In 2016, Investors are Looking to Coworking Spaces
The coworking sector is growing. How can the average investor profit from it?
With the coworking business heating up and attracting corporate clients, it’s no surprise that investors want a piece of the pie. While the movement initially appealed to a small subset of freelancers, small businesses, and startups, coworking has grown into a formidable force in the commercial real estate industry. We recently covered Cove‘s $3.4M funding round, and we’ve all seen headlines about WeWork’s stunning $16B valuation. For those who want to get into coworking without starting their own space, what’s the best way to invest?
For the passive investor, REITs such as $VNO and $BXP include coworking companies in their portfolio. This is an easy and convenient way to profit from growth in coworking without bearing too much risk. The two trusts, Vornado Realty Trust and Boston Properties, feature a wide variety of real estate companies; coworking spaces are on the riskier end of their portfolio, but the risk is mitigated by their more stable investments.
If you’re investing in a specific sector like coworking, it’s best to consider the weight of the investment in your overall portfolio. Putting too many eggs in one basket could be a risky move, given how new the space is. Many coworking companies are under 5 years old, and there’s no telling which will survive.
That said, the potential upside is impressive. US News reports that coworking in the U.S. is experiencing a 5-year compound average annual growth rate of 21%, compared to the 5-7% return that most REITs offer.
One way or the other, investing in a new sector demands a certain degree of risk tolerance. Investors must survive sudden drops of 5-10% and believe that the price will bounce back up.
For investments that are less focused on real estate, you can try seeking out mutual funds that have shares in big coworking companies like WeWork and Regus. Funds like $FCNTX, $PRNHX, and $HAGOX are a few to look at, all of which hold WeWork shares. Syndicates on sites like AngelList offer yet another way for individual investors to get involved without having to do 100% of the due diligence.
Of course, some investors prefer to make a high-risk investment in a specific space and stick with it. If you’re going this route, do what VCs do and pay close attention to the leadership. Just like with startups, a coworking space’s success depends on its leaders. The space itself can pivot as time goes by, but it’s the investor’s job to make sure that they’re funding someone they can trust.
Another tip for investors looking at specific spaces is to consider the demographics of the area. Location is arguably the most important factor for a coworking space, but that doesn’t mean that only spaces with access to public transit will succeed. Rather, the space has to cater to the demographics of its neighborhood. Some coworking spaces have found success in the suburbs by appealing to established consultants and remote workers who have different needs than the urban crowd. Of course, if the space’s target audience is startup founders in their mid-20s, they’d better have convenient food and transit options nearby.
Investing in a specific coworking space rather than the industry as a whole might be a risky endeavor for the average person, but the potential gains can’t be overstated. One thing’s for certain: with the kind of growth coworking has seen in the past few years, someone’s going to profit from it.