Coworking's Continuing Evolution and Challenges
An update to our research into coworking for the corporate real estate executive.
As outlined recently in Coworking: What CRE Leaders Need to Know (originally published in the March issue of LEADER Magazine), coworking is heavily susceptible to market conditions as the industry faces mounting competition, a volatile tenant base, few barriers to entry and looming lease increases.
Just in the past several months, we’ve seen coworking continue to evolve and expand into new business models and settings. Developers, for example, are starting to allocate space within their buildings to serve as community/coworking environments. These spaces are seen as a shared amenity that attracts and connects tenants, just as fitness centers once did.
We’re also seeing coworking go from being small, community hotspots to “big box” environments. As BisNow recently reported, in Chicago alone WeWork operates five coworking centers spanning 356,000 square feet. MakeOffices, another industry giant, operates three Chicago coworking centers that add up to 160,000 square feet. For some, these large environments have lost the boutique feel and sense of community that was so appealing in the first place. (Download HOK and CoreNet Global’s Coworking Research Report.)
And considering that more than half of coworking occupants are now employees of a company, corporations are rethinking their strategies. For some, coworking enables them to commit to less permanent space. Others use it as overflow space to meet changing staffing needs. But more and more companies, including Capital One, Google, Microsoft and AT&T, are looking to replicate the coworking experience within their own space. (See Verizon example below.) The rise of the creative offices and maker spaces, coupled with the introduction of community managers to service the corporate space needs, is bringing a new wave of competition to coworking environments.
We are seeing the emergence of a more risk-averse coworking model. In such a building, the owner offers available blocks of space free of charge to an entity that comes in to operate the coworking center, thus sharing the risks and rewards. National Australian Bank (NAB) was an early adopter of this model, which is becoming more mainstream as developers seek to fill space and attract new users to their properties. This model alleviates the risk associated with longer term leases and frees up all parties to react more quickly to changing market conditions, supply and demand.
Retail vendors are making a move to be part of the coworking movement with brands such as West Elm, known primarily as a home furnishings retailer, recently joining forces with office furniture manufacturer Inscape to create products geared toward coworking environments. Expect more furniture and décor brands to follow suit as more coworking centers look to offer a chic, curated experience for their user communities.
Coworking, it’s important to remember, has only been around for a decade. As such a young workspace concept, it’s only natural that it will continue to evolve in definition and practice. The question is whether today’s challenges will prove to be major setbacks or momentary growing pains.
Verizon Explores Coworking for Surplus Space
Add Verizon to the ranks of corporations experimenting with coworking. In March 2016 the telecom giant converted part of its former Manhattan headquarters into a coworking space complete with open workspaces, team rooms, kitchen facilities and high-speed broadband. Verizon plans to open similar spaces in other cities.
John Vazquez, Verizon’s global head of real estate, told The Wall Street Journal that the move into coworking isn’t so much about turning a profit as it is to stay “engaged” in the tech community.
“It’s about creativity that we get to advise and mentor,” Vazquez told the paper, adding that coworking programs also offer a solution for optimizing Verizon’s vast real estate holdings from its days as part of the original U.S. phone conglomerate.
“It’s a pretty cool juxtaposition of what was and what is,” said Vazquez.
Kay Sargent is a senior principal based out of HOK’s Washington D.C. office and director of the firm’s WorkPlace practice. Beate Mellwig is a vice president and regional leader for HOK’s interiors practice in London.
Top photo: Teach for America Headquarters in New York