Is Co-Working Becoming Oversaturated?

The co-working market could be in trouble. While co-working operators have expanded rapidly in recent years—fueled by tremendous demand—office leaders now believe the co-working market is now or is on its way to being oversaturated. In an office survey from Real Capital Markets, half of all respondents said the co-working industry was at moderate risk, and 37% said it was a great potential risk and showed early signs of oversaturation. Only 4% of respondents said the co-working niche showed no risk at all.

“Given the significant expansion of co-working, some investors are questioning whether this market segment is nearing a saturation point,” Tina Lichens, COO of RCM, tells GlobeSt.com. “They are asking ‘how much is too much?’ and ‘is there a bubble that is likely to burst and have an impact on the market?’”

While respondents believe that there is growing risk in the co-working sector, they also agreed that the niche is here to stay. “Experts believe co-working is here to stay, but many suggest a consolidation within the space would be very natural,” Lichens. “While dozens of companies are active in the space, there are a handful that dominate the market. Additionally, there are more entrants into the sector as large developers and property owners see the opportunity that co-working creates.”

There was fear early on that co-working would siphon leases from the direct market; however, co-working operators have proven to be an amenity for offices. This realization has helped to fuel the oversaturation, but will also ensure the survival of the market. “The general consensus of investors and owners is that co-working tenants are compatible with other tenants in a building, especially when the buildings are plus-or-minus 1 million square feet,” says Lichens. “The prevailing sentiment is that in those large buildings, owners and investors should either embrace it or provide it themselves.”

Co-working is a new asset class within office, and has yet to be tested. It will be interesting to see how the market responds to a downturn and how it will shape the future of co-working. “The fact that the co-working sector has yet to experience a downturn leads to the question of what mix is appropriate for owners and investors. Industry experts suggest that owners allocate no more than 20% of a building to co-working space, with 10% to 15% being an ideal range,” adds Lichens. “If co-working gets much above the 15% to 20% range, building owners could find themselves in competition against their own vacancy.”