(Bloomberg)—When it comes to Manhattan office space, the shares are peaking.
Co-working, or sharing a building or floor, has proved so important to office real estate in the New York borough that the market would actually be shrinking without it. Now comes a Savills Studley Inc. report predicting that the fast-expanding category, which has spurred WeWork Cos. to seek a $35 billion market valuation, is heading for a peak in Manhattan in the next couple of years.
“The market is getting more fragmented as some hybrid models and different providers get into the space,” Keith DeCoster, the firm’s director of U.S. real estate analytics, said in an email. “Additionally, a few landlords are jumping into the act as well, and if more do so” that would create further competition for co-working players big and small, such as WeWork, Convene, Knotel Inc., Industrious and The Yard.
“Many shared-office-space providers are already starting to direct their attention to other markets that are not as saturated, such as Denver, Charlotte, Miami and Atlanta,” DeCoster said.
The brokerage sees a similar trend in San Francisco, but space there is at such a premium that it’s difficult for co-working providers to scale up as they have in New York. With the same or even more demand, there’s less supply, keeping the trend going longer. In New York, Savills is seeing shared-space providers offer freebies, like no-rent periods, to lure clients from competitors, DeCoster said.
Meanwhile, the size of co-working space has been erratic.
Savills found that Manhattan already has 6.6 million square feet (600,000 square meters) dedicated to co-working, across 133 spaces, as of early July. That’s not counting executive office suites of the kind provided by Servcorp Ltd., the Sydney-based company that specializes in high-end shared offices around the world, or what’s going on in New York’s bustling outer boroughs.
The industry could break a record this year. There were 26 new co-working leases in Manhattan as of early July, or 1.3 million square feet. In co-working’s best year so far, 2015, 1.6 million square feet were rented in 21 deals, including mega-leases by WeWork of 290,000 square feet at 110 Wall St. and 242,000 square feet at 85 Broad St., the former headquarters of Goldman Sachs Group Inc.
DeCoster said the market could grow to 10 million square feet by the end of next year -- before starting to pull back.
--With assistance from Ellen Huet.To contact the reporter on this story: David M. Levitt in New York at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Peter Jeffrey, Josh Friedman
© 2018 Bloomberg L.P