Recent studies suggest that the number of people working in shared office space may reach almost 4 million worldwide in the next year. Let that sink in. Close to the entire population of this country will be co-working by 2020. But is this millennial-led phenomenon sustainable?
What we can be sure of is that the likes of WeWork, Knotel and Regus have all played a role in transforming the office leasing industry. In order to attract and retain this new wave of highly educated worker, big businesses like Microsoft and IBM have had to embrace the flexible work environment. You could argue for the first time that the dog is indeed wagging the tail.
However, as the demand for long leases shrinks, commercial landlords have made drastic overhauls to their models to ensure it can ensure profitability over the short to medium term. Naturally, shorter term leases result in higher tenant turnover. Tenant turnover typically equals cost and expense for the landlord. Therefore, landlords need to ensure they plan accordingly for such a high turnover yet also maintain the high-spec office space that is in such high demand. It is not easy!
And yet despite all of this growth in the co-working industry, one of the market leaders, WeWork, recently announced a company loss of €1.7b. This in the midst of an up-turn in the economy. There are suggestions that the co-working phenomenon may not be structured to outlast an economic downturn and in this regard landlords need to think carefully when planning its office leasing strategy for the next number of years.
Headline rents in Dublin have fallen back and with European growth stymied by Brexit, among other things, it seems unlikely that WeWork could proceed with rapid office space acquisitions while also improving its occupancy rate