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Growing market for shared office spaces

  • Reasons for the growth of co-working spaces
  • WeWork: the industry leader
  • What lies ahead in the industry

 

The ongoing trend of small teams on specific projects, proximity with customers in B2B companies and fast-growing firms exploring possibilities to set up satellite offices in small cities are few of the major factors pushing the growth for shared office industry. Hence, due to a demand from the younger generation, a liking for vibrant and high energy co-working spaces and disapproval of dull office environment, all these elements are outpacing traditional office spaces. Additionally, there is an increase in the number of freelancers, tech startups and an inclination towards outsourcing, which are leading to the growth in the industry. Moreover, businesses with a requirement of working spaces for a limited period of time and flexible short-term leases find the concept cost-effective thereby, making shared office spaces a more attractive proposition.

The co-working space industry has witnessed an exponential growth with a CAGR of ~50% (2012-17). The industry is further anticipated to expand with approx. 18,900 co-working spaces (2018) and over 30,000 co-working spaces (2022). The co-working space market demand will boost as more facilities such as food and snacks racks, indoor games playing area will help break the monotony of a typical office space.

 

Televisory selected WeWork for the analysis out of all the co-working space providers within the industry. The business model of the firm is almost similar to its peers, but what sets it apart from the rest is the outstanding interior architecture. The company has given a new meaning to the co-working spaces by adding trendy and stylish interiors. WeWork operate on the basic industry model, wherein the provider (WeWork) purchase the office space such as a building or a floor (can be two or more) and rent these to its members on a monthly basis. The benefit for members is a fully stocked up office space devoid of the expenses of the entire area. Members pay a monthly charge, this can be as low as $45 in the US. While the rates may vary from region to region and are based on business requirements, broadly the overall expense is still considered cost-efficient for corporates. Members are entitled to access WeWork Social, which is an idea exchange platform. Further, startups can pay a few thousand dollars for a private room on a month-to-month basis. WeWork has signed a good amount of lease deals, especially in the US. This was between August 2016 and July 2017, Amazon is the only company to have leased more office spaces than WeWork in the country.

WeWork has seen exponential growth over the years. It has more than 175,000 members at 200 locations in 64 cities, up from the presence of mere 9 locations in 2013. The company is valued at $20 billion and generated a revenue of $1 billion in 2017. In March 2017, the institutional investors such as Soft Bank invested $300 million in first of the three tranches, this had totaled to $3 billion. Furthermore, up to 2014, only 1% of the revenue was from Fortune 500 companies, this has now increased to 30%.

The other firms operating in the co-working space model include LiquidSpace, PivotDesk and ShareDesk to name a few, but their business models are slightly distinct. These companies allow businesses to rent out their extra space to other businesses. Hence, these companies act as an intermediary between landlords and lessee and are referred as Airbnb of the office space.

The total number of members currently aligned in the industry stands at nearly 1.69 million as a whole with a large part of the seat share secured by the enterprise customers. This leads to the fact that the focus of co-working space is shifting towards enterprise customers due to a high uncertainty of startups. IBM and Amazon are two of the WeWork’s enterprise members. These employ more than 1,000 employees, enterprise users are 30% of WeWork’s monthly sales and 20% of its user base. If one examines the data from the 2018 Global Coworking Survey, an average number of members working per co-working space has been consistently increasing in the past years. The average number of members per co-working space has increased to 129 (2017) up from 38 (2012) and is expected to further rise. 

Thus, backed by an increasing need for co-working, companies are expanding their spaces with more flexibility, both in terms of the size and quality of infrastructure. The industry is also going through a phase of consolidation, where several M&A transactions were seen. Brookfield Asset Management firm took over Regus; the world’s largest serviced office firm. WeWork announced the acquisition of Spacemob, (a similar company) in 2017. It also acquired Meetup, a social network platform for like-minded people—to host events among many other deals.

The above example of WeWork illustrate how co-working has changed the traditional office lease space model. Further, as consumers demand more exuberant and comfortable offices with flexible leases, the growth in the industry is expected to further rise. In the current scenario, traditional office property developers must either lease out their offices to companies like WeWork or start adopting more dynamic work environment models such as that of WeWork’s. Off-late, it has been observed that developers have partnered with WeWork to design buildings according to the company’s specifications. Boston Properties teamed up with WeWork to develop an office property in Brooklyn. In addition, in order to provide a fun element in their offices, developers are offering games and other fun activity areas in their floor plan.

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