Rising rents and their threat to Coworking

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At Shoreditch Office Space we have witnessed the co-working phenomenon sweep through the London office market over the past five years. This workplace revolution has turned the traditional views of ‘the office’ on their head, and is now estimated to account for 5% of London’s market. During its early stages the affordability of Coworking was well aligned with the start-up culture and budget and the Coworking boom captured the imagination of start-ups in East London through the likes of Google Campus, Shoreditch Works and The Trampery. But five years on, and with rent increases looming, what is in store for the future of the latest workplace trend?

What is Coworking?

The concept of Coworking is simple; easy and affordable desk space for smaller businesses, with comfortable break out areas, meeting rooms, reliable Wi-Fi and, of course, great coffee. Co-working space has traditionally attracted freelancers, entrepreneurs and start-ups, drawn in by its flexibility and relative low cost. For this reason, it has enjoyed a long standing popularity in Shoreditch, acting as one of the driving forces behind the creation of Tech City. Often used within tech and creative sectors, the collaborative atmosphere co-working provides is invaluable to the growth and survival of London’s start-ups. Unlike the secretive nature of business in the past, today’s young entrepreneurs are a thriving ecosystem who share ideas and lend skills to the benefit of all.

wework old street 3

Since 2009 the technology sector has been responsible for 30% of job growth in London

Today, Coworking is the fastest growing sector of the commercial property market. Collaborative workspace provider WeWork have piled pressure on the long standing Global market dominator Regus with their innovative and vibrant model. In response, Regus have launched their own brand of Coworking, simply named Spaces, to keep up with the changes in the market. With centres in Shoreditch, Old Street, Soho, Southbank and Chancery Lane, WeWork have tapped into London’s creative scenes, in areas that were already accustomed to this way of working.

At present, co-working is hugely popular and it’s easy to see why. Providing cost effective flexible solutions for new companies, co-working is vital for the growth of start-ups in Britain. London is fast becoming the tech capital of Europe and London’s start-up communities are the pillars behind this success. A growing number of larger businesses are also seeing the pros of a co-working environment, whether to boost productivity or to accommodate flexible projects, showing co-working is no longer a niche, but a fundamental tool for modern businesses.

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Coworking at Tech Hub

Threat of rising rents

A large portion of Coworking providers in Shoreditch started life in 2011/12, and thus were treated to rents of around £20 – £25 per sq ft. This allowed some of the fantastic spaces such as The Trampery and Tech Hub to offer affordable desk prices of around £250. Typically speaking, these leases run on a 5 year rent review cycle, and so the majority of Coworking spots in Shoreditch will be up for a rent review within the next one or two years. In the last five years Shoreditch rents have significantly increased, and so landlords are likely to be asking for rents far exceeding the £20 sq ft that help found Coworking in Shoreditch back in 2011. We are already seeing examples like this emerge in the U.S where this situation is making some of the original Coworking spaces uneconomical. The asking price for Coworking may have to increase a significant amount in order to match the higher rents that are sure to be asked by landlords during these rent reviews.

  Rent Per Square Foot Coworking Desk Price (per month)
2011 £22.50 £250
2017 £62.50 £695 (prediction)

One of the biggest draws of Coworking is its affordability, and therefore these rent increases pose a serious threat to Coworking in Shoreditch. Will the traditional users of Coworking be able to afford upwards of £600 a month? It’s very unlikely, especially when you could afford a private serviced office for the same price. In order to deal with rent increases Coworking spaces are going to need to innovate their product and offer more than just desk space. WeWork’s combination of hotdesks, Coworking lounges and fully serviced offices is an excellent model to replicate. The ‘WeWork community’ has a huge draw on potential clients, and their app is arguably more talked about than their actual office spaces. To continue attracting companies at these increased prices, Coworking spots in Shoreditch are going to need to evolve to become a whole lot more than a place to do business, and the future of Coworking in the area depends on it.

Evolution of Coworking

At its inception, the Coworking office was a lot simpler than the likes that are commonplace today. As seen in fig.1, initial Coworking offices provided just the basic needs for business; a desk, internet access and sometimes a tea point. There would rarely be a phone connection and workers would receive limited, if any, services. The spaces would typically be of around 3,000 sq ft.

traditional coworking

The evolution of Coworking has been driven by the demand for creative office space and the advance of technology. Modern Coworking providers have begun to create their own communities in which collaboration takes precedence and as a result we have seen the emergence of a new form of Coworking. As seen in fig. 2, singular desk space is only a small part of this new system, giving way to small private offices, more meeting room space and large communal areas. This model appeals to a much wider array of businesses by adding an entirely new dimension to the workplace, and those that have adopted it have skyrocketed in popularity.

modern coworking

As briefly mentioned above, the WeWork App has been instrumental in the innovation of their product, allowing members to tap into WeWork’s creative community and making collaboration one step easier for SME’s. We believe the future of Coworking rests on innovations such as this, as occupiers demand more and more out of the product. 

In truth, Coworking is at the forefront of the workplace revolution, and despite looming rent hikes, we expect it to continue to grow and evolve. What we may see is a migration of the more traditional Coworking spaces to the outer edges of East London where rents are cheaper, leaving larger providers such as the Office Group’s and WeWork’s of the market to push forward the innovative workspace ideas that will be key to keeping Coworking attractive and economically viable. 

Contact Us

Shoreditch office space are sent weekly updates on the latest office availability. To get more details on our vacancy report please get in touch with a member of our team using the details below.

Email: sales@reesa.com

Telephone: 0203 434 3870