Coworking has been the darling of the office sector in recent years, but in the wake of the COVID-19 pandemic, physical space needs are shifting as many office buildings sit empty and remote work has become the new norm. During the Officecast series, Mara Hauser, CEO and founder of 25N Coworking, shared her perspective on how real estate as a service and coworking spaces are uniquely positioned to meet post-pandemic demand. 

Coworking growth 2010-2018 grew on average 26% per year, and 2019 was projected to see 35% growth before WeWork’s failed IPO. However, in the wake of the COVID-19 pandemic and the widespread office closures that came along with it, revised forecasts show 2020 coworking space will grow at about half the rate as the prior two years. 

Flexible space has certainly been impacted in the short-term by the current crisis; specifically, flexible space operators with high exposure to freelancers, start-ups and in-person events will continue to be the most challenged, Hauser said. But she also said that data predicts a rebound in growth in 2021 with a healthy annual growth rate of 21.3% moving forward. 

“While we hear a lot about the top 10 operators, there are over 5,000 coworking firms with over 30,000 centers,” Hauser pointed out. She named companies like IWG, parent company of Regus, which made headlines recently when it filed for bankruptcy for over 90 different entities. 

While some of the world’s biggest coworking companies are closing locations and losing money to right-size their portfolios, plenty of mid-sized to boutique firms are partnering with landlords who are looking to diversify offerings and bring hybrid models to their portfolio. 

Hauser said that a new crop of operators and landlords sitting on extra space will be looking to fill in with on-demand flex space, and could come together in a “matchmaking scenario” with landlords who are looking for the right operators by brand, culture and financial prowess. 

Certainly, the pandemic has had a major impact on companies’ physical space needs and workforce cultures. Hauser shared some enlightening statistics from a recent Savills report: 

• 64% of companies’ headcount growth projections were impacted by COVID-19. 
• 82% of organizations anticipate needing less space than planned for the next 12-18 months. 
• 55% of organizations anticipate disposing of some office space in the next 12-18 months. 

Hauser shared example Dropbox. The digital file storage company has announced they are now a “Virtual First Company” – rebranding their corporate office as a “Studio” with an all-remote workforce. Employees can gather at the “Studio” for special events and focused collaboration. 

Microsoft also announced their new remote work policy, stating: “Moving forward, is our goal to offer as much flexibility as possible to support individual work styles, while balancing business needs and ensuing we live our culture.” 

These companies’ and many others’ remote work policy announcements have led to a geographic shift to secondary and tertiary markets. Why pay sky-high San Francisco rent when your apartment is now your office? People are moving out to the suburbs, so “there is a high urgency for on-demand inventory” in terms of coworking and flex space in those areas, Hauser said. 

Many parents are also navigating the challenge of balancing their workload with their children’s virtual school schedules. Coworking spaces are taking into account that scenario with new payment options and packages: Family passes, so parents can split their time at home and at a focused workspace, and older children can work on projects. Corporate team rooms or hubs grant access to 30 people total, and up to six people can use the space at a time to meet but leave plenty of space for social distancing. 

Many businesses are spending the end of 2020 defining a dramatically different future for workplace strategy. What are their policies for remote work? What will their real estate portfolio look like, and how will employees use that space?  

“In the medium- and long-term, demand for flexible space will not only return, but also increase as occupiers embrace core and flexible models more widely,” Hauser said. “The idea of ‘work from anywhere’ combined with a drive for community congregation will create new demand for flexible workspace providers.” 

Flexible space is here to stay, but it has evolved into a spectrum of options that provide various levels of real estate flexibility, experience and choice for tenants and landlords alike. 

This post is brought to you by Marcus & Millichap, sponsor of NAIOP’s Officecast 2020. Learn more about Marcus & Millichap at www.marcusmillichap.com.