Coworking spaces have proven to be instrumental in providing a productive and flexible work environment that supports extended networking and community growth. While ImpactHub, WeWork, Spacious and many other space operators are boldly riding the booming coworking wave, landlords are exploring how to leverage this trend as a potential revenue stream by managing a dedicated coworking space themselves. However, the volatility of this trend might expose property owners to a series of unforeseeable threats.
This trend is expected to rise and it remains to be seen if well-established space operators will continue to make the rules in this subsector. In an interview with Commercial Property Executive, George Vogelei, executive vice president of tenant advisory services at Transwestern Washington, D.C., discusses why owner-managed coworking spaces might be a friendlier alternative to the traditionally operated ones. He also warns about several risks that come with it.
In which way has the coworking culture disrupted the landlord/property management company-operated office landscape?
Vogelei: The rise of coworking operators has led tenants to expect more building amenities and services, high-end finishes in suites and more flexible lease terms. Owners are now building more space on a speculative basis, adding conference centers and tenant lounges and offering more flexible lease terms to attract tenants that would otherwise consider using a coworking operator.
What do owners do in order to attract tenants and who benefits more?
Vogelei: Owners are designing space similar to that offered by coworking providers, with large common areas on each floor, shared meeting space and high-density occupancy. Tenants will benefit from landlord-managed spaces as the pricing should be highly competitive.What is powering the rise of landlord-managed coworking spaces and why?
Vogelei: Vacancy rates are currently high in the Washington, D.C., market and owners are concerned about the credit quality of certain coworking operators. Since most owners are already constructing space in their buildings, they can extend their existing relationships with contractors and architects to build space that is directly competitive with coworking providers. They can also offer this at a less expensive rate than existing providers.
Please elaborate on the risks landlords face when attempting to manage their own coworking space.
Vogelei: The main risk is that coworking is a different line of business than real estate investment. Owners will need to invest in branding expertise and a technology platform to create demand for their proprietary spaces and recruit and retain companies. Landlords will also need scale to attract larger corporations, which represent more than 30 percent of demand for existing coworking space.
With coworking typically existing in high-density urban markets, will landlord-managed coworking spaces extend to the suburban areas?
Vogelei: Coworking will certainly extend to suburban areas, but it will need to be located near amenities and, ideally, in mixed-use environments. Suburban landlords will also most likely need to provide a more value-oriented product and a smaller space.
How do you see the coworking trend going forward?
Vogelei: There will be an increase in services to drive occupancy and, ultimately, consolidation. Coworking operators will continue to offer more on-site services— such as health care, education and childcare—to provide a higher value and justify the premium compared to leasing directly from landlords. This will ultimately end in consolidation as large-scale operators will be able to provide the best technology and services at a lower cost.
Image courtesy of Transwestern