Co-working’s Impact on Office Real Estate

Lea Overby

In the latest episode of The REIT Report: NAREIT's Weekly Podcast, Lea Overby, a managing director with Morningstar Credit Ratings, analyzed how the rise of the co-working trend is affecting the office real estate sector and commercial mortgage-backed securities (CMBS).

Co-working involves firms leasing office space from office owners and re-leasing the space to individual users. Co-working appeals to contractors, temporary workers and tenants looking for satellite offices, according to Overby.

Overby noted that because most co-working firms are private, they don’t divulge leasing information. However, she pointed out that the largest co-working company, Regus, advertises nearly 50 million square feet of office space in 2,700 locations.

In a recent report, Morningstar said co-working is likely to have a major impact on underwriting and setting valuations of CMBS. According to Overby, when firms such as WeWork or Regus rent space in offices, it appears as though that space is fully occupied. Yet, the re-leasing companies might not be able rent out 100 percent of the space.

“That information would not be reflected back to the CMBS holder,” Overby said. “With this mismatch, it is sometimes difficult to understand how successful the actual business in place is.”

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