Co-working space is growing fast in Canada and is set to surpass 18,000 by the end of 2019.
WeWork may be facing challenges on multiple fronts, but a new report shows the co-working model the company popularized is taking off in Canada.
But while much of the growth in recent years has been driven by the big players in the industry, there is strong participation from smaller, independent operators as well.
Flexible office spaces in the country 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 are on the way with the bulk in Toronto, Vancouver, and Montreal.
“Two-thirds of new space openings globally are new businesses entering the market, while the remainder are established operators, large chains, and franchises,” Richard Smith, founder, and CEO of Office Freedom, a global firm which helps connect tenants and co-working spaces, said recently in a public statement. “Therefore, whilst the established space operators are thriving, most new space openings are coming from businesses entering the market for the first time.”
“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 Tuesday. “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 leading the charge, catering to demand from entrepreneurs, small businesses, and companies looking for flexible leases and millennial-friendly office designs. Office vacancy rates in downtown Toronto fell to a record low of 2.3% in the third quarter–the tightest office market in North America.
Smith says that there are changes ahead in the market, including a slowdown in the growth of new space as existing operators focus on increasing occupancy and profitability.
CBRE is tracking 10 flexible space operators that represent 71% of the market. IWG’s Space unit is the largest with 32% of the market, followed by WeWork. Notable 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.
Nevertheless, flexible offices make up only 1.4% of the 471.1 million square feet of office space nationwide, lagging behind the US, according to CBRE.
While WeWork has been expanding rapidly in Canada, the New York-based company is facing challenges on multiple fronts. It’s scrapped an initial public offering, stoking concerns about its ability to raise money to fuel growth, and its chief executive officer, Adam Neumann, has stepped down. 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 The Toronto Star Newspaper in a phone interview. “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.”