The CoWorking

Revolution

DTZ | The Coworking Revolution

Coworking Space at The Office Group in Farringdon

It is hard to ignore the Coworking revolution which has slowly been building
momentum for the last few years. Coworking has moved from a niche market to a fully
fledged alternative to the traditional office set up.
It is a concept centred on a core set of values:
community, openness, collaboration and
accessibility. The exact definition of Coworking
can vary by interpretation, but it is widely
accepted that it represents a fundamentally new
way of thinking about how we work.

The rise of Coworking is a response to several

trends that should support strong development in
the future. They include technology enablement,
the growth of the tech, online and creative
industries, generational change and an increase in
micro businesses and independent workers.

In the broadest terms, Coworking describes

any situation where two or more people are
working in the same place together, but not for
the same company. This can happen in a variety
of locations, whether a cafe, a hotel lobby or a
designated Coworking Space.

Coworking Spaces are primarily utilised by small

businesses and independent workers, but the
trends prompting the growth of Coworking are
also prompting changes to the traditional working
styles of larger, corporate organisations. This
is manifested in the adoption of Activity Based
Working.

Coworking Spaces are businesses dedicated to

the values outlined above. Providers include The
Office Group, WeWork and Neuehouse. They
represent a foundation of infrastructure for a
growing number of people who want to work
where, when and how they want.

This report sets out to track those trends, and

the new world of work that has ensued. It takes
stock of the benefits associated with Coworking
and touches on the potential future benefits for
landlords and corporate organisations.

Coworking Spaces are primarily utilised by small

businesses and independent workers, but the trends
prompting the growth of Coworking are also prompting
changes to the traditional working styles of larger,
corporate organisations. This is manifested in the
adoption of Activity Based Working.
Toby ogden,
head of central london tenant representation, DTZ

DTZ | The Coworking Revolution

The story behind

the growth
MICRO BUSINESSES AND INDEPENDENT WORKERS
In June 2014 there were 4.2 million home workers in the UK, the
highest level of home working since comparable records began. The
number of home workers has grown by 1.3 million since 1998 and
the home working rate increased from 11.1% in 1998, to 13.9% in
March 2014 higher than any point in the past decade and a half.
The scale of remote working proves how easily it can be done.
Micro businesses are also increasing, representing 96% of
companies in the UK and employing more than 7 million people.
Increases in new businesses are partly explained by the expanding
funding available for entrepreneurs, including the emergence of
sources such as the Business Growth Fund, angel investment
networks and crowd funding, as well as tax breaks for those
investing in start ups.

If micro businesses grow year-on-year at the same rate as they

did between 2012 and 2013 they will account for 1.1million new
UK enterprises by 2024. According to Oxford Economics, self
employment will also increase; by 15% in the next ten years. This
estimated rise of 15% in the next 10 years will mean 5 million people
in the UK will be self-employed by 2024.
Although not all of the UKs self-employed and micro businesses
will require Coworking Space, these groups incorporate millions
of people and the scale of their growth means many of them
will contribute to future demand for more flexible working
environments.

TECHNOLOGY ENABLEMENT

Although not all of the UKs selfemployed and micro businesses will
require Coworking Space, these groups
incorporate millions of people and the
scale of their growth means manyof
them will contribute to future demand for
moreflexible working environments.
Sophy moffat,
Central london research, DTZ

DTZ | The Coworking Revolution

You not only want to have a smart

phone today you want to live in a smart
building and a smart community.
Jay Cross,
president of Related Hudson Yards

Tech for Flexibility

The growth of Coworking (and Activity Based Working) has been
enabled by new technologies that have greatly reduced barriers
both internally and externally for many companies. The explosion
of online networks has helped entrepreneurs to reach people
overseas and carry out tasks cheaply and highly collaboratively;
internal collaboration tools such as Yammer, Jive and Huddle have
enabled companies to bring employees together across borders,
and businesses are increasingly expressing the desire to transfer
some or all of their services, data and software to the cloud in order
to enable remote working.
It is clear that businesses do not need the same level of
infrastructure as was required in the past. Not only has this led to
a higher number of independent workers and micro businesses,
the increasing integration of technology into every work place is
enabling employees to harness services and devices in ways that
support flexible working across businesses of all types and sizes.
As the world becomes more mobile, a higher number of people
will be able to work from the office, their home, the coffee shop
and their clients offices.
The next stage of this is evidenced by Hudson Yards (a pioneering
quantified community in New York City expected to complete in
2018) where the integration of technology is being taken to new
levels. The developers plan to collect big data about inhabitants
to create better and more efficient work (and living) spaces. The
analytics this will drive will enable occupiers to understand how,
why and where their employees work within their space. Jay Cross,
president of Related Hudson Yards, comments You not only want
to have a smart phone today you want to live in a smart building
and a smart community.

