Small Business Labs

Coworking's Unstoppable Market Growth

Liquidspace's Q4, 2017 U.S. Flexible Office Report covers the continued growth of coworking and other forms of flexible offices.

The report chart below shows that one source - us - is forecasting that over the next five years the number of coworking members will double and the number of spaces will increase by roughly 60%. 

Another source, the large, global real estate services firm JLL, has an even more aggressive forecast. They believe the amount of coworking and flexible office space in the U.S. will triple over the next 5 years. 

They call this "Coworking's unstoppable market growth". 

We've pointed out that our prior coworking forecasts (dating back to 2009) have all ended up being low. So JLL could easily be right. 

JLL also has a very cool video illustrating the growth of flexible workspaces from 2010 to 2017. 

Fab Labs, Maker Spaces and the 3rd Digital Revolution

A new book, Designing Reality, argues we're entering the 3rd digital revolution, which the authors say is based on new fabrication techniques and technologies. 

In case you were wondering, the book says the first two digital revolutions were computing and communications.

The 3rd revolution is being driven by a combination of computer aided design tools linked to a variety of fabrication technologies including laser cutters, NC milling machines and, of course, 3D printers.

The authors are three brothers including Neil Gershenfeld, who runs the Center for Bits and Atoms at MIT.

The center studies "how to turn data into things, and things into data." 

Gershenfeld is also a founder of the Fab Foundation, which supports a global network of over 1000 Fab Labs.

These are makerspaces focused on educating members on digital fabrication. They are located primarily in schools, libraries,museums and other public spaces.

The book lays out a future where in the next decade fabrication stores will be located in most communities. Think FedEx Office/Kinko's, but for making physical goods.

Twenty years or so into the future the book suggests homes with a digital fabricator will be common. And in 30 years or so most homes will have multiple digital fabricators, fulfilling Star Trek's vision of the replicator. 

While this vision may or may not come to pass, what is happening is the number of global  fab labs and makerspaces is rapidly growing. 

We've long studied these coworking spaces for making things and our 2009 study on the maker movement is one of our favorite research projects. 

So while a Star Trek like replicator is probably decades away, fab labs and makerspaces are changing how things are made today. They're also creating new, small business manufacturing opportunities.

Coworking, Differentiation and Segmentation

Kansas City's Laya Center (pictured below) is the the first coworking spa in the U.S. 

In addition to having the only natural cryotherapy chamber in the Midwest, the Laya Center also offers chromotherapy as well as yoga and other traditional spa treatments and services.

And, of course, it offers a workspace.

As the coworking industry continues to expand, so do efforts on the part of coworking spaces to differentiate themselves and target niche market segments with specialized services.

The Laya Center is an interesting example of this trend, which is covered in several recent news articles.

The Washington Post’s Female-focused co-working spaces offer career and child-care help still lacking in many traditional workplaces covers the rise of coworking spaces catering to women and/or offering childcare. Key quote:

"The booming co-working industry, launched to accommodate the increasing number of entrepreneurs and corporate employees who work remotely, is now tailoring itself for women by offering workspaces with female-focused networking and career seminars … Increasingly, these workspaces, as well as those that cater to all working parents, are also offering child care, a service still lacking in many of America’s workplaces."

The article goes on to point out that “About half a dozen co-working spaces are slated to open or expand this year in the District and Northern Virginia, offering services specific to women or child care.”

The USA Today’s As co-working grows up, niche spaces catering to small businesses take center stage also covers the growth of differentiated spaces. Key quote:

As well-known co-working companies like WeWork offer space to businesses in many industries, a growing number of niche or specialty players such as The Wing and Hera Hub, which cater to women, are growing in popularity. There are spaces centered on specific industries such Biolabs, which offers co-working to biotechnology firms, or Boston's Workbar, which has a regional focus. These specialty hubs are a sign of the co-working industry maturing a decade after the recession sparked demand for more flexible workspace for freelancers and start-ups.

Treehugger's Take a look at these awesome coworking places around covers a mix of unusual spaces, including coworking spaces that look like adult playgrounds and others that are almost jungle like due to an abundance of plants. 

The coworking industry has long had a variety niche oriented spaces. But the growing number of differentiated spaces targeting specialized market segments is another sign of the mainstreaming of coworking.

