How the continued growth of coworking spaces is changing the real estate landscape in London; and how you can effectively invest in the sector

How the continued growth of coworking spaces is changing the real estate landscape in London; and how you can effectively invest in the sector

updated September 12, 2019
How the continued growth of coworking spaces is changing the real estate landscape in London; and how you can effectively invest in the sector

Coworking is one of the fastest-growing market sectors in the city, however, investment into properties suitable for such use needs an experienced developer to guide you through the associated development. Aligning with an entity such as Nao Group can ensure you’re making the right sort of investment.

Nao Group has a long history of development projects in London. To capitalise on the explosive growth of coworking, through the launch of a corporate bond, Nao has created an easy, yet profitable, investment opportunity in the sector.

Whilst you are probably convinced about the benefits of investing in bonds, you may still be wondering: why invest in the coworking sector?

Demand drivers for and key advantages of coworking spaces

Research indicates how investment in commercial property in London has changed dramatically since the advent of the coworking revolution, which has mainly been driven by the amazing advances in worldwide communications over the last 10-15 years.

The advantages of coworking spaces are well-known. Let’s look at some of the key drivers of demand for this modern phenomenon and its impact on commercial real estate investment in London:

  • Advancement of communications technology

 Without a doubt, one of the biggest drivers of demand for coworking spaces has been the unprecedented advancement in technology and use of social media. You can contact, network, buy, sell, market and communicate with just about everyone or everything, from anywhere and everywhere; collaborative, remote working is here to stay.

  • Variable work locations

Many employees no longer need to work from fixed locations to perform their job tasks. Coupled with the rise of outsourcing and freelance work seeking platforms such as Upwork and Freelancer, more and more companies are using freelancers or off-site employees spread over different time zones, thereby maximising efficiency in work delivery.

  • Lifestyle changes

Coworking has brought together people wanting a similar work/lifestyle or ability to work independently and from anywhere. By not confining people to any single place from which to work, and taking advantage of modern communications, coworking has also helped urban planners realise their dreams of decongesting city centres and relieving the pressures brought on by traffic and people flocking to centrally located offices for 5 days per week.

  • Greater occupier flexibility and reducing initial costs

For those starting up a business, keeping the initial financial investment down is a pre-requisite; committing to a typical 3-year lease can be daunting if the business owner doesn’t know how their business is going to progress or if they will need more space to grow.

By joining a coworking space, initial start-up costs can be greatly reduced as there are no long-term commitments. In many cases, usage of coworking space provides occupational flexibility when office space is not required daily.

Having regard to the above points, it is clear that coworking is radicalising the way many investors will look at commercial property investments in London.

How coworking spaces can enhance property investment returns

It is estimated that the new supply of coworking space in London grew by 25% over the last two years. In the US, the annual increase in space was some 500,000 square metres, per year for the last 3 years according to Cushman and Wakefield.

Yet many real estate analysts feel the growth in this coworking market, which is seen as a worldwide phenomenon, is just beginning, with expectations that the stock of flexible office space will triple in size—until gradually representing 5-10% of office inventory in many markets.

So, what we are seeing is:

  • Increased occupancy in the commercial sector

On balance, coworking sites have helped reduce vacancy rates and boost occupancy across the commercial real estate market. Large floor plates have been reconfigured into coworking areas with full amenities and incorporating facilities that appeal to coworking tenants, bringing new businesses into prime commercial locations—not to mention their ripple effects on retail space and restaurants in the vicinity.

  • Enhancement of revenue streams and capital values

The income from coworking spaces can help smooth out the highs and lows associated with renting to single users and having long periods of vacant property, thereby pushing up both gross revenues and net income.

Importantly, for investors and building owners, the resultant, capital values of assets, which are reliant upon improvements in steady, recurrent income, have seen increases.

  • Regeneration of older property stock; quicker development turnaround times

In addition, older, unused buildings, such as factories and warehouses which were previously difficult to find tenants for have been found to be ideal for coworking sites, thereby regenerating old property stock without the necessity to redevelop. This has helped bring many new coworking projects to the market earlier, without the need to complete a full redevelopment cycle.

  • Catalyst for change in traditional lease terms and conditions

Although coworking leasing law is still evolving, positive changes are being made to traditional leases, certain lease clauses (for example, clauses relating to subletting and restrictions on business use) to further enhance the establishment of successful coworking spaces. Such changes generally provide greater flexibility and occupational benefits for newly-established businesses.

  • Help create attractive investment propositions

One big positive is that many London-based financial institutions or savvy investors find coworking space an attractive proposition, owing to the diversification of underlying tenants who occupy the property—as compared to buildings with single user occupiers such as an office or warehouse.

Looking at the overall mix of leases in an office building, by and large, investors are comfortable with a coworking space ratio of 15-30% in a building; indeed, this ratio is increasingly perceived as a strategic necessity by landlords and investors.

Coworking property investments

In summary, we, at Nao Group, are very excited at the steady growth of the coworking sector and the increase in our coworking properties are proof of that.

So, if you’re looking for great asset-backed investments into coworking spaces and are interested in learning more about our property investment bonds, contact us today. Alternatively, you can take a look here to learn more about us.