No touch interfaces
Basic pattern recognition technology has been advancing for
generations. From Microsofts Kinect to Apples Siri to Googles
Project Glass we are beginning to expect that computers adapt
to us rather than the other way around.

The Web of Things

Everything we interact with becomes a computable entity.
Our homes, offices, cars and even objects on the street will
interact with our smart phones and with each other. Near Field
Communication will allow for two-way data communication
with nearby devices and ultra low power chips will harvest
energy in the environment, which will put computable entities
just about everywhere.

Supercomputing

Companies ranging from IBM to Google to Microsoft are racing

to combine natural language processing with Big Data systems
in the cloud that we can access from anywhere. These systems
will know us better than our best friends, but will also be
connected to the entire Web of Things as well as the collective
sum of all humanknowledge.

DTZ | The Coworking Revolution

Coworking members at WeWork in Washington DC.

WeWork recently opened a Coworking Space at Sea
Containers House in London.

DTZ | The Coworking Revolution

The story behind

the growth
GENERATIONAL CHANGE
Londons workforce is young. One in three of the UKs 20 to
30 year olds relocating between 2009 and 2012 moved to the
capital. As younger generations move into the workforce it has
become apparent that their expectations differ from those of older
generations. PwCs 2013 NextGen Study found that Millennials
want more flexibility and the opportunity to shift hours, if they were
able to make their current job more flexible 64% would occasionally
work from home and 66% would shift their work hours. This is
supported by research from the Intelligence Group: 74% of the
Millennials they surveyed wanted flexible work schedules and 88%
favoured the kind of collaborative culture offered by flexible working
environments over competitive culture.
Gen Y are digital natives: the third annual Cisco Connected World
Technology Report surveyed 1,800 college students and workers
aged 18 to 30 across 18 countries, and noted Ninety percent of

Gen Y surveyed worldwide said they check their smart phones for
updates in email, texts and social media sites, often before they
get out of bed [...] there are 206 bones in the human body, and the
smart phone could plausibly be considered the 207th for Gen Y.
Mobile devices are just the beginning. As more people, processes,
data and things join and interact on the Web of Things, the volume
and potential value of the data generated by those connections will
grow exponentially. The attitude of Gen Y towards work (they prefer
flexibility), and the role technology plays in their work and everyday
lives has resulted in a desire to be able to work anywhere and
anytime. Their preferences can be well served by Coworking and
Activity Based Working.

Although not all of the UKs selfemployed and micro businesses will
require Coworking Space, these groups
incorporate millions of people and the
scale of their growth means manyof
them will contribute to future demand for
moreflexible working environments.
Sophy moffat,
Central london research, DTZ

DTZ | The Coworking Revolution

A workspace problem for

small businesses is the seed
for the growth of Coworking
For both independent workers and micro businesses, conventional offices have
shortcomings. These are partly practical and partly aesthetic.
Practically, it is difficult for micro businesses and independent
workers to plan ahead to the same extent as more established
businesses. Independent workers and micro businesses are
therefore unwilling to commit to traditional lease terms (i.e. a
five, ten or even fifteen year lease with a break at the half way
point). But finding traditional landlords willing to offer flexibility
can be challenging, particularly for new businesses where a lack of
covenant strength may be anissue.
Many independent workers and young businesses are unable to
provide landlords with years of company accounts and guarantees,
providing another obstacle to those that want to take conventional
offices. Georg Ell, former European General Manager of Yammer
(an Enterprise Social Network designed to connect workers to share

information and foster collaboration within businesses) comments

of their search The guarantees landlords asked from us were
sometimes ridiculous in one case, as long as 24 months. And
they wanted three years UK trading accounts which is impossible
because the entire business had only been going two and a half
years, and all of that was in San Francisco.
Flexible working styles mean the boundary between work and
home is increasingly blurred. Many Coworking Spaces have tapped
into this by creating environments that resemble trendy coffee
shops more than corporate HQs. This has a significant impact on
design. Central Working (a Coworking provider with units across
Central London) provides boutique style working space with

