COWORKING SPACE BACKS PROPERTY VALUE

COWORKING SPACE BACKS PROPERTY VALUE

March 11th, 2019|

The rising prominence of coworking spaces is revolutionizing the way people think about the workplace and about space in general thereby gaining traction, pulling-in the attention of other correlated industry.  Coworking is not just a phenomenal shift in workforce, but also a trend reshaping the real estate industry in general. What is usually seen as a model that sets in flexibility to elevate work experience is not only attracting freelancers and entrepreneurs, but also corporate, landlords and property managers.

Invariably, coworking spaces create buzz and excitement, and can change the face of a neighborhood and while drawing in an influx of residents and commuters means that local businesses in the periphery will benefit from more foot traffic and patronage. It also helps that coworking spaces attract artistic-minded and entrepreneurial types, who bring to a neighborhood a new type of energy and community investment.

Coworking space operators are acutely aware of the fact that work can be overwhelming, which is why many offer services that make the daily routine more pleasurable and productive. Workspace operators are increasingly focusing on the hospitality aspect of their service in order to enhance members’ experience. Therefore, the influx of this phenomenal trend otherwise known as coworking and shared workspace have induced the need for operators in the industry to offer unique services and amenities to their members to attract and retain them.

The availability of these services and experience such as balance of work, life, and play to individuals by coworking, is why mix-use buildings are gaining popularity and why concepts such as co-living are attracting investors across the globe.

Offering these types of perks increases the value of the space, and therefore the building. People are willing to pay more to get a better experience; this could be anything from certified spaces, to top-notch connectivity, to access to unique events. And while coworking operators are the ones running the show, property owners have now realized how they can monetize and benefit from the trend.

Interestingly, landlords and property managers are now aware of the added value that a coworking space can give to their building.

Currently in the US, it is observed that coworking accounts for over 25 million square feet across 30 of the top US office markets and it has caught the attention of property owners and REITs that are interested in increasing the value of their properties by allocating a certain amount of square footage in their buildings to coworking space.

According to a recent report by CBRE which analyzed 31 transactions of office buildings that had at least 10% coworking occupancy, which was compared to 104 transactions of office buildings with no flexible workspace occupancy in order to ascertain whether tenancy of flexible space operators impacts property values. The report proves that nearly 40% of buildings that included flexible workspace achieved  greater value than the average office buildings in their market.

Source: CBRE

 “Class A assets with lower shares of coworking tend to have better investment performance than Class B assets. However, appropriately positioned Class B assets with high shares of coworking have the potential to positively differentiate an asset from comparable properties.” – CBRE

However, on a flip, the percentage of the building occupied by flexible workspace can also affect the value of the property. As seen on the above diagram, investors in the other hand are cautious about high concentration of coworking space. This means that too much square footage allocated to coworking can scare off investors as it is associated with more risk. Though too little of it means that it doesn’t influence value either way.

Some of these risks are tied to certain factors in play that could affect the valuation such as quality of the build out, the creditworthiness of the tenants, the strength of the rental rate being paid, and the location of the building. Other factor include lease structure, backed by a single-purpose entity may increase risk to a buyer or investor.

In conclusion, it is suggested that below 40% of a building’s square footage seems to be the right amount of space that should be allocated to flexible space. Anything above that reduces the value of a property from an investor perspective.

 

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Article by : Kenechukwu Agu