With numerous benefits such as networking opportunities, convenient locations, flexible hours, a professional work environment, and unique amenities, shared workspaces provide a tremendous benefit to DC’s emerging and maturing businesses. Between 2015 and 2020, the number of coworking spaces in the District more than doubled.1 Coworking also contributed the most absorption (1.4 million SF) of all industry sectors between 2018 and 2019.2 At the same time, concerns about the sustainability and potential risk of investing in coworking began to emerge.
The Landscape
Then, as with many other industries, the coronavirus pandemic had a significant impact on the real estate sector. The extraordinary circumstances of the past year accelerated many underlining trends and changed the trajectory of the once rapidly expanding coworking sub-sector. Upsuite estimates that 20% of all coworking locations in the U.S. shuttered or changed ownership as a result of COVID.3
The landscape of coworking in the District in 2021 is worlds away from WDCEP’s 2019 map update, with major shared workspace providers having actively reduced their footprints (WeWork) or folded altogether (Breather). According to CBRE, between Q2 2019 and Q2 2020, the DC region4 saw the greatest year-over-year loss (74%) in four-quarter activity as compared with other top U.S. markets.5 DC proper experienced a 14% annual decrease in coworking space in 2020.6
WeWorking it Out
With 13 spaces occupying 1.25 million SF, WeWork was once the largest private tenant in the District—four times larger than the second-largest provider, IWG/Regus.7 By Q4 2019, the company was estimated to occupy 25.7 million SF nationwide, nearly double that of IWG/Regus (16.8 million SF).8 The company had been contending with financial difficulties when the pandemic pushed it to the brink.9 WeWork, which had been contending with financial difficulties prior to the pandemic, opted to sublet 56,000 SF, more than half the space, at its Dupont Circle location and removed seven of 16 DC locations from its website overall.10 As WDCEP’s latest Development Report explains, WeWork’s expansion had “accounted for more net positive office absorption in the city over the last few years than any other private tenant, by a wide margin.”11 IWG/Regus and MakeOffices also closed several DC locations each.12
The DC area market is slightly better positioned than other U.S. markets reliant on coworking, as just 2.3% (2.9 million SF) of its office real estate comprised coworking space, less than San Francisco (4%), Manhattan (3.5%), and Miami (3.3%).13 Nonetheless, the situation is far from ideal.
Being Industrious
At the same time, current conditions offer cautious optimism. Most small, local operators in the District have managed to survive, even after suspending operations due to the pandemic. Coworking may not necessarily be declining in the U.S. and DC, but rather readjusting to reduce risk. Several struggling coworking spaces have made way for others to enter the DC market; for example, MakeOffices transferred two sites to Launch Workplaces and one to JLL. Industrious, which was partially acquired by CBRE earlier this year, and Douglas Development’s The Mark have similarly secured space vacated by WeWork as the latter continues to rightsize its national portfolio.14 Moreover, Industrious is expanding across the region and plans to open a new Washington location in the fall. Newcomers such as CoworkCafe and VentureX will be arriving in the District soon as well. In all, WDCEP estimates that 20 locations have opened, reopened under new management, or announced future openings since 2020.
WDCEP research as of July 2021; includes forthcoming locations & DC-based virtual programs
Remaining Flexible
Other providers have shifted their focus to fill adjacent needs, as with Cove’s pivot from providing physical spaces to offering space management technology as companies reconsider their building footprints. Knotel has established a DC presence as it concentrates on customizing space for tenants. As we rethink the workplace, the time is also ripe for fresh models, such as DC-based newcomer WorkChew, which recently closed a $2.5 million fundraising round to expand nationally as it pursues new partnerships with food/beverage and hospitality operators for underutilized space. Tishman Speyer recently launched Studio Outdoors, an open-air summertime workspace to complement its coworking location in DC. In addition, CBRE observes an accelerating trend towards more sustainable market conditions as landlords and coworking providers increasingly establish partnership agreements to share equally in ventures.15
And flexible office space is predicted to remain in high demand. Now more than ever, employers are looking for more flexible arrangements, as indicated by the fact that 86% of office tenants surveyed in September 2020 expressed interest in utilizing this kind of space moving forward, and half of April 2021 respondents intend to incorporate a significant share of flexible office space within two years.16 Moving forward, “third spaces” are also likely to fill a greater need as employees look to maintain work-life balance and companies seek to offer their employees more geographic flexibility. Innovative operators may even come out stronger in the days ahead; Two Birds and Elemeno’s childcare/coworking hybrid models are sure to remain more relevant than ever. Incubators also remain popular launch points for entrepreneurs, and U.S. startups have only proliferated during the pandemic as part of a trend playing out in the District as well. Just as we have learned to be flexible this past year, we will likely continue to seek flexibility at work, and shared workspaces will undoubtedly remain relevant in the days ahead.