The guarantees landlords asked from us were

sometimes ridiculous in one case, as long as 24
months. And they wanted three years UK trading
accounts which is impossible because the entire
business had only been going two and a half years,
and all of that was in San Francisco.
Georg Ell,
former European General Manager of Yammer

DTZ | The Coworking Revolution

Coworking Space at The Office Group in Mayfair

interiors featuring designer furniture and modern art, The Office

Groups Coworking Space in Shoreditch features antiques sourced
by creative practice Acrylicize, and Neuehouses space in New York
was decorated by David Rockwell, an architect known for his work
on set design.
Many independent workers and micro businesses favour
collaboration and view it as a major driver for growth. Indeed, this
is a key component of the success of Londons Silicon Roundabout
where many small businesses have thrived, and technology
companies have risen from 15 to 5,000 in just five years. Charlie
Green, CEO of the Office Group comments Between 10 and 20 per
cent of space at our offices is communal, but demand is increasing,
and some creative, tech and new media organisations demand
at least 50% of their floor space be dedicated to areas where
employees can socialise and work collaboratively.
Ultimately, rather than thinking of the office as a place primarily
for solitary activity, from which workers occasionally break out to
settings intended for social activity, many independent workers and
micro businesses see the office as a sociable setting from which
private places for concentration and confidentiality are occasionally
sought.

Rather than thinking

of the office as a place
primarily for solitary
activity, from which workers
occasionally break out to
settings intended for social
activity, many workers see
the office as a sociable
setting from which private
places for concentration
and confidentiality are
occasionally sought.
Richard Howard,
Head of Central London Agency, DTZ

DTZ | The Coworking Revolution

Coworking providers are

bridging the gap between what
landlords can offer and what
many businesses want
An upshot of these changing aesthetics
and practicalities is the rise of Coworking
providers. When independent workers
and micro businesses decide to occupy
Coworking Space, they make no long term
commitment. This alleviates the need for the
forward planning that prevents them from
leasing conventional offices. This is because
Coworking Space is taken on a membership
basis, which can cost as little as 230 per
person per month at providers including
MetroLAB near Kings Cross, and as much
as 699 per person per month at Co Work
in the City of London.
Coworking Spaces are not in the market
for the same reason as incubators and
accelerators. The latter two are small start
up hubs used by venture capitalists and large
companies who might take an equity stake

10

DTZ | The Coworking Revolution

in the young businesses they accommodate,

and focus on a high churn of occupiers.
In contrast, Coworking Spaces are targeted
not solely at start ups but at an entire
class of professionals. Charlie Green, CEO
of The Office Group comments We do
not have a niche in terms of sector or age,
GenerationY is important, but we do not
bracket generations because it is limiting.
Weallwork in similar ways.
Along with the ease and flexibility of
membership, some organisations and
individuals renting space from Coworking
providers are able to benefit from cost
savings. For conventional offices in London,
such as those traditionally occupied by
global corporations, occupancy costs per
workstation are 776 per month in the City

and 1,354 per month in the West End. This

makes some of the most expensive Central
London Coworking providers look relatively
cheap.
There is also a narrower pricing gap between
submarkets than at conventional offices.
For a typical corporate office, occupancy
costs per workstation per month are almost
600 more in the Londons West End than
in the City. The difference in cost between
Coworking Spaces in those markets is just
63 per member per month. In effect, this
gives Coworkers more scope than many
other Central London businesses when they
are deciding where to locate.
Analysis of Coworking members across
Central London shows that 51% are in
the tech and digital sector, 21% are in the

Coworking Space at The Office Group in Mayfair

communications and media sector, and

10% are in the creative sector. This means
the majority of demand for Coworking is
currently coming from the type of businesses
that prefer to be in non-core areas.
Half of businesses from the tech, creative
and new media sector leasing Central
London offices in 2014 have taken space in
submarkets outside the City of London and
the West End. Accordingly, many Coworking
Spaces are currently located in fringe
areas with 15% in Westminster or the City
ofLondon.

