Institutional Real Estate, Inc.

NAREIM Dialogues Spring 2018

The Institutional Real Estate Inc Sponsorship brochure, Connected-Investor Focused, We connect people, data and insights, sponsorship, events, IREI Products

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NAREIM DIALOGUES SPRING 2018 17 Company Company average sq. ft. WeWork 76,569 Knotel 24,543 Industrious 22,348 Regus 19,820 Barrister Executive Suites 18,478 Premier Business Centers 18,345 Jay Suites 18,234 Servcorp 13,821 Pacific Workplaces 13,290 Intelligent Office 9,411 The study found 239 companies are involved leasing coworking space, although the vast amount of them are small. Regus (9.4 million square feet) and WeWork (6.5 million square feet) were by far the biggest providers of cowork space, and Premier Business Centers (1.1 million square feet) was the only other firm leasing more than 1 million square feet of space. WeWork clearly stands out when we look at the average size of locations. WeWork's average lease size of 76,000 square feet was four times the 19,000-square foot average of all other companies. WeWork has made partnering with large corporate users a big part of its strategy, and now corporate partners represent more than a quarter of its total revenue. RISKS Clearly, coworking represents the cutting edge of the office industry, as it caters to social and demographic changes. However, that doesn't mean the market is without risks, the biggest of which is how to maintain revenue during a downturn. Here the flexibility of short-term leases cuts against the industry. Tenants value flexibility but long-term leases protect the landlord. Small businesses and startups are the first to fail during recessions, and entrepreneurial workers that lease cowork space could instead work from home when budgets are squeezed. Even large corporations could find it easier to not renew short-term cowork leases when belts need to be tightened. The industry has grown during the long economic recovery and certainly will be tested the next time the economy hits a bump. Another challenge for cowork providers is the low barriers to entry to compete, as most cowork space involves small locations. It may be hard to duplicate the model established by a large owner such as WeWork, but competition among the plurality of small players is likely to grow as the industry becomes established, much like a successful new retail model quickly gains imitators. That could result in a wave of companies combining, or failing during a downturn. CONCLUSION Coworking as a model is likely in its beginning stages. The industry provides a service that is in line with the direction businesses are moving. It gives tenants flexibility and provides attractive space for young workers and the growing number of self-employed and remote employees. The number of locations and total space dedicated to coworking is impressive, given the industry's youth. Over time, the industry is likely to develop its model to be able to survive recessions and changes in business operational trends.

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