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Coworking spaces gain popularity, especially on smaller scale

From startups to companies looking to expand, coworking arrangements have increasingly become a viable alternative to traditional office space leasing. While there have been some setbacks, experts predict that the industry will continue to grow in the foreseeable future.

Coworking, where multiple companies or individuals share a single office location, has experienced continuous growth since first gaining popularity in the early 2000s. It is a worldwide phenomenon, and the United States ranks eighth in coworking growth, according to a 2019 study by Coworking Resources.

London tops the international list with an opening every five days, and New York sees a new location opening every 7.5 days.

Dustin Rogers-Little, managing director of Brewer’s Hill Hub in East Baltimore, which serves 40 clients in a three-floor, 25,000-square-foot space, said clients range from individuals to groups larger than 20 in industries that include tech, real estate, financial advising, law, venture capital and information systems.

“Since opening, we have seen steady growth in occupancy and revenue as more companies realize the opportunities for savings coupled with the added flexibility of shorter-term agreements,” Rogers-Little said.

Much of the growth in coworking can be attributed to the fact that larger companies have increasingly seen the value in such arrangements, he added.

“There is a larger number of national companies willing to embrace coworking with the added prevalence of satellite offices and remote working,” he said. “The first years were a bit more unpredictable, with smaller, less established companies making up a larger portion of occupancy.”

Joe Nolan, principal at Towson, Maryland-based commercial real estate broker KLNB, said flexibility makes coworking arrangements a good option for many companies that don’t always want to get locked into long leases.

“Some companies don’t know if they’ll be around next week, much less in 10 years,” Nolan said.

Nolan said businesses pay a higher rate than they would in a traditional lease to get that flexibility.

WeWork is currently the biggest name in the industry, but its story is a cautionary tale that massive growth doesn’t necessarily translate into massive profits.

Despite taking the coworking world by storm in 2010 and experiencing continuous growth in the number of locations and desks, WeWork has suffered staggering losses. The company announced in November that it had lost $1.25 billion in the third quarter of 2019, despite having added 115,000 desks, which it said was record growth for a quarter.

These losses fell closely on the heels of the ouster of CEO Adam Neumann, who stepped down in September under pressure from the company’s primary investor, SoftBank Group CEO Masayoshi Son. While there have been questions raised about the company’s culture and Neumann’s behavior, many experts say that WeWork simply grew too fast and was overvalued.

“WeWork is similar to the dot-com craze 20 years ago,” Nolan said. “Tech companies without any history of earnings were the darlings of Wall Street with incredible valuations. One day the world woke up, and all these tech firms had values go from $200 a share to $2 a share. I think in the end, WeWork grew really fast and its founder mismanaged the company and its valuation tanked.”

Nolan said he believes WeWork will weather the storm and continue to grow, but not necessarily at the same pace that it had in the past. He said WeWork has the “cool factor” that companies like, and it remains popular with landlords because it leases big chunks of space for long periods of time.

Representatives of WeWork could not be reached for comment.

Rogers-Little wasn’t willing to comment directly on the situation at WeWork, but he said a balance must be struck in order to be successful in coworking.

“Rather than speaking on the WeWork debacle, I can reflect on the thin gray line between commercial real estate and hospitality management that requires a unique blend of accountability, vision, talent, interpersonal skills and execution,” Rogers-Little said.

Coworking Resources predicts that the number of coworking locations globally will grow to nearly 26,000 by 2022, an increase of nearly 7,000 from 2019 and nearly quadruple the number of locations from 2015. Despite the well-documented failures of WeWork, it appears that the industry will continue to grow.