RALEIGH/DURHAM COWORKING

RALEIGH/DURHAM

COWORKING AND SERVICED OFFICE MARKET REPORT

What's Next in the Evolving World of Flexible Office Space

Q1 2019

photo credit: SPACES at The Dillon

THE EVOLVING WORLD OF FLEXIBLE OFFICE SPACE

The demand for flexible workplace solutions has been surging in the U.S.

and worldwide, resulting in providers adding millions of square feet of

coworking space in 2018, an increase of more than 30% since 2017. In

response, investors are pouring billions of dollars into coworking, while

landlords are opening up collaborative spaces and provisioning their

own flexible office solutions. Industry stakeholders are examining their

Jen Dittmer Vivolo

Director, Global Flexible Workplace Solutions

approach not only to this emerging sector, but also to incorporating resiliency in real estate in general. The current report by Cushman & Wakefield (C&W) sees very few providers who are currently achieving

success in the sector with only a coworking model. Instead, the trend is toward hybrid

solutions where operators supply not only open plan coworking space, but also fully demised

private suites that can be customized and branded, known as managed and serviced offices

(MSO). The average term is 12 months, a short as month-to-month, and as long as five years.

A number of factors drive this demand. For start-ups and small to medium sized enterprises (SMEs), the mitigated risk, avoidance of capital expense, and especially the short-term commitment are enticing. Entrepreneurs can allocate money, time, and resources to growing their business and not managing real estate. Moreover, not only do contingent workers (freelancers, independent contractors, consultants, or other outsourced and non-permanent workers) make up a larger share of the growing labor force, millennials find the coworking model compelling - they want to be located in urban areas and work in innovative workplaces that inspire them. Hence, larger established companies are now seeing opportunities in coworking facilities to retain and attract young talent. Many corporations are examining their workplace models in a bid to encourage creativity by providing a more unstructured and less centrally controlled environment than their traditional offices. They are also seeing value in the scalability that is intrinsic with flexible workplace solutions. Particularly when occupiers are growing or downsizing, a workplace strategy that includes some flexibility can make business and financial sense.

Going forward, coworking and MSO in real estate portfolio strategies will likely continue to gain traction. We all know that cost containment remains the primary focus for occupiers during periods of volatility and rising rents. Given this, more companies will embrace flexible workplace as a solution set. This has already been the trend in industries such as life science, financial services and insurance, and especially technology, which are all major drivers of office activity in the Raleigh-Durham market.

30%

INCREASE IN COWORKING AND MSO INVENTORY

IN 2018

photo credit: Industrious at Charter Square

GLOBAL & U.S. FLEXIBLE OFFICE LANDSCAPE

1.5+ MILLION COWORKING MEMBERS WORLDWIDE

675X MORE

GLOBAL COWORKING SPACE TODAY THAN IN 2008

50+ MSF

TOTAL U.S. COWORKING

SQUARE FEET

OVER THE NEXT DECADE, FLEXIBLE WORKSPACE WITHIN CORPORATE REAL

ESTATE PORTFOLIOS WILL GROW

5-10%

(CURRENTLY 1%)

FLEXIBLE OFFICE NOW MAKES UP APPROXIMATELY

5%

OF ALL CLASS A OFFICE INVENTORY IN THE U.S.

GLOBAL COWORKING TRENDS

ESTIMATES PREDICT THERE ARE NOW CLOSE TO

30,000

SHARED WORKSPACE LOCATIONS WORLDWIDE

40%

OF THE U.S. WORKFORCE NOW COMPRISES CONTINGENT WORKERS

Going Corporate

Becoming a staple for developers

A breeding ground for in-house

innovation hubs

Booming in Asia Pacific

Rapidly growing within all U.S.

metropolitan areas

Gaining momentum through M&A

Cost arbitrage will not slowdown the momentum in emerging markets

RALEIGH/DURHAM FLEXIBLE OFFICE LANDSCAPE

Duke University 302,015 sf

LARGEST OCCUPIERS OF NEW LEASES 2016-PRESENT

NEW LEASES

SAS 419,994 sf

Syneos Health 258,250 sf

Lab Corp 221,988 sf

IWG (Regus/ SPACES) 187,691 sf

Relias Learning 184,378 sf

Allscripts 234,470 sf

MetLife 219,002 sf

Teleflex

WeWork

163,568 sf 156,000 sf

MAJOR COWORKING PROVIDERS

23+24351H15% 5%

23%

33%

57%*

24%

WeWork Regus* Other

Spaces* Industrious

*part of IWG

SUBMARKET SHARE OF COWORKING SPACE

Coworking locations are well distributed throughout the Triangle, but the largest representation is in the downtown Raleigh market with 29% of the market's share.

200,198 sf

143,619 sf

131,013 sf

80,730 sf 55,507 sf

73,237 sf

Downtown Raleigh

Downtown Durham

Chapel Hill

North Raleigh

Cary

RDU/RTP

LARGEST COWORKING OFFICES BY SQUARE FEET

WeWork ONE CITY CENTER

76,000

Regus MERIDIAN PARKWAY

54,376

Spaces THE DILLON

34,290

Industrious CHARTER SQUARE

34,141

Spaces STATION AT EAST 54

31,304

Regus BRISTOL PLACE

26,354

Regus EAST 54

24,203

Regus 3737 GLENWOOD AVE

19,507

Regus REGENCY PARK Regus CENTREGREEN V HQ Raleigh CAPITAL CLUB Regus BOA TOWER Regus FORUM I

19,000 17,937 17,832 15,375 15,350

COMPANY SIZE

Local National International

Amer Undgnd TRUST BUILDING

15,000

HQ Raleigh 311 S HARRINGTON 14,710

Source: Cushman & Wakefield Research

RALEIGH/DURHAM AVERAGE MONTHLY COSTS

SHARED

PRIVATE

$250

Virtual Office

Use of an address and access to

business functions, such as phone answering and

conference room rental, without

physically occupying the space.

$300

Membership

Touchdown desk on fixed monthly

or annual fee, includes the cost

of desk space, access to pay-per-

use services and networking events.

$350

Coworking

Access to a desk in a shared area, but not dedicated.

Availability is not guaranteed. Resources and services are pooled, both for efficiency and to encourage

collaboration.

$450

Dedicated Desk

An assigned desk in a shared area but is often located in close proximity to the coworking space. Includes lockable filing

cabinet or locker.

$575*

Serviced Office

Exclusive access to defined and secure office(s) or demised suite, often with 24/7 keyed access and some signage such as lobby directory.

*per person, in 2-person, 120 sf window office, 12 month term

TO SPEC*

Managed Space

Similar to direct space, a branded, turnkey, and customized workplace solution leased and managed by a third-party from buildout to ongoing daily management.

*solution for 10+ people and commitment term of 12 months

or longer

MARKET COMPARISON

Average Class A Rental Rate

New York (Midtown) San Francisco

Washington D.C. Miami

Boston Seattle Chicago Denver Atlanta Dallas / Fort Worth Nashville Raleigh/Durham St. Louis

$43.96 $41.94 $39.36 $33.16 $31.89 $30.31 $30.01 $29.74 $27.00 $22.46

$61.47

$82.91 $79.27

RALEIGH/DURHAM

39%

BELOW THE NATIONAL AVERAGE

60%

~2/3 OF ALL CURRENT COWORKING SF HAS COME INTO EXISTENCE SINCE 2016

Source: Cushman & Wakefield Research

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