Coworking Flexes Its Muscle
- Feb 28, 2020
Sometime during the second quarter, Industrious plans to open a 47,000-square-foot space in Philadelphia. The step is hardly out of the ordinary for this active coworking provider, but what really caught my eye is the location: Fashion District Philadelphia, the Center City retail property that PREIT and Macerich re-introduced last September after a $420 million overhaul.
Hardly a week goes by, it seems, without news of a major new flex office space. As we were putting the finishing touches on the March digital issue of CPE, Hines announced that a Salt Lake City property will be the second in its portfolio to host The Square, its proprietary coworking brand. In June, a 25,000-square-foot space (coincidentally managed by Industrious) will debut at Hines’ 109-year-old Kearns Building, which recently underwent a $25 million makeover.
Hines is only one of several blue-chip operators dipping their toes into coworking, notably including Boston Properties, Tishman Speyer and SL Green. Nor is interest in retail’s potential limited to a handful of locations at trophy properties. Last year Staples introduced Staples Studio, a collaborative space initiative, at three stores in Massachusetts.
JLL has predicted that shared space at retail properties will increase 25 percent annually over the next few years and reach 3.4 million square feet by 2023. That’s just a small portion of the nation’s coworking inventory, but the pace of growth is nothing to dismiss at a time when retail operators are seeking fresh sources of rental revenue.
The top 10 providers account for 36 percent of the flex-space footprint, but this tells only half the story. Coworking is still at the “any number can play” stage. Independent providers—more than 3,000 strong—account for more than 50 percent of the footprint and 85 percent of the operators, as The Instant Group reported in a study published last fall. There’s plenty of room for growth, too. Only 4 percent to 6 percent of big-city office inventory is devoted to flex space, the study found.
As Greg Isaacson makes clear in his feature article for the March issue of CPE, the shared-space movement places a premium on creativity. Isaacson cites The Little Wing, a new concept that combines workspace for women and child care for their kids. The initiative is a two-year-old brainchild of The Wing, a network of coworking spaces for women in the U.S. and London that now includes two Little Wing locations in New York City and West Hollywood, Calif.
Similar to any emerging business area, rapid shifts come with the shared-space territory. Since 2010, coworking has grown 22 percent annually, JLL estimates in a February update. Large corporate users have embraced the sector and already account for 40 percent of its revenue. After favoring space in high-end venues in 2018 and 2019, operators will change direction this year, turning more of their attention to Class B and Class C office space and industrial properties, JLL predicts.
The relatively conservative expansion strategy of most operators will result in smaller footprints than in past years; new spaces will typically span a floor or less, according to JLL. And in order to address the imbalance between short-term revenue flow and long-term lease liabilities, operators will experiment with financial structures similar to those of retail and hotel deals.
Flex office is destined for continuous evolution as it adjusts to meet its customers’ needs. The picture will almost certainly look much different a few years from now than it does today. In the meantime, expect coworking to generate more than its share of energy, innovation and excitement.