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How does a co-working space affect the value of your office building?

July 21, 2019

How does a co-working space affect the value of your office building?

Morningstar investment research equates co-working tenants with below-investment-grade credit, evaluating co-working spaces as not fully occupied.

Some investors like pension and private-equity funds, and insurance companies, avoid office buildings with co-working, shrinking the pool of potential bidders, driving down a property's price.

Cushman & Wakefield found buildings with at least 40 percent co-working traded at cap rates that were 50 to 100 basis points higher than similar properties sold over the same period. Nevertheless, when co-working accounted for 15 to 30 percent of a building, investors were more comfortable.

To mitigate the risk, ask co-working tenants to guarantee a lease for longer than for a more traditional tenant, and limit co-working facilities to 20% of a building. While some say shared office users will abandon their short-term leases in a downturn, while others claim that in a weakening economy, more companies will seek shared spaces.

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