Coworking Is Growing Fast Despite WeWork's Dramatic Pullback

WeWork has commanded the spotlight in the office market over the last year with headlines on its bankruptcy and shrinking footprint, but behind the scenes, its coworking competitors have been growing at a rapid clip. 

The coworking sector experienced a 20% increase in total spaces from December 2022 to last month, according to a Coworking Mag report. The 15 largest coworking operators added 252 locations in that same period of time.

Coworking operators and researchers tell Bisnow the growth has been driven by the rise in hybrid work and more tenants looking for spaces with flexible terms closer to where their employees live. Operators see more landlords willing to accept these flexible agreements to help fill office spaces. 

"The irony of the WeWork situation is that the demand for flex [space] has never been higher," Industrious Chief Operating Officer Liz Simon said. "This is one of the most exciting times, if not the most exciting time, in terms of the growth of flex and the adoption among large and small companies alike."

Industrious ranked as the fourth largest coworking operator in Coworking Mag's report with 145 locations. The company tells Bisnow it has seen more than 25 openings in the last year, and has at least 35 more spaces under agreement and set to open this year or next year. 

WeWork is now the third-largest coworking operator after cutting its U.S. footprint by 30% since December 2022, according to CoworkingMag.

The top two operators are both run by IWG: the Regus and HQ brands, with 972  and 204 U.S. locations, respectively. 

HQ saw the largest growth since December 2022 with a 240% increase in locations, and Regus saw a 17% increase. 

"Ultimately, we’re aiming to be in all towns and cities across the U.S. bringing high quality hybrid working facilities into the heart of local communities for all," IWG CEO Mark Dixon said in emailed responses to Bisnow questions. 

Last year, IWG added nearly 900 locations globally, including more than 350 in the U.S., according to Dixon. He said the company now has more than 1,500 locations in the U.S. across its coworking brands in both urban and suburban areas. 

"We are seeing skyrocketing demand for workplaces in local communities close to where people live," Dixon told Bisnow. "We are following this demand, driven by employee preferences, and providing new locations closer to where people live." 

Unlike WeWork, which grew mainly in major commercial business districts across the country, other coworking operators are looking at locations away from downtowns. Simon said Industrious has been targeting "15-minute cities" or mixed-use neighborhoods.

"That's maybe the location they work out of a couple of days a week because it's near home, or it's near school drop-off, or the gym or other activities that they're doing in their day-to-day life," she said.

Doug Ressler, a senior research officer at Yardi Matrix who worked with Coworking Mag on its report, said the coworking market is growing and can accommodate a range of large and small operators. He said the expansions in the suburbs come as many employers are looking at the demographics of their workers. They are seeing Gen-Z workers live in cities while many Millennials settle down, have kids and move into the suburbs. 

"What companies have found is that, in many instances, they were as productive during the pandemic," Ressler said. "In that case, workers or employees also found that they were able to set up their lifestyle so that they could work from home or work near a place they wanted to."

The primary structure of coworking deals has also changed in recent years. 

While WeWork typically leased space at office buildings to then sublease to its members, other coworking operators are looking for less risky ways to work with landlords.

Simon said 90% of Industrious' North American locations are in partnership agreements with landlords rather than traditional leases. She said this has helped keep fixed expenses down to around 35% of its revenue compared to WeWork's, which was much higher.

The partnerships also helped Industrious manage relationships with landlords, Simon said. 

"The benefit to that is that we are sitting on the same side of the table as the landlord," she said. "We're typically sharing in revenues or sharing our profits with them. When space does well, we all succeed."

Quest Workspaces CEO Laura Kozelouzek, a smaller, regional operator based in South Florida, said that all of her company's locations today are under lease agreements, but in the past she has done some partnership agreements and joint ventures. 

"The fact that owners are getting more comfortable doing all different types of agreements, that's going to fuel more growth in our industry," she said. 

Quest has 14 locations in South Florida and New York, and the company opened its newest location early this month in Doral, Florida. Kozelouzek said it has grown 15% since the start of the pandemic. 

"We came out of Covid growing a lot," she said. "Adding locations, adding markets and also expanding our locations. That was fueled by demand and also being able to structure smart deals that made sense for Quest, the asset owners and their clients.” 

WeWork emerged from bankruptcy at the end of May and is now privately owned and debt-free. The company's global portfolio now consists of 600 locations across 45M SF, down from the 850 locations it operated at pre-pandemic.

The coworking operator also has a new majority owner, property management software provider Yardi Systems. SoftBank and other creditors will own minority stakes in the business. Since then, WeWork has also tapped John Santora, tri-state chairman of Cushman & Wakefield, as the company's CEO.

"WeWork may have had too many locations, and the demand may not have been sufficient for locations they had," Kozelouzek said. "It wasn't that, 'Oh my gosh, there's too many flexible workspaces and not enough demand to meet the amount of flexible workspace.' It was just that the structure was not what it needed to be in order for it to be sustainable."  

WeWork declined to comment for this story. 

Industrious took over WeWork's former New York City headquarters earlier this month, signing a 10-year, 240K SF agreement with landlord Kato International for Tower 49 in Midtown. WeWork vacated its 300K SF corporate headquarters there to relocate to Union Square last month, Bisnow first reported.

With the growth that small and large operators are seeing, Kozelouzek said the market is opening up with opportunities for all different types of coworking operators running niche operations. 

"If you compare it to the hotel industry, you don't have one hotel type that caters to one audience, right?" Kozelouzek said. "That's what our industry is going through right now … Our industry is evolving to this level, like lodging, in terms of all the different brands, and I welcome that."