Although WeWork is facing its own set of troubles (most recently exemplified by the withdrawal of its IPO), a new report shows that the co-working model the company popularized is taking off in Canada.
Flexible offices spaces are projected to reach more than 6.1 million square feet by the end of the year, up about 300% from 2014, according to a report by CBRE Canada. An additional 1.3 million square feet is on the way with the majority of these spaces located in Toronto, Vancouver and Montreal.
“We haven’t seen a new type of office tenant emerge with such speed and dominance since the dot-com boom,” CBRE Canada Vice Chairman Paul Morassutti said in the report, released today. “The rise of flexible office operators reflects the pace at which work and the workplace are evolving along with new technology, changing demographics and an overall push for innovation.”
Large companies like WeWork, officially known as We Co., and IWG Plc are the biggest players in the space, responding to a growing demand from entrepreneurs, small businesses and companies looking for flexible leases and millennial-friendly office designs. Downtown Toronto has the tightest office market in North America, and office vacancy rates there fell to a record low 2.3% in the third quarter.
CBRE is tracking 10 flexible space operators which represent 71% of the market. IWG’s Space unit is the largest with 32% of the market, followed by WeWork. Notable co-working deals include 171,000 square feet leased to WeWork in BentallGreenOak’s new Vancouver development and Spaces which has 260,000 square feet in two Toronto locations.
Even though there’s tremendous buzz around flexible office spaces, they still represent only a fraction—1.4%—of the 471.1 million square feet of office space nationwide, lagging the U.S., according to CBRE.
While WeWork has been rapidly expanding in Canada, the New York-based company is facing challenges on multiple fronts. It’s scrapped an initial public offering, after a flubbed fundraising effort cost co-founder Adam Neumann his job. Now the concern is whether or not the company is able to find new sources of capital, as its set to run out of cash as early as 2020 based on its current rate of spending.
Landlords in London and New York are among the most exposed to any further deterioration at the co-working firm, but in Canada, they’re less worried.
“Any of the spaces that we’re leasing are very much in demand, so we would lease to other tenants if there was a problem with WeWork,” Michael Cooper, CEO of Dream Office REIT, told Bloomberg. “WeWork has been a real leader in this field and it’s going to matter what happens with them, but there are other co-working organizations who I don’t think this will affect.”