WASHINGTON, DC–The coworking, or co-sharing, economy is having a significant impact on the commercial real estate market. That is the conclusion Newmark Grubb Knight Frank has made not once but twice in two separate analysis. Earlier this year, the company did a deep dive into the impact co-sharing is having on the hotel, retail, multifamily and office sectors in a report called “Scale of Disruption.”

More recently, NGKF's Greg Leisch, senior managing director of Market Research and Sandy Paul, NGKF's managing director of National Market Research, touched on it again in their NGKF's Benchmark report for the Washington DC area — but made clear this was a national issue.

“One of the newest and most important considerations for owners of traditional office space is how to engage the sharing economy,” Leisch said during his presentation. “Do you compete or partner? What is a sensible long-term plan for thriving in a market where co-working is rapidly expanding and tenants are drawn to innovative space,” he said.

NGKF has some thoughts on those questions Leisch posed, which we will get to in a moment. First, though, let's consider a comment Paul made to GlobeSt.com when discussing the more recent findings of the Benchmark report.

How to Handle the Growth?

Namely, the growing number of providers in this space and their appetite for larger-sized clients is requiring some competitive distinction on their part as well. Specifically — broker commissions.

If new entrants want to succeed in this rapidly growing space, Paul speculated, they will have to follow the lead of WeWork this summer and institute a broker commission program — especially as they hope to attract mid-sized and large-sized companies.

WeWork unveiled its expanded broker commission program in July, offering commissions for longer-terms. Cushman & Wakefield went on record as jumping on board with Chairman Bruce Mosler featured on WeWork's page as saying that “Cushman & Wakefield are delighted to collaborate with WeWork in building new communities with culture and energy for the sharing economy.

Fast Growth, New Models

Just how fast is the coworking space growing? In a word, very. But it is also changing at the same time.

Last year there were around 7,800 coworking spaces in operation around the world with the US the leading country, according to Statista. By 2018, that number is predicted to reach 37,000. In many cases this growth will be due to expansion within cities and into new location.

To give one example, The Yard, a coworking firm based in New York, is setting up shop in Washington DC, taking the entire second floor of 700 Penn at Eastern Market — a building set to deliver in 2017 — for 31,500 square feet of space. Founded in 2011 in Brooklyn, The Yard has nine locations in New York City, one in Philadelphia and has plans to open in other cities throughout the US besides Washington DC.

But the coworking business model is also attracting some non-traditional providers (if one can label a provider 'non-traditional' in a space that is already non-traditional to start). For example, Verizon Wireless recently announced it was entering the space with an eye on establishing a presence in Washington DC among other cities. Verizon Wireless' goal, however, is not profit but to stay engaged with the entrepreneurial community, according to a profile in the Wall Street Journal.

Another story line is that coworking space is now attracting the interest of larger companies, according to a report by CBRE that came out in the beginning of the year.

Options for Office Owners

That last data point should be telling to landlords wondering if coworking is a fad or a permanent fixture.

In its earlier report on co-sharing, NGKF has some suggestions, including a warning, for these office building owners.

If your property is well-located but otherwise obsolete, do try to court coworking providers as tenants, since most coworking companies seek non-traditional space at easily accessible locations and target below-market rents.

Also consider that startups that begin in a coworking environment, at least those that succeed, will outgrow their space and could well take direct space in the building.

But don't overweight your tenant base with coworking providers. “There has been some concern about sustainability of the coworking business model and its ability to weather an economic downturn,” NGKF concludes.

Instant Insights /

Commissions May Be Key to Coworking Success Going Forward

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