MIT Paper Release: The Financial Impact of Coworking
The MIT Real Estate Innovation Lab at the Center for Real Estate has been working hard to disentangle what is happening with coworking as a resurgent real estate use and the impacts it is having on commercial real estate markets.
This has been a challenge as the data in this environment is scarce, but through the help of our lab partners and data providers, the team has developed a working data strategy for understanding coworking. To be clear, there is a long way to go in understanding the true impacts of coworking, but we hope to contribute empirical facts rather than hype on this subject.
In a work co-authored by Dr. Andrea Chegut and Mike Langen, this paper aims to understand a fundamental relationship in the business of coworking: The building landlord/owner and coworking provider. What they found was that landlords over the 2008 to 2018 period treated coworking providers similar to other tenants in their buildings as represented by the effective rent price-per-square-footage they pay. However, this ‘similar’ pricing is offset by an increase in longer lease terms and lease concessions (longer rent-free periods, tenant improvement dollars) for coworking providers.
What does this mean for us? Despite all the hype and barring any serious default issues, we will stand to see coworking providers as contractually obligated to be in the buildings around us for quite some time.
What surprised us:
- “Coworking providers strategically aim for tenant incentives through extending lease duration, enabling them to improve their short-run cash flows.” – Mike Langen
- “Coworking providers have become a long-term tenant in our buildings and cities, where the earliest leases taken up by coworking providers in this sample will not expire until 2023. So despite all the hype in the media around valuations, coworking providers and the role they play in anchoring our buildings through a full business cycle is incredibly relevant for us to understand.” – Dr. Andrea Chegut
To learn more about this fascinating topic, visit our lab website here: https://realestateinnovationlab.mit.edu/research_article/the-financial-impacts-of-coworking/
Jump straight to the paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3481142
For more MIT/CRE faculty and researcher papers, visit: https://mitcre.mit.edu/research-publications/working-papers-series