Coworking is a quite misunderstood segment of the real estate economy. It seems novel, but its roots go back to the ‘70s. It’s users are young start-ups, except when they are Fortune 100 multinationals. So just what is the reality about this emerging asset class and where are things headed?
NAIOP Chicago wondered the same, so they brought together several experts in the field for a discussion. Hosted at one of the newest WeWork offices in Chicago, 515 N. State Street, the panel was hosted by Cushman & Wakefield managing principal, Victoria Noonan, and featured Jillian Brown, account director, enterprise sales at Convene, Beth Moore, head of broker development at WeWork; Greg O’Neal, senior vice president at Beacon Capital Partners and Bill Rogers, international director, leader tenant representation – central region at JLL.
Currently there are over 400 coworking firms in the U.S., with approximately 35 operating in Chicago. This segment comprises less than 2 percent of the nation’s office real estate, but JLL research suggests that by 2030, that proportion could grow to as much as 30 percent.
What’s behind this explosive growth? A broadening of what coworking means and what it can offer to users. The “coworkng 1.0″ model was about sharing space and services. That remains the case, but now there is more of an educational component, including knowledge exchanges, more cooperative technology and stronger communities.
“When we use term ‘coworking,’ immediately we’re thinking of yellow couches, sneakers and maybe poor posture as we work on the laptops on our laps. We’ve seen that radically shift,” said Moore.
While catering to individuals and start-ups will continue to be a portion of the WeWork business model, Moore said, there has been more of a move toward flexible space. Increasingly, the fastest-growing segment of WeWork’s clientele is medium, large and enterprise businesses, which collectively make up about a third of the firm’s business today.
“This is really driven by the employees and the users who are asking for more in their workplace experience. Companies are responding to that in order to recruit and retain talent,” Rogers said. “As part of this they are looking for ways to be flexible, to make their employee base more productive and to save capital costs. Coworking providers are answering this need and adding to the workplace strategy for these companies.”
When larger users are on the hunt for new space, an existing coworking tenant in a potential property supplies some of that flexibility. Why gamble on a 15-year lease for space you may or may not require if there is a readily available option that you can use as needed on a much shorter time frame?
For property owners, adding a coworking company as a tenant can have a ripple effect throughout the rest of the building. O’Neal’s firm, Beacon Capital Partners, owns five properties in the Chicago CBD—three of which have a coworking tenant. Those additions have altered both the amenity makeup and leasing options.
“I’ve seen coworking grow over the past four years. Its quadrupled in the Chicago market. That’s compelled us as landlords to offer more amenities and more programming,” O’Neal said. “We also offer shorter lease terms as we’re forced us to compete with the coworking offers. That’s a gap in the market that coworking has exploited over the past several years.”
As Moore sees it, there are three tranches of coworking offerings. In the first tier are local players curated around a specific niche or community, such as The Wing, a women-focused option that recently opened a branch in Chicago. This is followed by providers who offer a good price/location/convenience play. Finally there are the larger providers like WeWork and Regus that allow corporations to take on flexible or even custom space.
The coworking concept has broadened even beyond these definitions, however. Some firms, such as WeWork and Convene, go beyond serving up space; they now also offer their expertise as a service.
“We have great partnerships with landlords and we are also seeing large enterprise clients creating solutions in-house and bringing coworking companies in to manage and operate that portion of the business for them,” said Brown. “That’s definitely another avenue that has expanded quite rapidly.”
With a looming economic slowdown projected to start as early as the end of this year, there are many questions facing the office sector as a whole. When this cycle starts to decelerate and companies look for ways to do more with less, the flexibility that coworking provides—as well as the hip atmosphere that can draw in younger workers—may be a ready solution.
“As a recovering workplace strategist, one of the things we’re all realizing is that companies are having to flex their change management muscle more than ever before, whether they decide to go with a flexible space provider or do it internally,” said Moore. “Employee productivity is the Holy Grail, but it’s hard to measure. Generally speaking, if people are happy about coming to work, they like who they work around and they feel fulfilled, they’re going to be more productive.”