The co-working sector is changing the office industry, but it is one of the markets that is the most difficult to analyze. Co-working market reports are not very frequent or easy to come by, which makes it hard to really know how the industry is faring. It’s also one that has seen a lot of fluctuation during the last few years as remote and hybrid work trends have taken hold across the country. The ongoing saga of one of the industry’s biggest players, WeWork, continues to unfold as the company shutters locations and struggles to stay afloat. But, new data on the number of co-working spaces in major cities around the country is shedding light on where co-working is growing and shrinking. To better understand what is actually happening in the co-working market, we look at the markets experiencing the most change right now and what might be driving that change.
|City||Co-working spaces Q1 2023||Co-working spaces Q2 2023||Co-working spaces Q3 2023|
New York City is the largest co-working market in the U.S. At the beginning of the year; there were 290 co-working spaces in Manhattan, a number that jumped to 305 in the second quarter of 2023 but then fell to 270 by the third quarter, according to a report from Coworking Cafe. The third quarter drop was not isolated to the Big Apple. Of the top 13 co-working markets across the country, about half registered drops in the number of co-working spaces. For NYC, the drop was partially attributed to WeWork trimming its locations around the U.S. The co-working firm has cut its locations by 17 percent in the top 25 markets over the last few months, going from 217 locations to 180. During the same time period, Regus went from 556 locations in the top 25 U.S. markets to 541. Manhattan recorded the largest drop in the number of spaces between Q2 and Q3 of this year of top markets tracked, with spaces dropping 11 percent. Despite this, Manhattan still has the highest number of co-working spaces of any market in the country, although Los Angeles is very close behind with 267 spaces as of the third quarter. Manhattan is also number one in terms of total co-working square footage, with 12.83 million square feet as of the third quarter of this year. Los Angeles, the second highest-ranked market, has 6.71 million square feet.
The number of co-working spaces in the Dallas-Fort Worth market has been on the rise since the beginning of the year. In the first quarter of 2023, the number of co-working spots was 225, while the latest data from the third quarter shows that number has risen to 242. The region’s total co-working square footage jumped from 4.46 million square feet to 4.65 million square feet during the same time period. The increased amount of co-working space comes during a time when the DFW office market is facing weak demand for office space, and roughly 60 percent of workers are back in the office. Many companies are scaling back their office footprints, and a lot of office owners are putting their properties on the market, though sales are sluggish. The shaky market fundamentals are in contrast to the strong job numbers the region has seen recently. Office employment over the last year has expanded significantly in DFW, with office jobs up 3.8 percent, or 46,000, over the last 12 months. But absorption has continued to run negative, and office vacancy is at 25.5 percent, according to Avison Young. “We haven’t seen a market like this one before. That’s what is giving people pause,” said Avison Young’s Walter Bialas.
Arizona’s biggest city, Phoenix, experienced an 11 percent increase in the number of co-working spaces between the second and third quarter of this year, going from 104 to 115 spaces. In terms of square footage, Phoenix had a total of 2.15 million square feet in the second quarter, which rose to 2.32 million by the third quarter. The city has a number of different co-working operators, including the biggest names in the industry. One of the country’s largest co-working operators, Industrious, announced plans to open its second co-working space in Phoenix at the beginning of the year. Lucid Private Offices, another co-working operator, opened its first co-working location in Phoenix this summer in a Class A office building owned by Hines and Invesco Real Estate. Phoenix’s co-working footprint has even grown in nearby suburbs, like Scottsdale, which has around 22 co-working spaces and is among the top 5 suburbs in the country with the most co-working space. Phoenix’s expanding co-working sector may be driven by the growth in its population and employment numbers. Phoenix was the fastest-growing city in the country in 2020, the fifth year in a row the city earned the title. It’s now America’s fifth largest city, but while growth has skyrocketed in the Phoenix area, there are concerns about how water supply and drought could impact future growth.
The number of co-working spaces had been on the rise in Washington, D.C., since the beginning of the year, but the city lost 10 co-working spaces over the last few months, dropping to 251 in the third quarter. Despite the reduced footprint, the city has the third highest number of co-working spaces in the country, just behind Los Angeles and Manhattan. Washington, D.C., also has the third-highest total co-working square footage, with 6.1 million square feet. Flex by JLL recently opened a 39,000-square-foot co-working location in Crystal City, Virginia, just across the Potomac River from downtown DC. Global real estate firm Hines recently announced it will open a co-working location in downtown DC in a historic building owned by JPMorgan Chase and managed by Hines. The Square, Hines’ flex workspace platform, is set to open this fall at the Bowen Building and can accommodate 225 workers. Bond Collective announced in April that it was closing its Washington, D.C. location, news that came on the heels of WeWork closing another DC location a few months prior. Office vacancy in DC is just over 19 percent and is expected to rise higher as many tenants continue to downsize their office footprints, according to a recent third-quarter report from JLL.
The number of co-working spaces in the Raleigh-Durham market took a dip in the second quarter but then rebounded well in the third quarter, surpassing the number of spots from the beginning of the year, jumping 13 percent quarter-over-quarter to 89 spaces. The region now has 1.93 million square feet of co-working space, up from 1.77 million square feet in the first quarter of the year. New spaces opened in the Raleigh-Durham area this summer, including a unique concept called CAR SPACE, which combines private co-working space with a social club lounge, an event space, and an exhibit of rare and luxury cars. Like Phoenix, Raleigh-Durham is one of the fastest-growing cities in the U.S. The region has been popular over the last few years as workers seeking a lower cost of living while still getting the benefits of a larger city moved in droves. WeWork has been popular in both Raleigh and Durham since the pandemic, with all-access membership in both cities jumping more than 140 percent, according to WeWork. Durham has a 58,000-square-foot WeWork location, while Raleigh has a 73,000-square-foot outpost. There have been concerns in the co-working community about what will happen to WeWork’s spaces in Raleigh-Durham in the future as the company continues to unravel, but the strong demand for co-working and continued population growth will likely mean other operators will expand in the region.
Despite all the upheaval in the office market and the continued popularity of working from home, the country’s co-working sector has remained resilient. Total supply across the U.S. has been stable over the last few months, though there has been a slight decrease in the number of spaces due to WeWork shedding locations amid its ongoing struggle to be profitable. At the same time, other major players like Regus and Industrious have been expanding their footprints in growing markets. Some of the cities experiencing the most population growth, like Phoenix and Dallas-Fort Worth, are seeing a steady uptick in the number of co-working spaces, while major office markets, like New York City and Washington, D.C., have experienced a more uneven trajectory. As the next couple of quarters play out, it will be interesting to see which way the pendulum swings for the country’s top co-working markets and which co-working firms will come out on top.