For a typical corporate office, occupancy costs per

workstation per month are 600 more in the Londons
West End than in the City. The difference in cost between
Coworking spaces in those markets is just 63 per
member per month. This arguably gives Coworkers
more scope than many Central London businesses
when they are deciding where to locate.
Sophy moffat,
CentRal london research, DTZ

DTZ | The Coworking Revolution

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DTZ | The Coworking Revolution

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DTZ | The CoworkingN Revolution

13

RO

R H IT
TH E

HE

Coworking Space at The Office Group in Shoreditch

The implications for

landlords and corporates
Coworking providers have helped to bridge the gap between what many workers and small businesses want, and
what conventional office landlords are able to offer.
As such, the trend for creatives and tech
entrepreneurs to work from coffee shops
on their laptops has evolved into a bankable
business model. But the story is broader,
and the result is a change to working
environments across companies of all types
and sizes.
Big businesses are beginning to realise the
benefits of Coworking and Activity Based
Working. With nearly 80% of employees
already using their personal devices at
work, the British Council for Offices states
that organisations are becoming less
concerned with providing dedicated desk
space than being flexible to accommodate
new technology.
It can be seen globally that young talent
wants to work in vibrant city districts and
busy hubs that combine offices, retail,
arts and culture, and residential areas.
Future Financial Workplace (a recent
research report by DTZ that involved
interviews with 100 leading real estate,
facilities, technology, HR and workplace
professionals) recognised that As
competition for skills increases, and large
corporations start to compete directly
with media and technology companies
to attract young talent, they will start to
14

DTZ | The Coworking Revolution

invest significantly in their workplaces and

workplace technology. They will offer better
working environments and more flexibility,
in the same way the technology industry
has done in the past ten years.
Companies including Bank of America
Merrill Lynch, Macquarie Group and
Deutsche Bank have already been
proponents of Activity Based Workplace
design. These companies and others
recognise the evolving requirements of
todays workers and are providing radically
progressive workspace to facilitate the
flexible approach to work that is becoming
the new norm.
Landlords and conventional serviced office
providers also recognise the bankability of
Coworking and Activity Based Working. In
June 2014, British Land announced it was
partnering with Regus to open Third Place
business hubs at three retail properties
across the UK.
New Coworking ventures can also be
seen in Tokyo, where The Share offer
accommodation to young professionals
in single buildings containing apartments,
shared office space, shops and social areas.

As competition for
skills increases, and large
corporations start to compete
directly with media and
technology companies to
attract young talent, they will
start to invest significantly
in their workplaces and
workplace technology.
They will offer better work
environments and more
flexibility in the same way the
technology industry has done
in the past ten years.
Future Financial Workplace,
a report byDTZ

Corporates and Flexible Working

Bank of America Merrill Lynch

The organisation believed that by adopting smarter and more agile

methods of work they would greater satisfy and motivate their
own staff which would aid retention and attraction, but also offer
productivity gains and reduced spatial requirements. Investment
in technology was a key part of this, particularly communications
technology: teleconferencing facilities and mobile-working
enablement, the introduction of the BlackBerry smartphone with
remote access, and the set-up of video phones to enable colleagues
to collaborate in face-to-face style interaction. Flexible desk
space was introduced to help transform the working environment.
According to Sheana Barrett, Co-Head of Employee Relation and HR
at Bank of America Merrill Lynch, smart working is broader than
flexible working, it is an approach to how we organise our work in
order to provide staff with a greater level ofconnectivity.

Macquaries Banking and

Financial Services Group (BFS)

The business moved 3,000 people

into a new Activity Based Working
environment in Shelley Street, Sydney. After
implementation, they recorded several
benefits: nearly 55% of employees now
change their workspaces each day, 77% are
in favour of the freedom to do so, and there
has been 90% employee satisfaction since
the move. The greatest business benefit
Macquarie Bank have realised from Activity
Based Working is the elimination of churn
the cost of moving groups and redefining
spaces with nothing spent on churn in
the companys two-year occupation.

