The Coworking Craze: Is It For Me?

Coworking – it’s the talk of the town in New York City real estate, and has substantial impact on the city’s business landscape from small businesses to Fortune 500 companies, landlords to tenants, and us to you. We wanted to share information on the coworking solution and how to answer the question: “Is this for me?”

WeWork has raised $5.5b led by SoftBank, and is reportedly taking down 1 million square feet globally – per month. Convene and Knotel are on a similar albeit smaller scale streak, all with the same value proposition: offer flexible solutions to traditional tenant headaches, including shorter term, size & growth flexibility, spaces pre-built & designed by experts, and all-inclusive pay packages.

To WeWork or not to WeWork? Currently, co-working represents about 10% of the New York City office market. Our expectation is that number grows to 20-25% by 2020.

High speed and high stakes growth of coworking has disrupted the real estate industry with a shiny new offering and dominated it’s headlines. But it’s still not for everyone. From our perspective, the portfolio serves as an excellent solution for two specific groups:  (1) startups operating with uncertainty and (2) affluent firms who value ‘hands-off’ and speed over incremental cost.

Before we get into why, let’s talk about the premium. WeWork, Knotel, Convene, and the likes offer an “all-in” model; your monthly rent includes an amortized build-out, electricity, coffee and water, printing, and a community manager. You can also choose from various levels of branding and elect (and pay extra) to literally turn the key into a built and branded space on move-in day. The premium for these amenities, flexibility, and “hassle-free” turnkey will cost you ~30%-35% above the cumulative total of everything in the market.

Startups –even the funded ones—will be “cash averse” when it comes to space commitment;  investors will focus on cash burn and operating with uncertainly will make all parties averse to large, upfront cash outlays. The coworking offering fits this grow quickly or fail (relatively) quickly scenario.

               Grow quickly: if you sign a 2 year lease with WeWork, Knotel or similar coworking offerings, and find yourself growing faster than expected, they’ll “trade spaces” and substitute your current lease for that of a larger space in a short amount of time (think 30 days or less if needed).

               Smaller up front cash outlay: you’ll pay a lower security deposit and a build-out amortized over the course of your lease, vs. paid up front. If you fail, you’ve minimized your cash outlay.

Affluent firms looking for a relatively hands off whitebox solution will prefer the ‘build and brand at a premium’ aspect of the coworking offering, and not worry about the incremental cost over market.

What this means for you (and for us): The world of commercial real estate is changing. Coworking has disrupted the industry and created increased competition, which ultimately favors everyone—tenants like you have more options, and landlords are being forced to look at their models and re-think what they’re willing to do to stay competitive, including shorter lease terms, increased free rent, and willingness to build turnkey solutions in a shorter period of time.

For us, coworking is just another option in our portfolio as tenant reps. The WeWorks are the new landlord, and they need you to fill the space they’re taking down at a rapid pace; that’s where we come in. We show you the space when it makes sense for your needs, objectively present the cost analysis between coworking and direct space, and negotiate on your behalf. Whether it’s for coworking or direct space, our job remains the same: deliver the right deal, at the right price, and deliver it with integrity, intelligence, and transparency.

This post was originally published on the Vicus blog, written by principals Bert Rosenblatt and Andrew Stein.