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Commercial Giant Still Betting on Coworking Growth

The flexible co-working market slowed some before the pandemic, but JLL is bullish on the sector now. It expects demand to grow if fewer workers return to offices.

NEW YORK – The flexible office space market, often called coworking, had started to slow prior to the pandemic, and worries about germ spread and related issues have pushed some housing analysts to wonder whether coworking spaces can survive.

But commercial giant JLL is still bullish on the sector, in part due to the pandemic. In a new report, The Impact of COVID-19 on Flexible Space, JLL notes that coworking space may be the alternative that companies seek in the post-COVID-19 world to shrink their office footprints and create a more flexible option.

“Despite the current distress within the coworking sector, we’re reiterating our position that office space will be fundamentally different in the future, as companies shift away from the long-term leased and owned space to more agile solutions,” Scott Homa, JLL’s senior director of office research, told Commercial Property Executive. “COVID-19 will accelerate a movement toward asset-light workplaces, where work-from-home and remote work blends seamlessly with the corporate office. Even with some coworking operators shrinking their footprints, we still believe 30% of office space will be consumed flexibly by 2030.”

The coworking market has more than one type of space. It can include on-demand workspaces, memberships at some locations, short-term flexible spaces, and more traditional spaces with flexible arrangements.

JLL believes that flex-space operators that offer a hybrid model – long-term leases, private office space and coworking options – will most likely weather any downturn. However, flex-space operators should prepare to adjust workspaces. Even tenants who retain a home office may be drawn to flex spaces as an option that can serve as smaller satellite offices.

Still, the sector likely will face headwinds.

“Owners will have a growing challenge on their hands in the months ahead, as venture-funded coworking companies continue to default on rent payments in some locations,” Homa says. “This will force important decisions among landlords about how to respond and spur continued evolution of the flexible space sector, most notably in the financial structure of deals – fewer long-term leases and more revenue-share/management agreements.”

Source: “Coworking Outlook Positive, JLL Finds,” Commercial Property Executive (July 14, 2020) and “What the Future Holds for Flexible Space in a Fast-Paced World Affected by the Pandemic,” JLL (2020)

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