Written by Mike Kriel, CEO of Launch Workplaces
The coworking industry is growing at a rapid rate right now, but it’s not where you’d assume it would be.
Where the growth is happening, and who’s capturing it, would probably surprise a lot of building owners.
Here’s what I’m seeing from the operator side.
Building Owners Are Reaching Out to Flex Operators with a New Kind of Urgency
The vigor with which building owners are now reaching out to flexible space operators should tell you something.
I’ve been in this industry for over a decade, and the pace of inbound conversation right now is notable. Owners want meetings and proposals. They want to understand what a management agreement looks like and how a flex operator could stabilize a floor or a full wing of their building.
If you’re an owner on the receiving end of that outreach from operators, here’s what to do when a coworking operator reaches out about working together.
Something’s shifted in how building owners view flex, and the right follow-up on that first call matters.
Roughly 80% of Building Owners Have Decided to Compete, and 20% Have Not
Building owners are coming down on one side of a line.
They’re either saying, “I’m going to make it, I’m going to add value to this building and do what it takes to survive,” or they’re saying, “I’m done, I’m getting out.”
The split is probably closer to 80/20 in favor of competing.
Building owners might disagree with that number, but from where I sit, that’s roughly what it looks like.
The ones who are committed are investing in the building to make it more valuable tomorrow than it is today.
That includes things like:
- Lobby renovations
- Fitness facilities
- Grab-and-go snack shops
- Coffee shops
- Better conference experiences
- A tenant mix that includes flexible space operators
Flex has become part of the modern value-add package.
Building owners now treat it as a standard line item in the building’s competitive strategy, alongside amenities and renovation plans.
If you’re trying to decide whether to stand it up in-house or bring in an operator, here’s what actually goes into launching, filling, and running a coworking space.
A Lot of the Buildings Contacting Us Have Recently Changed Hands
Here’s one of the patterns driving all of this: a lot of the buildings contacting us right now have recently traded.
The value of these assets was depressed by the pandemic and the work-from-anywhere shift, and a lot of the previous owners decided they were done.
They sold the building, got out of the business, or at the very least got out of this particular asset.
The new owners are a different group entirely.
They came in having done their homework. Their underwriting assumes a tougher office market, and they already know what they’re going to need to do to make the building succeed.
Those owners are the ones calling us.
For them, flex is on the list of value-adds they wrote into the plan before they closed on the building.
That’s a very different conversation than talking to an owner who’s had a building on the books for twenty years and is slowly getting around to considering flex, often held back by one of the six common hesitations I hear from owners.
Smaller Operators Are Winning More of the New Opportunities Than the Big Names
I didn’t make it to the Global Workspace Association conference this year, but I read some of the headlines that stemmed from it.
One, in particular, caught my attention:
Smaller operators, which I’d define as those with fewer than four locations, have captured most of the new opportunities over the last year.
The giant operators you’d recognize by name have grown at a far slower clip.
That’s a meaningful shift.
For years, the growth story in flex was told through the big brand names expanding into major markets, but the data from the last year tells a different story.
The smaller operators are the ones scaling fastest right now, and the big operators are moving slower.
Interestingly, the largest property management firms are now moving into a lane most regional firms are still ignoring, which tells you something else about where the growth is quietly concentrating.
The Growth of Coworking Is Coming from Secondary, Tertiary, and Suburban Markets
The reason the big operators are growing slowly comes down to geography.
The giants went after the big markets first. For example, they put locations in New York, Los Angeles, Washington, Chicago, San Francisco, and the other major central business districts.
Those markets are more saturated now, which means more competition, more pressure on pricing, and fewer greenfield opportunities for new locations.
The smaller operators are playing a different game.
They’re in secondary markets, tertiary markets, and the suburbs.
Those markets have less competition, more vacant space that needs activation, and building owners who are more open to a management agreement conversation because they don’t have twenty operators knocking on their door.
That’s where the opportunity is right now, and that’s where the growth is coming from.
What This Means if You Own a Building Right Now
If you’re a building owner reading this, there are a few things worth sitting with.
- The industry is growing. Owners who commit are seeing results, and the ones who are waiting are watching others move.
- The deal structures are more flexible than they used to be. Management agreements don’t have to be ten-year deals, and the exit is one of the first things you should negotiate when structuring one.
- The operators who are winning right now are the ones who’ve figured out how to work in markets outside the biggest cities.
If your building sits in a secondary, tertiary, or suburban market, you have more options than you probably think.
The right operator is willing to look at your floor, building, and situation, even if the biggest brands aren’t calling you.
Start the conversation. You might be surprised at the potential opportunities available to you.
For a full walkthrough of how great operators approach management agreements and what you should look for when exploring flexible office space for your building, start with The Commercial Landlord’s Guide to Flexible Office Space.
And if you aren’t already watching, Flex in Five on YouTube is where I break down one landlord question at a time.
