Co-working is an exciting new trend for entrepreneurs, freelancers, and even established businesses with remote employees. But what does it mean for landlords?
That’s the question raised in part three of the of a report (available with a free registration) from the commercial real estate firm CBRE. It’s also what we’re covering in our three part series reviewing that study. If you haven’t had a chance, go back and read part one on shared workspaces and the sharing economy as well as part two on the culture, connectivity, and costs of these kinds of working arrangements.
The role of commercial landlords has been long established. Companies tend to sign leases of five or seven years or more, with additional fees for common areas. Organizations need to have good credit and a relatively long history to become tenants. Improvements to the space may be financed into the cost of the rent.
But coworking spaces are often completely different. According to the report, more than 1/3 of coworking tenants do not expect to “graduate” into a leased office of their own. Another third are unsure about their future plans. And since many of these agreements are month-to-month or even on a daily or hourly basis, the turnover can be high.
Furthermore, the report lists four perceived weaknesses:
- The limited track record and credit history of shared workplace startups and the memory of economic challenges operators faced in previous market cycles – especially those exposed to the dot-com bust in the early 2000s;
- The non-traditional business terms that these providers negotiate such as below-market rents, revenue sharing and increased tenant improvement allowance, which all transfer more risk to the landlord;
- The potentially negative dynamic created by mixing traditional incumbent corporate tenants with entrepreneurs and small businesses that populate the coworking space;
- The increased demand on building systems and cost of services associated with very dense occupancies and extended hours
These may sound like serious problems, but there are also some innovative ideas listed in the document.
Traditional office space is regular offices that mostly look the same. But to quote the report:
Michael Emory, President of Toronto-based developer Allied Properties REIT, notes that the esteem of “community buildings” is rising versus “corporate buildings,” adding that “more and more, people want diversity and variation in their workplace.” Diversity in a building or campus can also boost the creative potential of tenants.
In this sense, coworking is helping to drive innovation in architecture and interior design. Because a space may have dozens or hundreds of users instead of just one, there is a stronger need to be creative.
Ground Floor to High Rise
Although many coworking tenants will never graduate to a full lease, one proposal is to put coworking space on the first floor. This can “activate the street, make better use of palatial (and often empty) lobbies, give tenants greater flexibility in how they manage peak demand for workspace, and offer spaces and services that smaller tenants may not be able to invest in for themselves.”
This increases overall interest and activity in the building, and there’s nothing quite like bringing more people into a space to raise its profile. That can lead to traditional tenants, especially if they are doing business with the first-floor coworking individuals as freelancers or vendors, or if they just want the inspiration of their creativity.
Retail Store to Workspace
The report also tells the story of a collaboration between Workbar and Staples. The concept is to combine the suburban convenience and ample parking of a retail office supply store with the quality shared workspaces provided by an experienced coworking landlord.
Although coworking spaces still comprise a tiny percentage of the overall commercial real estate market, they are growing at more than double digit rates on an annual basis. That means landlords, property managers, architects, and designers should not ignore the trend.
But more importantly, it shows just how rapidly the way work is changing. More and more people are spending less and less time at a cubicle. It’s time for all of us to adapt.