Deutsche Bank
In 2002 the organisation started to introduce db Smart Office a new way of working within the organisation that
provided a wide range of work settings to support the full range of working tasks, from collaborative team space to
heads down working areas. The aim of the new way of working was to help promote multi-functional use of office
space, encouraging communication, flexibility and privacy. Deutsche Bank have measured a number of benefits, both
qualitatively and quantitatively. These include reduced occupancy costs due to reduction in spatial requirements
projected to be between 10-30%, recouping of associated project costs within only 24 months due to savings made as a
result of db Smart Office, improved employee productivity at work, improved technology in the workplace, and ability to
increase employee populations without additional real estate expenses.

In the US, Vornado Realty is thinking even

more broadly: the REIT is partnering with
Coworking provider WeWork to redevelop
an office building in Washington into
residential apartments designed for mobile
and collaborative workers. Not only will
this enable professionals with in-demand
skills to live in the centre of town, nearby
businesses will have the ability to utilise
workers living on their doorstep. It is
therefore becoming increasingly apparent
that Coworking and Activity Based Working
models are able to provide holistic solutions
that apply to both the residential and
officemarkets.

Place making is aided by small, new

businesses that contribute to the buzz
of areas like Kings Cross. But it is only
when landlords lease offices to Coworking
providers that they become associated
with exciting new entrepreneurs, without
exposure to the limited credit histories
and unsubstantiated covenants involved in
dealing with them directly.

It is becoming
increasingly apparent that
Coworking and Activity Based
Working models are able to
provide holistic solutions that
apply to both the residential
and office markets.
Richard Howard,
Head of Central London Agency, DTZ

Partnerships with Coworking providers can

be valuable in less tangible ways too. In
London, The Office Group recently acquired
20,000 sq ft of office space at One Pancras
Square in Kings Cross. Nick Searl of Argent
(the Development and Asset Manager
at Kings Cross) comments The Office
Group provides high quality workspaces
with a clear emphasis on design, and so
is a perfect match for Kings Cross. [This]
underlines the areas credentials as a
business destination and will help to make
Kings Cross even more accessible to a
broad range of firms.

DTZ | The Coworking Revolution

15

An expert view from

valuation advisory

When landlords lease offices to Coworking providers they can become associated with
exciting new entrepreneurs, without the risk of direct exposure to their limited credit history and
often unsubstantiated covenants.
Lettings to companies who operate as Coworking businesses are usually well regarded as the
properties are normally always maintained to a good standard. More often than not the Coworking
provider will take a long lease (in excess of 15 years), due to the set up cost and the longevity of their
membership based business plan.
For valuation purposes, getting comfortable with the providers covenant is key. If the company has,
or is, successfully running similar operations out of other premises then this will provide additional
comfort that the occupier can make a success of the business.
Other considerations include the location of the premises and the current state of the leasing
market. As rents and business rates rise, there is a greater likelihood that Coworking providers
will benefit as the relative cost will seem attractive, especially to small or start up companies and
independent workers.
Adam Patterson,
Director of Valuation Advisory, DTZ

Coworking members at WeWork in Hollywood

16

DTZ | The Coworking Revolution

Conclusions
The Coworking industry has grown significantly in the
past few years. This growth is a response to several
trends and the continuation of these trends should, for
several reasons, support the strong development of both
Coworking and Activity Based Working in the future.

The continued integration of technology into

every work place will enable workers to harness
services and devices in ways that support increased
flexible working across all sectors. More and more
workers will be able to work from the office, their
home, the coffee shop and their clients offices.

5
Ultimately, workers of different types and industries
will come to see the office as a sociable setting from
which private places for concentration and confidentiality
are only occasionally sought. Traditional working
environments simply do not match these perceptions.

Landlords and conventional serviced office

providers are also beginning to recognise the
bankability of Coworking and Activity Based
Working. Third Place business hubs are opening
across the UK, and new ventures across the world
indicate that the model is being extended to provide
solutions to both working and living arrangements.

