Millennials, flexibility, start ups…All of the socio-demographic trends are inevitably leading to one common place: coworking offices. Flexible workspaces have become the great promise of the real estate sector but their largest operator, IWG, generates just 15% of its revenues from them and WeWork is multiplying its losses year after year. What risks does the model have? Can it withstand a recession without the guarantee of the traditional five years of mandatory occupancy? And what if Amazon and Facebook, its tenants of today, end up becoming its main competition?

In 2017 alone, the total volume of flexible workspace in the twenty largest markets around the world grew by 30%, equivalent to 1 million m2. Since 2014, the sector has doubled, and in cities such as London, they account for 20% of the office space leased, according to a report from JLL. In Barcelona, that figure already amounts to 12%.

The consultancy firm forecasts that the European stock will grow by between 25% and 30% per annum on average over the next five years and will account for 30% of some corporate real estate portfolios by 2030. But those predictions hide the major challenges that are threatening the great promise of the sector.

One of the main challenges facing the model is that the operator is tied to a given property for at least five years, like in the case of a traditional office, but its tenants have contracts that last for months or even hours. When the next crisis hits, what guarantees does the owner have that the operator will be able to continue paying the rent?

“On paper, that does seem like a risk, but the reality is that the coworking phenomenon was launched during the crisis”, explain sources at Savills Aguirre Newman. All sectors suffer when there is a recession, but traditional offices are hit harder because whoever cannot bear those costs can afford a coworking space”, argue the sources at the consultancy firm.

Another of the risk factors is that coworking offices have capitalised on the lack of available office space in the centre of cities and also, on the shortage of appropriate spaces for the new ways of working within traditional companies (…).

“The players driving the sector are multi-nationals that are looking for appropriate spaces for their innovation teams or for project-based work”, says Manel de Bes, Director of the Office department at Forcadell.

But, what will happen when the offices of these large companies have adapted to the new scenario? “At the moment, most companies are in the experimental phase; if they consider that the trials do not meet their needs, they will be able to return to more conventional models”, explains JLL’s report (…).

From rock star to conservative player

Within the coworking phenomenon, the rock star is WeWork. The New York-based company, which became the largest lessee of offices in its home city last year, is worth USD 20 billion, but it recorded losses of USD 723 million in the first half of last year.

“Its model is based on taking over the best buildings, in the most prime areas and then competing with other operators on price: it is not sustainable”, argues a competitor in the sector. “Sooner or later, they will have to raise their prices”, he assures.

IWG’s model is more conservative. That firm has an umbrella of five brands and thirty years of history. “We have gone through three or four cycles and we cover our backs: first, by diversifying in terms of the type of tenant to minimise risk. We also ask the owners to invest and we do not select the best buildings or at any price”, said Philippe Jiménez, head of the group in the Spanish market (…).

De Bes from Forcadell forecasts that “Over the medium term, just four or five operators will remain: those that lease 200 m2 or 400 m2 in secondary areas will exit the market”. In fact, the market is already becoming more concentrated: since 2015, the five most important operators have accounted for 50% of all of the new flexible workspace in Europe (…).