What Coworking Space Means for CRE
Today, just about everything you could want at your fingertips can be purchased on a subscription based model. Everything from software (SaaS), to movies (Netflix), cosmetics (Birchbox), and even razors (Dollar Shave Club) can be purchased on a subscription. As subscription based models are continuing to expand in our everyday lives, we are also seeing a steady growth of subscription based coworking spaces. According to deskmag’s, The Global Coworking Survey, over half a million people already subscribe to working in a cowork space environment and the numbers are only climbing.
These numbers are great for owners and investors of coworking spaces, but what does this mean for the commercial real estate broker?
Will Commercial Real Estate Be Impacted?
From a macro standpoint, yes and no. Today coworking space comes in various forms; however, the typical build out still takes the traditional office space form. In that case, a landlord would still operate business in similar fashion except for with short-term leases and smaller “tenants”.
Commercial real estate is; however, seeing the impact of coworking spaces in situations like WeWork’s building in Chicago’s Fulton Market and atx FACTORY’s Austin building. WeWork turned Amity Packing, an old meatpacking building into a coworking office space and atx FACTORY turned an abandoned warehouse into an open concept coworking space. The ability to retrofit multiple product types to accommodate another use case has generated value for buildings in solid locations that were formerly considered teardowns.
How are Coworking Spaces Benefitting Brokerages?
From a broker perspective, the primary question is whether focusing efforts on potentially smaller deals is worth it. As it stands, it’s a volume game; however, given the infancy of this new market, it provides brokers an opportunity to create a niche in a dynamic here to stay.
Many of the tenants of coworking space are smaller, but growing companies. The flexibility of a coworking space allows the company to expand organically without outgrowing their office lease and have an open, collaborative environment with multiple companies. There are many benefits to companies subscribing to the coworking space, but how can the broker benefit? The broker has the ability to touch multiple companies within one space. When these smaller companies get too large to subscribe to a coworking space the broker should capitalize on the relationship to help the former cowork space subscriber find their new office space.
Brokers can even benefit by helping these smaller companies find their perfect coworking space. Last year WeWork increased and refined its commission structure for brokers. According to Bisnow, “WeWork also is boosting the commissions it gives brokers from 10% for 12 months paid monthly (with three months upfront), to 10% on a 12-month lease, paid up front, plus an additional 2% per month for the second and third years of a three-year lease. It’s the first time WeWork has offered brokers longer-term commissions”.
The coworking office subscription model is filling a need in the market by providing flexibility and a sense of community to tenants. There are some potential risks for brokers, but there are many ways to continue to tap into relationships to expand future sales and should be embraced by brokerages.