TinaLichens

The co-working market could be in trouble. While co-workingoperators have expanded rapidly in recent years—fueled bytremendous demand—office leaders now believe the co-working marketis now or is on its way to being oversaturated. In an office surveyfrom Real Capital Markets, half of all respondentssaid the co-working industry was at moderate risk, and 37% said itwas a great potential risk and showed early signs ofoversaturation. Only 4% of respondents said the co-working nicheshowed no risk at all.

“Given the significant expansion of co-working, some investorsare questioning whether this market segment is nearing a saturationpoint,” Tina Lichens, COO of RCM, tellsGlobeSt.com. “They are asking 'how much is too much?' and 'is therea bubble that is likely to burst and have an impact on themarket?'”

While respondents believe that there is growing risk in theco-working sector, they also agreed that the niche is here to stay.“Experts believe co-working is here to stay, but many suggest aconsolidation within the space would be very natural,” Lichens.“While dozens of companies are active in the space, there are ahandful that dominate the market. Additionally, there are moreentrants into the sector as large developers and property ownerssee the opportunity that co-working creates.”

There was fear early on that co-working would siphon leases fromthe direct market; however, co-working operators have proven to bean amenity for offices. This realization has helped to fuel theoversaturation, but will also ensure the survival of the market.“The general consensus of investors and owners is that co-workingtenants are compatible with other tenants in a building, especiallywhen the buildings are plus-or-minus 1 million square feet,” saysLichens. “The prevailing sentiment is that in those largebuildings, owners and investors should either embrace it or provideit themselves.”

Co-working is a new asset class within office, and has yet to betested. It will be interesting to see how the market responds to adownturn and how it will shape the future of co-working. “The factthat the co-working sector has yet to experience a downturn leadsto the question of what mix is appropriate for owners andinvestors. Industry experts suggest that owners allocate no morethan 20% of a building to co-working space, with 10% to 15% beingan ideal range,” adds Lichens. “If co-working gets much above the15% to 20% range, building owners could find themselves incompetition against their own vacancy.”