Real estate experts have estimated that as many as 1 in 5 U.S. coworking locations, totaling an estimated 25M sf, will close or change hands as a result of the pandemic. As the global real estate market is dramatically changing, coworking operators are being tested and speculation is widespread. To introduce real data into this conversation, Upsuite has collected the largest database of detailed coworking operator data, including coworking space closures.
Like the rest of the commercial office market, coworking operators are being tested by low utilization, a reduction in memberships as companies look to cut costs, and increased government guidelines. Since March, in the top 30 North American Cities, 226 coworking locations have permanently closed. This represents more than 20,000 seats that are no longer available, or a reduction of just under 6% of all coworking locations that Upsuite tracks.
Of the top 30 North American cities that Upsuite tracks, 14 cities are experiencing closure rates above the national average of 6%. Many of these cities represent secondary markets. Kansas City (45% closure rate) and Portland (43% closure rate), top the list with the highest closures rates. Nearly half of all their coworking locations closed through the pandemic. Edmonton, and Atlanta follow close behind, with closure rates of 33% and 20% respectively. While some of these high closure rates reflect the disproportionate impact of a handful of coworking space closures in coworking markets with few locations (Edmonton, Columbus, and South Carolina), others warrant a closer look.
Kansas City and Portland saw nearly half of their coworking locations close through the pandemic (Source: Upsuite data)
We previously reported on the difference in recovery between primary and secondary coworking markets through this pandemic. While coworking deal activity between operators and landlords in 2020 temporarily shifted to secondary markets, demand from the occupier side did not. High closure rates in Kansas City, Portland, Phoenix, South Carolina, and particularly Denver, a sizeable coworking market, could be related to this uneven recovery in secondary markets, where companies may be leaning further into the remote lifestyle. In addition, cities like Portland saw a lot of civil unrest over the last few months, which may have impacted its downtown. Closures are likely a combination of low occupancy, poor performance, social issues, and shifting epicenters of the virus.
Two-thirds of all coworking closures are concentrated in urban markets (Source: Upsuite Data)
Two-thirds of all coworking closures took place in urban markets (both primary and secondary). This is likely a factor of the larger market share that coworking has reached in urban centers, whereas suburban markets have a far lower density, and overall less, coworking spaces. There is, of course, speculation as to whether this will shift in the future, as more companies consider decentralized hub-and-spoke models to offer increased flexibility and shorter commutes for their employee base.
Closure Rates Remain Largely Below Average in the Top 10 North American Markets:
North America's densest coworking markets stayed fairly consistent through this wave of closures. New York City, North America's largest coworking market with over 500 locations, held steady at a 3% closure rate. Other saturated markets like Los Angeles, San Francisco, and Toronto, behaved similarly, with closure rates below 7%. The two hardest hit major coworking markets that did not follow suit are Denver and Atlanta, with closure rates of 10% and 20% respectively.
Most major coworking markets, except for Denver and Atlanta, experienced coworking closure rates at or below average. (Source: Upsuite Data)
The smallest coworking size class closed at a higher rate than larger spaces. Closures for spaces under 5,000 sf made up half (54%) of the over 200 coworking closures.