United States / Analyst Insights
Rise of the Coworking Space and its Industry Effects
by Nick Masters, Lead Industry Research Analyst
Jul 19 2019

For $49.99 a month, anyone can work on Wall Street. The rising trend of the virtual office, which effectively functions as a high-cost PO box, is one of the services offered by the $2.4-billion Serviced Office Leasing (SOL) industry (IBISWorld report OD4883). The rising popularity of shared (also known as coworking) office spaces is driving industry growth and influencing workplace transformations. 

Industry operator WeWork is scaling the coworking model to fit the operational and cultural needs of service-based industries. The incentives of workplace transformations are twofold. The first is cost-effectiveness while the second, less tangible yet arguably more impactful incentive is the commoditization of modern workplace culture as characterized by Silicon Valley startups.  

Although cost-savings have long-been the most obvious incentive of coworking spaces, the perk of enabling large corporations to rebrand themselves in a piecemeal way is turning heads among Fortune 500 companies operating in the most traditional of industries.  

 

 

Why change?

Workplace transformations use tech and design to maximize office space and increase productivity, providing for cost-savings from a bottom-up perspective. On the smallest scale, coworking spaces are designed to reduce the square footage a company needs per employee. For example, with a 28.8% share of the Serviced Office Leasing industry, WeWork uses machine learning to predict the number of conference rooms needed for a particular office space, ensuring that no space goes unused. Lowering the square footage per employee provides for significant cost-savings on an enterprise basis. The national average space per employee is 194 square feet, according to commercial real estate company Cushman & Wakefield, while the average WeWork member operates with roughly 50 square feet per employee. With the price of office space in New York City hovering around $80.00 per square foot, the cost savings are clear.

 

 

From a broader perspective, workplace transformations offer greater financial flexibility by enabling off-balance sheet leasing of office space. This is important for cash-strapped businesses, which are required to include a traditional 10- to 20-year lease on their balance sheet, as it makes a company appear more indebted, reducing its access to credit. The greater financial flexibility and cost-efficiency offered by workplace transformations is altering the operational landscape of service-based industries.

 

Expanding clientele

Although the savings and flexibility afforded by workplace transformations originally appealed to start-ups and small businesses, industry leaders WeWork and IWG PLC  are scaling up their services to meet the needs of large corporations. The industry impact of workplace transformations is most apparent within the $4.7-trillion Finance and Insurance sector (IBISWorld report 52 ). Financial service providers are among the most common corporate users of workplace transformations , largely due to their extensive back-office operations and growing demand for tech talent.

Moving these operations to enterprise-level coworking spaces enables these traditionally client-facing companies to incorporate a slice of Silicon Valley culture, which is key to attracting and retaining tech talent in an increasingly competitive business environment.

Even beyond hiring, coworking spaces’ collaborative ambiance and amenities boost employee satisfaction and reduce turnover for an increasingly varied set of industries. As workplace transformations proliferate, offices with open floor plans and beer on tap are no longer reserved for tech startups; these amenities are now being leveraged by insurance companies, centuries-old multinational conglomerates and financial institutions—operators considered to be the backbone of suit and tie workplace culture.

Long term, the cost-efficiency of workplace transformations will likely remain the primary incentive. Reducing square footage per employee while maintaining or even boosting employee satisfaction is a win-win, no matter the industry. However, the cultural incentives of workplace transformations will continue to expand and evolve with the business environment itself.

 

 

 

Interested in learning more? Check out our report on the Serviced Office Leasing industry, and let us know your thoughts about the coworking trend over on Twitter!

 

 

 

Edited by Kieran Newton, Lead Editor
Infographic Design by Kylie Marshall, Associate Editor