1. Washington DC Economic Partnership. COVID-19 Impact on Coworking. Internal report on behalf of the Deputy Mayor’s Office for Planning and Economic Development. July 8, 2020. (5)
2. Ibid.
3 Upsuite. Coworking Trends: What is driving coworking closures, and when will the trend reverse? January 30, 2021. upsuite.com/blog/coworking-trends-what-is-driving-coworking-closures-and-when-will-the-trend-reverse/
4. The DC region refers to the Metropolitan Statistical Area, which includes parts of Maryland, Virginia, and West Virginia. See cbre.us/-/media/cbre/countryunitedstates/corporate-offices/washington%20dc%20region/reports/whydc-2020j.pdf (4)
5. CBRE. U.S. Flexible Office Figures Q2 2020. cbre.us/research-and-reports/US-Flexible-Office-Figures-Q2-2020 (9)
6. DowntownDC BID. State of Downtown 2020. downtowndc.org/wp-content/uploads/2021/04/DowntownDC_2020_SOD_Report_Web.pdf (26)
7. CBRE. Washington, DC: CoWorking Wrap-up. January 2020.
8. CBRE. Let’s Talk About Flex: The U.S. Flexible Office Market in 2019. CBRE. Flexible Office Space & Asset Valuation in 2020: Regaining Traction Amid Distraction. cbre.us/research-and-reports/Flexible-Office-Space-and-Asset-Valuation-in-2020
9. Washington, DC Development Report 2020/2021 Edition. Washington DC Economic Partnership. Available for download at wdcep.com/resources/dc-development-report. P.26
10. Washington, DC Development Report 2020/2021 Edition. P.26 Washington Business Journal. bizjournals.com/washington/news/2020/06/08/wework-may-downsize-dupont-circle-location.html; bizjournals.com/washington/news/2021/01/25/wework-to-shutter-more-d-c-area-locations.html; bizjournals.com/washington/news/2020/10/14/wework-to-shutter-trio-of-dc-locations.html
11. Washington, DC Development Report 2020/2021 Edition. P.26
12. Ibid.
13. Washington DC Economic Partnership. COVID-19 Impact on Coworking. Internal report on behalf of the Deputy Mayor’s Office for Planning and Economic Development. July 8, 2020.
14. CBRE. cbre.com/-/media/files/the-way-forward/the-end-of-the-beginning-north-america-flexible-office-market-in-2020/north-america-flex-office-2020-1.pdf (18)
15. CBRE. cbre.com/-/media/files/the-way-forward/the-end-of-the-beginning-north-america-flexible-office-market-in-2020/north-america-flex-office-2020-1.pdf (17)
16. CBRE. U.S. MarketFlash: Changing Work Patterns Point to Increased Demand for Flexible Workspace. April 2021. cbre.us/research-and-reports/US-MarketFlash-Changing-Work-Patterns-Point-to-Increased-Demand-for-Flexible-Workspace
CBRE. Spring 2021 U.S. Office Occupier Sentiment Survey, cbre.com/-/media/files/the-way-forward/us-occupier-sentiment-survey-2021/occupier-survey-q2-2021—united-states-results—final.pdf (17)
