For Landlords: Key Takeaways from Coworking
Updated: Mar 9, 2020
The coworking gold rush over the past decade has seen a surge from the major providers to meet and even create demands for the next generation of office user. While owners have carefully allowed the expansion of the coworking business, we are beginning to see there are limits to the growth and landlords are deciphering what elements of the demand to meet themselves. I have overseen the growth of WeWork in Atlanta for the past 6 years and the entire southeast for the past 2. These are just a few of my takeaways for the Landlord community:
1. No Amenity Amnesty - while it may get old hearing about the constant demand for "cool" amenities and you may roll your eyes about another bocce ball court, the amenity war is on and it is only going to get worse. The modern worker is spending more time every year on screens in spite of efforts and apps from Apple and Google to take us on a digital diet. This means workers will continue to sacrifice the size of their office or cubicle or even their dedicated space all together, but they will seek and pay for experiences and new places to sit and scroll.
2. Lease Term-oil - average lease terms are coming down, but we have yet to truly feel the impact of this trend. The reason this is not yet a national headline is coworking companies have been committing to long-term leases and turning around to sublet to members on a short term basis. WeWork's recent struggles have highlighted the need for coworking companies to shift strategy towards revenue share and management agreement structures. This will bring short term leasing risk directly to the owners and the capital markets. While there is a lot to debate here, the important thing to highlight is there is also a lot of money to be made as the demand for coworking and the premium these members are willing to pay creates a compelling $/RSF.
3. Pack 'em In - at WeWork we were always pushing the limits on how dense a user could be in an office building. What we found is that in many cases users willingness densify can still outpace even the most modern buildings in the country. What does this mean for owners? Whether you own existing assets, are purchasing new product or are building from the ground up, focus not just on yield and NOI, but ask questions about fire code and density limitations. Simple differences from stair width and exit door size to egress corridor ratings can take the same 300,000 SF building from out of the hunt for a 350,000 SF user to being in the mix at a better overall cost from rent to buildout.
These are just a few of the most prominent things in my experience and I look forward to sharing more and hearing about others from folks in the coming months.