Co-Working Is Now 165 Million Square Feet. Operators Aren't All the Same.

Dramatic language aside, the New York Times, like most media covering WeWork at the time, warned of the end of co-working. But the truth is WeWork did revolutionize the way many people work, and today there are 165 million square feet of co-working space in the U.S, which is equivalent to 60 Empire State Buildings. There are now 9,100 co-working locations, up from 3,500 a decade ago. With more than ten years of history and significant industry growth, researchers have started investigating this unique tenant category, which is particularly important now as hybrid work continues to grow and traditional office tenants remain scarce. Two recent papers got our attention.^{1 2}

Regarding co-working’s impact on asset values, researchers studied sale transactions in London from 2017 to 2024 and found no material cap rate discount for office buildings that leased to co-working operators, so long as those tenants represented 20% or less of the building’s square footage. Higher exposure drove lower valuations: Buildings with co-working operators at 40% or more of square footage saw cap rates approximately 50 basis point higher at sale. The market appears comfortable treating flexible workspace as complementary use in modest concentrations, but it becomes a material credit risk once exposure becomes large.

The higher perceived risk of having co-working tenants is no surprise as co-working firms operate under an arbitrage model and are subject to high operating and marketing costs and significant competition.