If just 1% of home workers signed up for

Coworking membership, a minimum of 2.1
million sq ft would be required to satisfy demand.
If just 1% of micro businesses took out Coworking
membership for their employees, a minimum 3.9
million sq ft would be required to satisfy demand.

Self employment and micro businesses are growing.

These groups incorporate millions of people and the
scale of their growth means many of them will contribute
to future demand for more flexible workingenvironments.

As younger generations move into the workforce

it has become apparent that their expectations
differ from those of older generations. Studies
have found that as many as 74% of Millennials
want flexible work schedules, and as many as
88% favour the kind of collaborative culture
offered by flexible working environments.

6
As part of the solution, big business is beginning to
incorporate Coworking and Activity Based Working
principles. Bank of America Merrill Lynch, Macquarie
Group and Deutsche Bank have already been proponents
of this. These companies and others are increasingly
providing radically progressive workspace to facilitate the
flexible approach to work that is becoming the newnorm.

According to the governments 2013 Business

Population estimates, micro businesses
employ 7.8 million people across the UK and,
according to the Office for National Statistics,
there are 4.2 million home workers in the UK.

As such, the Coworking industry has the potential

to grow significantly. The ways in which Coworking
providers and landlords react to increases in demand
will determine their place in tomorrows market.

DTZ | The Coworking Revolution

10

17

Contacts
Toby Ogden
Head of Central London Tenant
Representation
+44 (0)20 3296 4417
toby.ogden@dtz.com

West End Agency

18

Sophy Moffat
Central London Research
+44 (0)20 3296 2156
sophy.moffat@dtz.com

City Agency

Craig Norton
Head of West End Agency
+44 (0)20 3296 4620
craig.norton@dtz.com

Alistair Brown
Head of City Agency
+44 (0)20 3296 2007
alistair.brown@dtz.com

Tom Wildash
Director
+44 (0)20 3296 4619
tom.wildash@dtz.com

James Oliver
Senior Director
+44 (0)20 3296 2004
james.oliver@dtz.com

Naomi Charlton
Director
+44 (0)20 3296 4623
naomi.charlton@dtz.com

Jonathan Huckstep
Senior Director
+44 (0)20 3296 2006
jonathan.huckstep@dtz.com

DTZ | The Coworking Revolution

Definitions
Coworking describes any situation where two or more people are
working in the same place together, but not for the samecompany.
Activity Based Working to design your office in such a way that it
supports work activities optimally, rather than drawing a boundary
around its users personal spaces.
Generation Y the demographic cohort following Generation X, there
are no precise dates when the generation starts and ends. Researchers
and commentators use birth years ranging from the early 1980s to the
early 2000s.
Micro business a business with no more than nine employees.
Third Place (or third space) the social surroundings separate from the
two usual social environments of home and theworkplace.

Richard Howard
Head of Central London Agency
+44 (0)20 3296 4616
richard.howard@dtz.com

Research and Consulting

Tams Polster
Head of Consulting EMEA
+44 (0)32 2629 0258
tamas.polster@dtz.com

Tim Plumbe
Senior Director, Central London
Agency
+44 (0)20 3296 2005
tim.plumbe@dtz.com

Valuation Advisory

Adam Patterson
Director, Valuation Advisory
+44 (0)20 3296 4461
adam.patterson@dtz.com

Richard Yorke
Global Head of Occupier Research
+44 (0)20 3296 2319
richard.yorke@dtz.com

Hayley Armstrong
Research Analyst
+44 (0)20 3296 2069
hayley.armstrong@dtz.com

DTZ | The Coworking Revolution

19

DTZ is a global leader in commercial real

estate services providing occupiers, tenants
and investors around the world with a full
spectrum of property solutions. Our core
capabilities include agency leasing, tenant
representation, corporate and global occupier
services, property management, facilities
management, facilities services, capital markets,
investment and asset management, valuation,
building consultancy, research, consulting, and
project and development management. DTZ
manages 3.3 billion square feet and $63 billion
in transaction volume globally on behalf of
institutional, corporate, government and private
clients. Our more than 28,000 employees
operate across more than 260 offices in more
than 50 countries and proudly represent DTZs
culture of excellence, client advocacy, integrity
and collaboration.

For further information, visit:

www.dtz.com/uk
@DTZUK

DTZ D045 09/14