Workers are increasingly joining the gig economy or fighting for their right to skip the commute and work remotely. In the past five years, this has led to a rise in coworking spaces in urban and suburban centers to meet the increasing demand for flexible, short-term workspaces. Remote workers and coworking companies aren’t the only ones seeing the benefits, though. Real estate investors also see the perks of this new way of working.
Table of Contents - Commercial Real Estate Investors Can't Deny the Demand for Coworking Space
In Canada, Amsterdam-based coworking company Spaces will open 10 coworking offices across the country this year. Spaces have four offices in Canada already. It will add five offices in Toronto, two offices in Vancouver and an office in Montreal, Victoria and Kelowna, each for more than 375,000 square feet of office space.
Meanwhile, a quiet coup took place in Manhattan in September 2018. WeWork Companies became the New York City neighbourhood’s largest tenant, surpassing financial behemoth J.P. Morgan Chase. It is also the largest tenant in London.
What, exactly is coworking?
The coworking model works like this. A company like WeWork or Spaces (or smaller coworking businesses that may have only one location to start) rents commercial space from a landlord. The company configures the space to include amenities like desks/cubicles, offices, meeting rooms and other spaces renters might need. Coworking spaces often include amenities like free WiFi, coffee, beer, snacks and entertainment. The company then subleases the space to smaller companies or offers memberships for access.
Coworking spaces aren’t just for small startups and freelancers. Many large companies with office parks and campuses in the suburbs are experimenting with urban coworking spaces. As remote work becomes an increasingly popular job perk, larger companies are renting spaces to allow their employees to work downtown instead of forcing (likely younger) employees out to the suburbs.
Coworking is an attractive investment prospect because of the flexibility, the same flexibility that appeals to remote workers. The continued growth and its relative youth make it an exciting sector to explore.
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New uses for commercial space
Coworking drives down vacancy rates for commercial real estate. Warehouses and other unused buildings are excellent candidates for setting up coworking spaces, especially in hip urban neighbourhoods experiencing revitalization. Companies building specifically with coworking in mind can make a flexible, reconfigurable space attractive to any number of tenants. Coworking spaces attract young workers and new businesses to an area and can help drive further economic growth.
The solid business model means better tenants
Renting out coworking space is a successful business model in part because of the flexibility. The company leasing the space can rent as much as a floor or as little as a desk, for lengths of time varying from an hour to a long-term lease. There is high demand just to rent a cubicle, making rental rates competitive but still much cheaper than an individual renting his or her own office space.
Unlike traditional office space which relies on the success of one business, coworking spaces pool from several smaller tenants. Coworking companies make for reliable tenants because of their strong business model.
Extra security for landlords
A traditional commercial tenant is not only a risk because of their potential to fail big, but also because they take so much time to create a space unique to only one business. If a factory uses the space then fails, that’s going to be a lot of work to change the space or find another appropriate client.
Setting up for coworking does require some downtime for setup and renovations, but it’s much easier to replace a coworking tenant (or to cut out the middleman and rent the spaces yourself).
Coworking spaces are in high demand
While remote work sounds like a dream, many workers find that leaving the house and going to a dedicated workspace leads to a boost in productivity. The acts of getting dressed, leaving the house and entering a workplace put workers in the right mindset—with the flexibility of customizing their day and their space, to a degree.
Additionally, remote workers tend to get lonely and realize they do miss being around people. Coworking spaces offer a sense of community. A coworking space that’s easy to access and relatively affordable is a dream for remote workers.
Potential lead generation for real estate agents
Instead of viewing coworking companies as a threat to commercial real estate, real estate professionals can learn to embrace the coworking model. Agents can work with smaller businesses to secure a spot in a coworking space and earn a small commission. Agents can also position themselves as the person to contact when a business decides its time to find their own space. Investors and real estate agents may also enjoy having a coworking space of their own as well!
Laws are still catching up
Because the coworking trend has grown so quickly, leasing laws are still a bit behind. Landlords and tenants need to clarify issues around liability, property rights and responsibility for costs. Landlords may also want a degree of control over who sublets the space, but by doing so risks interfering with the successful coworking model.
If you want to get involved in the coworking space but don’t know where to start, an easy point of entry is joining a real estate trust that includes coworking space in its portfolio. Research the potential tenant company; younger coworking spaces are riskier than well-established brands like WeWork. There are mutual funds that also include coworking companies.
If you’re investing in commercial real estate, coworking spaces are an exciting business to have as a tenant. As remote work trends continue to rise, so will the potential for growth and opportunities for investment.
Is coworking the future?
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