Study Finds U.S. Has 27 Million Square Feet of Coworking Space

Yardi Matrix, a provider of real estate industry data and research, has released an interesting coworking study. 

They've also written an article - Shared Space: Coworking's Rising Star - summarizing their results. 

Key quote from their report:

A study by Yardi Matrix of coworking leases in 20 major markets found 1,166 coworking sites with 26.9 million square feet of space. That represents 1.2% of office space in those markets. Coworking has proliferated more in cities: Leases encompass 1.4% of urban office and 0.9% of suburban office space.

At 7.7 million square feet, Manhattan has by far the most coworking space, followed by Los Angeles with 3.7 million square feet. Miami has the most coworking space as a percentage of stock, at 2.7%, with Manhattan coming in second at 1.7%.

They point out they believe this is the first study to "quantify the amount of square footage of coworking space in relation to total office space within markets." 

They did this by analyzing leases across the 20 major cities they studied. This is a very clever approach. 

Our favorite finding is illustrated in their chart below. It shows a strong relationship between coworking and office vacancy rates by city.

This relationship makes sense. Lower vacancy rates means it's harder to find office space. It also Likely indicates traditional office space is more expensive. Both of these make coworking spaces more appealing.

We think there are other, related causal factors at play here. In particular, cities with higher concentrations of tech and tech related companies seem to correlate with low office vacancy rates and more coworking spaces. So a city's industry structure may also help explain this relationship.

Regular readers may have noticed Yardi found substantially fewer U.S. coworking spaces (1,166) than we found as part of our recent U.S. coworking forecast (4,043).

The reasons for the disparity have to do with definitions and methods. Yardi only looked at 20 major markets while we looked at the entire U.S.

Yardi also only included coworking spaces in building with 50,000 or more square feet. They did this because there are lots of small buildings and to analyze all the leases would have been an enormous task. But this approach meant they missed a number of small coworking spaces.

Yardi also only included office coworking spaces, while our numbers and forecasts include other types of shared workspaces (maker spaces, shared kitchens, etc.). 

When we adjust for these differences, we think Yardi's findings on number of U.S. coworking spaces is roughly consistent with ours. 

At a broader level, it's good to see firms like Yardi Matrix providing data and studies on coworking. Not only does it add to our collective knowledge about coworking, it's a clear signal coworking is moving to mainstream.

One last point.

A decade ago there was only about 40,000 square feet of coworking space in the U.S. This means there is about 675 times more U.S. coworking space today than a decade ago. 

Social Isolation - Not Just Loneliness - a Health Risk Reduced by Coworking

Social isolation and loneliness are related, but not the same thing. 

Social isolation refers to having relatively few relationships and/or infrequent contact with others.  Loneliness is the perception of feeling alone, or feeling disconnected from others. 

Someone can be isolated and not feel lonely. They may even like and seek out solitude and being alone. Likewise, someone can feel lonely and yet be surrounded by others.

But according to researchers at BYU's Social Connections and Health Institute, both loneliness and social isolation lead to increased risk of health problems and early mortality. 

And if you're both isolated and lonely, your health risks are even greater. 

Which brings us to coworking. 

Our recent HBR article Coworking Is Not About Workspace — It’s About Feeling Less Lonely focused on the loneliness issues coworking helps with.

But we didn't discuss how coworking helps with social isolation.

This is because we felt it's kinda obvious - if you're working in a crowded and active coworking space, it's clear you aren't isolated.

Also, while we knew social isolation is problematic, we didn't know it can be as big a problem - at least health-wise - as loneliness. 

But after listening to OnPoint Radio's Ex-Surgeon General On A Way Out Of Loneliness: Put Down Your Phone and reviewing BYU's research, we realized the reduction of social isolation is another important benefit of coworking.

We also reviewed our coworking interviews and found many references to coworking reducing the social isolation of independent and remote workers.

The most common comment of this type is "it's so nice being around people". 

This, by the way, is also what we hear from people who work in coffee shops. They like being around people, even if they aren't interacting with them. 

But coworking spaces reduce both social isolation and loneliness, which is a key reason the coworking industry continues to grow rapidly.

It's also one reason coliving is seeing an uptick in interest.

Humans are social creatures and as such, will always seek to be around and interact with other humans.

Coliving Attracting VCs

While coworking has taken off, coliving has struggled to gain steam.

Part of this is venture capital and investment funds have been hard to come by for those trying to build shared living space businesses.

