The coronavirus pandemic put an abrupt end to the co-working industry’s years of rapid expansion, and one in five co-working locations in the U.S. could soon be up for grabs.
While closures impacted just 1.5 percent of co-working space in the top 20 U.S. markets so far this year, according to a CBRE estimate, things are expected to get much worse.
Of the 4,500 or so co-working locations in the U.S., JLL estimates that a fifth — or about 25 million square feet — will close or change hands, according to the Wall Street Journal. JLL head of office research Scott Homa attributed the slow pace of closures thus far to rent relief provided by landlords, as well as the fact that closures take time.
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Remote work and social distancing have reduced the appeal of densely packed collaborative office space, and economic disruption has also weakened overall demand for office space.
Abandoning leases can be difficult and costly for co-working firms due to corporate guarantees and letters of credit covering lease obligations. When WeWork scrapped plans to move into 149 Madison Avenue in Manhattan in June, for example, landlord Columbia Property Trust got a $6.4 million payout.
Knotel is facing lawsuits from landlords for over $1.6 million in unpaid rent, and flex-space provider IWG (formerly Regus) has sought to exit lease obligations through bankruptcy of its single-purpose entities.
JLL estimates line up with public statements from WeWork and Knotel, both of which have expressed intentions to close — or at least rethink — one in five of their leases.
In the longer term, however, some industry observers think a post-pandemic shift to remote and flexible work could actually end up benefiting co-working firms — or the ones that survive, at least.
“Everybody’s pretty bullish on the concept of shared workspace when we come out of this,” Bond Collective CEO Shlomo Silber said. “But getting out of this is the struggle.” [WSJ] — Kevin Sun