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Coworking Can Work for Investors

Despite the WeWork debacle, flex space gives office real estate a new lease on life.

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Amid the tumult of WeWork's implosion, investors may be forgiven for asking whether coworking will ever work for them. We are convinced the answer is a resounding yes. Although we think the current structure of the coworking industry involving risky long-term leases and high market share concentration will prove ephemeral, the demand drivers for flexible office space should endure. Among these, we point to the increasing pace of disruption in the economy and the evolving nature of how work is done, both deriving from the inexorable march of the digital revolution.

In concrete terms, these drivers manifest themselves in the emergence of the gig economy and the increasing acceptance of remote-work arrangements. Although these dynamics have left some to believe that the institution of the office is on the wane, it appears that the desire to conduct work in a dedicated space persists. What has changed has been the nature of how work is done and, consequently, how office space is being demanded. Once a staid industry relying on long-term leases, office real estate has been upended by users' voracious appetite for flexibility. As coworking emerges to meet that need, we think it will increasingly form an ever-greater portion of total office space.

Yousuf Hafuda does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.