This appears to be changing. 

The coliving company Common recently announced raising $40 million in a round led by Norwest Venture Partners. 

Common currently has 14 shared living sites and over 400 members. They plan to use the new money to fund expansion.

Other coliving companies raising money over the last year include Starcity, Roomi and Bedly. 

And, of course, coworking giant WeWork continues to invest in WeLive, although they appear to be expanding this business at a slower rate than they originally planned.

The picture below (click to enlarge) is from their website and shows some of the features and benefits of coliving.

The trends driving the coliving are similar to those driving coworking. Rental space is expensive and hard to find in many cities, people are seeking community and want a greater degree of housing flexibility.

Euromonitor points to these trends as some the reasons they list coliving on their Top 10 Global Consumer Trends for 2018 list. 

Despite coliving gaining some momentum, it's not clear to us it will become a major industry like coworking has. Housing is a much different and more complex market.

But we will continue tracking coliving to see.

The Importance of the Social Side of Coworking

Our recent Harvard Business Review article, Coworking Is not About Workspace - It's About Feeling Less Lonely, covers research we conducted on the social side of coworking.

Some of the key survey findings from our coworking space member research show that:

• 87% of respondents report that they meet other members for social reasons, with 54% saying they socialize with other members after work and/or on weekends
• 79% said coworking has expanded their social networks
• 83% report that they are less lonely since joining a coworking space
• 89% report that they are happier since joining a coworking space

The bottom line from this research - and the research of others - is that there are very clear social benefits from belonging to a coworking space. This is especially true for those who work on their own.

Given the concerns over the growing "loneliness epidemic" and its impact on those working remotely and/or alone, these are important findings.

But coworking is obviously not just about being more social. Our research also shows significant business benefits accrue to coworking members:

• 82% of respondents reported that coworking has expanded their professional networks
• 80% reported that they turn to other coworking members for help or guidance
• 64% said their coworking networking was an important source of work and business referrals

Most importantly, most coworking members (84%) reported that working in a coworking space improved their work engagement and motivation.

The bottom line is coworking improves both the social and business lives of members.

We'll be exploring the social side of coworking more this year and will, of course, report our findings here.

U.S. Coworking Forecast: 2018 to 2022

Our U.S. coworking forecast projects continued growth for the U.S. coworking industry over the next 5 years. 

Our forecast average annual growth rate for U.S. spaces over the forecast period (2017 to 2022) is, by coworking's standards, a relatively modest 9%. 

This is considerably slower than our global forecasted space rate of growth forecast, which is 16.1% over this time frame. The slower rate is due to the greater maturation of the U.S. market.

But member growth is forecast to grow a much more robust 14.7% average annual growth rate. 

This is due to the increasing size of coworking spaces (see our global forecast article for more details) and results in the number of U.S. coworking members doubling over the forecast period.

We continue to be very optimistic about the future of coworking. We also think the U.S. market will likely accelerate again in a few years due to larger corporations embracing coworking.

But we think it will take a few years for large corporations to meaningfully move to coworking. So over the next couple of years growth will be driven by coworking's traditional customers, independent workers and startups.

This will likely lead to slower near term growth, especially in the many U.S. cities that are already well penetrated by coworking spaces.

As we've point out in the past, we've consistently been low with our coworking forecasts. We won't  be surprised if we are low again with this one. 

Global Coworking Forecast: 30,000 Spaces and 5.1 Million Members by 2022

We recently released our new coworking forecast for 2018-2022.  We are projecting continued rapid growth over the next 5 years, although slower than the industry's recent dizzying pace.

The forecast was done this year with help from our friends at GCUC. These are the folks that produce a series of U.S. and international coworking conferences. This gives them a global perspective with insights that were invaluable in developing this forecast

The complete forecast presentation is on their website, including forecasts for the U.S. Scroll down to the bottom of their homepage to download it. 

As the chart below (click to enlarge) shows, we’re forecasting that the number of global coworking spaces will grow from 14,411 in 2017 to just over 30,000 in 2022.

For those with a statistical bent, this is an average annual growth rate of 16.1%.

We’re projecting the global number of members to grow even faster than the number of spaces.  We expect the number of coworking members will grow from 1.74 million in 2017 to 5.1 million in 2022.

This is an average annual growth rate of 24.2%.

