Great Expectations: AMXCO Predicts Coworking Occupancy to Grow Sixfold in Mexico

With several key factors in play, the potential for significant growth of coworking spaces in Mexico over traditional offices in the next decade is a compelling prospect.

The global economic context has led companies to reduce operational costs, adjusting rent payments and contract durations since the pandemic. New work dynamics, such as hybrid models and remote work, have decreased the need for physical space. The flexibility offered by coworking spaces—with adaptable contracts and spaces designed to facilitate market entry or decentralization to emerging areas outside the central business districts—also drives this transition.

According to SiiLA Market Analytics, coworking spaces represent between 4% and 5% of the office supply in Mexico's major markets. However, data from the Mexican Association of Coworking and Flexible Spaces (AMXCO) is more optimistic, indicating a 6% and 7% share.

Eric Perez, president and founder of AMXCO, expressed a positive outlook for the coworking market, foreseeing a potential share of 35% to 36% in the next decade. "The key to this growth lies in flexibility, cost reduction, and adaptation to the specific needs of each company," he explained in an interview with SiiLA REsource.

However, before experiencing such growth, the coworking market must overcome challenges and seize opportunities emerging in an office market where availability has been slowly recovering over the past four years. This follows an initial increase driven by a boom in new inventory delivery between 2010 and 2016, which, although adjusting to supply, was exacerbated by a slowdown in occupancy and tenant departures due to the pandemic.

SiiLA data indicates that over 2.3 million square meters of corporate space are unoccupied nationwide, representing a vacancy rate close to 21% in the country's leading office markets.

As per Eric Perez, coworking operators help fill these spaces thanks to a diversified service offering that contrasts traditional office spaces. The growth of this business model in Mexico has largely depended on flexible and furnished offices, as well as additional products like meeting rooms and virtual offices. This has been particularly useful for companies looking to save on rent due to post-pandemic uncertainty, opting for short-term contracts (6 months to 1 year) to achieve economies of between 10% and 30% of their operating expenses, or to test new markets and establish medium to long-term viability.

Additionally, the AMXCO director mentioned that coworking's potential to facilitate business entry into emerging markets makes it a business model designed to open markets and decentralize operations. For example, in recent years, many large and small companies established in Mexico City, which has around 400 coworking spaces equivalent to a third of the national total, have expanded or relocated to other areas within their metropolitan area, such as Azcapotzalco, Lindavista, Naucalpan, Nezahualcoyotl, Tlalnepantla, Valle Dorado, and Venustiano Carranza.

"Although these areas have slower demand, they are good locations for future developments due to the local workforce that currently commutes to other city areas. Furthermore, companies are moving to other regions of the country beyond the major markets of Monterrey and Guadalajara, including Aguascalientes, Guanajuato, Queretaro, San Luis Potosi, Baja California, and Yucatan, which are experiencing significant growth," he explained.

Standardization: Key to Coworking Success in Mexico

There are about 1,200 coworking spaces in Mexico, ranging from less than 100 to over 3,000 square meters. These spaces belong to 600 brands, of which approximately 500 are single-center, meaning they manage only one space. This implies that more than 80% of coworking brands in Mexico are small, with an average space of 450 square meters, compared to the global average of 900 square meters.

According to Eric Perez, the size of coworking spaces brings business sustainability issues, as small businesses are more vulnerable to market changes and many tend to disappear in the medium term. SiiLA statistics indicate that since 2020, while the gross leasable area (GLA) of large firms like Spaces and Sach has grown annually between 30% and 40%, most small brands have not experienced growth or have even reduced their GLA by between 1% and 15% annually.

In a market context where larger, consolidated companies tend to have more sustained and stable growth, while smaller ones face greater sustainability challenges, the AMXCO director, representing 33 operators covering 21 cities with nearly 200 locations and over 15,000 clients, notes that standardizing coworking services in Mexico is essential to ensuring the quality and reliability of the services offered.

To standardize coworking services in Mexico, tangible and intangible aspects must be addressed. Tangibly, factors such as furniture quality, lighting, and physical infrastructure must be considered, along with ensuring reliable and secure internet service, crucial for companies handling sensitive information. Maintaining cleanliness and hygiene in the spaces is also fundamental.

Regarding intangibles, staff training on anti-corruption and anti-discrimination topics, as well as implementing trust controls to manage confidential information appropriately, is necessary. Educating users on using shared services, like meeting rooms, and managing relationships in these spaces is also vital. Finally, contracts must be reviewed and adapted to reflect these new dynamics, ensuring that operators and users understand and comply with established standards.

For more information on these and other trends in the office real estate market, explore SiiLA REsource or contact us at contacto@siila.com.mx.