Co-working spaces make up half of net absorption

The NAREIM Innovation Summit took a deep dive into co-working spaces this week in Chicago – and heard that flexible office solutions accounted for 58 percent of net absorption in 2018, a 152 percent increase year-over-year. Up to 40 percent of that demand comes from new tenants to the office market, NAREIM members were told, with more than 60 percent of co-working space demand coming from existing office-users. The NAREIM Innovation Summit explored how real estate investment managers are underwriting co-working providers as tenants, and also talked about how providers are working alongside managers as JV partners as well as competitors. Questions also explored the sustainability of flexible space providers to withstand a downturn, manager concentration risk thresholds per asset and portfolio, corporate guarantees and the infrastructure required to establish your own co-working space in an asset. As the industry weighs the challenges and opportunities posed by flexible space solutions in office and multifamily, NAREIM members were given insights into the priorities behind corporate real estate decisions in the office market today. Key takeaways included:
  • Simplicity and surprise are highly valued by tenants and employees. Simplicity in terms of ease of executing leases. Surprise in terms of the appeal of working and networking alongside people from different industries, countries and cultures in your building.
  • Overall market location has never been more important to corporations as they target specific talent pools for their business. But submarket location has never been less important. Areas that didn‚Äôt exist as office markets 10 years ago are now thriving because of building amenities and the growth of restaurants around them.
  • Corporations are using a plethora of metrics to understand their firms, and their real estate locations, including: absentee and retention rates, time to hire, stress levels, sick days, ideas generated per month, patents per square foot, in addition to traditional financial and operation metrics.
  • Open-plan density ratios. The industry goal is to work towards a 6-1 concentration ratio, whereby for every six people you need one private room.
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