Coworking, which gives office workers the ability to share space when they need it, has spawned a parallel concept catching on in the industrial market: cowarehousing.

Targeted at a growing class of startups and entrepreneurs, cowarehousing provides smaller-scale warehouse suites within a single industrial property. The idea is also starting to lure large companies as a more flexible and short-term solution to supply chain uncertainty and a tight industrial real estate market.

Though still something of a niche, cowarehousing caters to investors interested in the fresh potential of flexible workspaces combined with an intense demand for ordering goods online.

U.S. digital sales jumped more than 50% from 2019 to 2021, according to the Department of Commerce. Because of this, more small retailers are finding it necessary to offer online shopping and quick delivery. That, in turn, requires more industrial spaces of various sizes to help get orders loaded onto trucks for delivery to doorsteps.

“The vast majority of companies that sell physical things in this country are going to need to be more logistically enabled and more logistically sophisticated over the coming years,” said Tyler Scriven, CEO of Atlanta-based cowarehousing company Saltbox.

Along with private warehouse suites between 100 and 2,000 square feet, Saltbox facilities also have office suites, storage space and on-site management teams to help customers with last-mile distribution, the final step of packaging and delivering goods. There’s also an office-like element, including security, Wi-Fi, temperature control, and shared kitchen and conference spaces, meant to cater toward small-business owners.

Two-thirds of Saltbox’s users are business-to-consumer companies, which sell physical goods to consumers using e-commerce. Many of these clients are individuals or small groups who were previously handling shipments out of limited facilities such as storage units or a room in their house, Scriven said.

“In many cases, these groups are startups and they’re putting their capital into their business, in lieu of real estate,” said Bert Harrell, a principal at Avison Young who specializes in the industrial market. “You’ve got a lot of smaller companies that are clamoring for space that don’t have the financial wherewithal to guarantee or fund improvements.”

Not only is the e-commerce appetite growing, but the number of small businesses — which are cowarehousing’s main audience — is expanding at a record clip. In 2021, there were 5.4 million applications to form new businesses, the most of any year on record, according to the U.S. Census Bureau.

“Logistics is a complicated, capital-intensive activity. That means for those [smaller] companies, they can be pushed to the fringes in a way that makes it really difficult for them to operate effectively,” Scriven said.

Consumers expect faster and faster delivery, thanks to the overnight shipping precedent set by e-commerce giant Amazon’s Prime service. This puts a strain on the inventory of last-mile distribution centers and poses a challenge for businesses of all sizes.

Bigger companies, which are not exempt from the pressures of speedy shipping demands, gravitate toward cowarehousing to position goods closer to consumers without getting locked into long-term leases.

“We focus on being able to have our spaces be responsive. We can move walls, change things around, adapt to our users’ changing space needs,” explained Justin Lee, founder of Crate Warehouse in Houston.

Such flexibility is a draw for larger customers. Both Lee and Scriven stressed that, while most of their clientele are small businesses, about a third of their occupiers are bigger industrial users or third-party logistics providers.

“Enterprise-level companies have spillover needs,” said Lee. “They deal with things like seasonality of sales, and they may expand their product lines. … They’re going to need extra space and it doesn’t make sense for them always to go and sign another five-, seven-, 10-year lease somewhere else.”

Walmart, for example, has used the strategy during holiday seasons to store seasonal inventory. Particularly in the past two years, many businesses bought in bulk to mitigate supply chain snags, escalating their need for short-term and flexible storage space.

On top of this, mergers and acquisitions increased 67% in 2021, according to a report from consulting firm McKinsey & Company, which is causing an increased need for satellite operations, to Lee said.

“We have a couple of companies in our location that are multinational, billion-dollar operations that have recently been acquired or merged. They have massive workforces, and they need satellite locations to store their inventory, service their warehouse needs, and [provide] office space to go along with it on the same site,” he said.

The demand is undeniably there, but it’s hard to say yet whether cowarehousing holds the same promise as other flexible workspace sectors, such as office coworking.

While the office market remains embroiled in COVID-related turbulence, financial numbers show that the need for industrial space and e-commerce resources isn’t going anywhere.

The global warehousing and storage market is expected to grow to $906.4 billion by 2026 at a compound annual growth rate of 8.3%, according to a 2022 report by The Business Research Company, a market research firm.

“I started flocking towards the industrial asset class,” said Lee, who started looking to get into the coworking industry before switching to cowarehousing. “It seemed relatively untapped and very nascent, whereas the office side was pretty saturated.”

Lee founded Crate Warehouse in May and currently has a 60% occupancy rate, he said. Meanwhile, Saltbox, which opened its first facility in 2019, plans to open a 14th warehouse by the end of this year.

Some of the largest cowarehousing players in the sector have hundreds of sites across the country, such as Seattle-based Flexe, which has more than 1,000 warehouses, and Stord, an Atlanta-based startup with a $1.3 billion valuation.

Scriven emphasized that cowarehousing is still incredibly new, with most companies less than 10 years old, making it hard to compare coworking with cowarehousing.

“It’s emerging. It’s still in its infancy, in my opinion, when you look at the potential demand relative to the existing [cowarehousing] footprint,” Scriven said. “We could open a dozen facilities and still have room to grow. We’re very early in this market.”