Will CoWorking Work?

Abstract

“CoWorking” represents a new way of providing office space to corporate workers. Rather than companies acquiring dedicated space for their workforce at one or a few sites under long term leases (or ownership), companies contract with a “service provider” to have their workers housed “flexibly” at a range of sites for variable terms. In the extreme, companies allow their workers to make their own space arrangements – while picking up the tab. This allows the service provider to operate its office space like a “hotel”. The observation that many traditional offices are significantly underutilized raises the possibility that this new arrangement could save companies on overall occupancy costs. In this paper we analyze this alternative in terms of whether it can provide companies with equal labor productivity at a lower cost – and provide a viable business model for the service provider. Our analysis identifies a number of issues which will significantly impact the ability of this new model to “work”. Empirically, we examine the recent sales prices of office properties that have been structured largely as CoWorking facilities and compare them with a similar sales set of properties using traditional tenancy. Buildings with the new model have lower sales prices and cap rates, suggesting investor concern over the issues which we have identified.