The faster rate of growth in coworking membership is due to both the increase in average square footage of coworking spaces as well as the growth in members per square foot. The reasons are:

• new spaces tend to be much larger than older spaces.
• existing spaces are expanding by adding more space and members.  
• coworking facility operators continue to figure out how to serve more members per square foot of space.

From now thru 2022 the average number of members at global coworking spaces will grow by just over a third, from 121 members in 2017 to 169 members in 2022.

A mix of trends and shifts are driving coworking’s growth. These include:

Coworking is a global phenomenon:  Coworking is growing around the world and most major cities have coworking spaces. Asia/Pacific (which includes India in our work), and especially China, have embraced coworking, making APAC the world’s largest coworking market.

APAC is forecast to continue to grow rapidly over the next 5 years, with China becoming the world’s largest coworking market and India emerging as one of the world’s top five coworking markets by 2022.  

Other regions forecast to grow rapidly include South and Central America, Eastern Europe and Russia and parts of Africa.

The relatively mature U.S. and European coworking markets are expected to grow more slowly than the overall global rate, with membership in these regions forecast to grow at a still healthy rate of about 15% per year over the forecast horizon.

Corporations are moving to coworking: The growing need for greater workplace flexibility and agility is leading more corporations to use coworking spaces for some of their space needs. This trend will accelerate over the next 5 years due to corporations looking to reduce their exposure to long term leases and employees insisting on more workplace options.

The real estate industry is moving too: Coworking's growth, coupled with corporate interest, is resulting in landlords and large real estate firms starting to offer coworking options to tenants. The interest and involvement by these firms will help drive demand for the coworking industry.

The global number of self-employed knowledge workers is growing: While there are no solid estimates of the total number of global self-employed knowledge workers, it’s clear their numbers are very large and growing. This growth, coupled with an increasing realization of the value of coworking by independent workers, will continue to drive demand for coworking spaces.

Startups will continue to flock to coworking spaces: Startups understand the cost, flexibility and talent attraction advantages provided by coworking spaces. Because of these advantages, coworking spaces will continue to be the location of choice for most startups.

Niche spaces are expanding the coworking market:  While very large coworking spaces - and especially WeWork - get most of the attention, the number of smaller niche oriented spaces continues to grow rapidly. These spaces appeal to members with specialized interests or needs (shared biolabs, women oriented spaces, writers’ spaces, industry specific spaces, shared commercial kitchens, etc.) and attract people who likely wouldn't join a traditional coworking space.

For more details, see the full forecast presentation on the GCUC website. Go to their homepage, scroll down towards the bottom and enter your email address to download the forecast presentation.

The Rise of Coworking Lifestyle Brands

Coworking has always been about much more than just a place to work. 

In the early years of the coworking, for example, the industry's tagline was "come for the space, stay for the community." 

But as the industry evolves and hybridizes, we're seeing more spaces going beyond just being workplaces and communities.

They are becoming lifestyle brands.

A good example is the all female New York city social club/coworking chain The Wing. 

Started by media savvy founders and backed by $10.5 million in venture capital, The Wing quickly filled their space when they opened last year.

More impressively, they quickly built an 8,000 person membership waiting list.

They recently opened a second, much larger space in Manhatten and are planning to opens spaces Brooklyn and Washington, D.C. in early 2018. 

The Wing sees itself as much more than a coworking space. Key quote on from the New York Times article The Wing, a Chic Women's Club, is Going Wide on what it may evolve into:

"... a locus of a mediacentric feminist movement, like Ms. in the 1970s, or a mass-scaled temple of “exclusivity,” like Soho House, if Soho House wrapped itself in a marketing banner of she-power."

In other words, a lifestyle brand built around empowering women in all phases of life. 

A good example of this is they are releasing a glossy print magazine called No Man's Land, which the NYT article describes as:

“It is more than a members’ pamphlet,” said Deidre Dyer, the magazine’s executive editor. “We wanted it to be meaty and substantial.”

Available at news stands, it's first magazine of it's kind we're aware of. 

We've covered in the past the rise of combo coworking spaces/social clubs such as Soho House, NeueHouse and Spring Place.  These spaces are also lifestyle plays to a certain extent.

Also, WeWork and other spaces also strive to much more than just a workspace and community.

But The Winged seems to us to be one of the first attempts to turn coworking into a much broader lifestyle brand. 

It will be interesting to see how they do.