current workforce are ‘self-employed’. Meanwhile, some believe that by 2020, almost half the U.S. workforce will work for themselves.
This is one reason that the U.S. coworking sector – where companies provide small businesses and solo workers with serviced offices and a range of amenities – now totals 27 million square feet. Here’s what you need to know about this emerging office market:
- Since mid-2014, shared office providers have leased more than 3.7 million square feet in leases of 20,000 square feet and larger.
Above: Leasing activity (s.f.)
In the first quarter of this year alone, 928,471 square feet was leased and the pipeline of potential customer demand is only expected to increase as small businesses and freelancers continue to require more customizable space.
- The coworking industry makes up just 0.7 percent of the total U.S. office market, but demand is unprecedentedand fueling the growth of large providers in major markets.
New York, Chicago, Los Angeles, Atlanta and Boston comprise the top five markets for coworking space. As for top five submarkets, D.C.’s East End and Philadelphia’s Market Street West showed strong growth along with three New York locales.
Meanwhile, smaller markets like Charlotte, St. Louis and Northern Virginia are likewise seeing more leasing activity from coworking, especially in areas with a heavy tech presence.
Much of coworking space is concentrated in a few large providers, with Regus and WeWork accounting for nearly 80 percent (approximately 21 million square feet) of total leased space.
- Rental rates for Class A CBD space average $49.59 per square foot nationwide, while shared offices cost around $139 per square foot—a 181 percent premium. The cost of coworking is high compared to a traditional lease, but rental rates include a host of perks.
Ample amenities: In addition to the basics, many providers stock premium refreshments, host regular events and workshops and serve as a platform for networking and collaboration. All in a sleek, trendy environment that accommodates various work modes.
Much-needed flexibility: You sign up today, you sit down at your desk tomorrow. Many users choose a short-term agreement of less than a year, but space can also be subscribed to by the hour, day or month, depending on your needs. For startup companies in particular, the flexibility is critical in case their funding and workforce grows quickly. Rather than being tied to a traditional lease for three to five years, companies can be nimble as needed.
What can you expect moving forward?
The shared office sector will continue to grow over the next two to three years as small businesses and freelancers seek more convenience, collaboration and perks in the workplace. However, as the industry grows, so too does its exposure to market fluctuations. The success of this industry through a downturn is unknown, but its appeal in an increasingly millennial and entrepreneurial workforce is undeniable.
For an in-depth overview of coworking trends, stats and top markets, click through the presentation below or download the full report.