COVID Insights, Perspectives June 29, 2020

How Office and Non-Office Property Owners Can Step into the Coworking Market (and Why They Should)

Crystal Chan—an architect and emerging leader in our New York studio—explains how property owners can enhance their offerings post-COVID-19.

This story is part of our insight series around the impact of the COVID-19 pandemic.

The COVID-19 pandemic dramatically shifted the way we think about the workplace. Right away, we began to consider how to adapt our existing framework so that we could safely return to work—from vigorous cleaning protocols and staggered work hours to spacing our desks further apart.

But what if we shift our focus and consider long-term changes to our workplace models? With a renewed focus on health, safety, and resilience firmly injected into our zeitgeist, how might tenants change their real estate decisions? And what opportunities do portfolio owners and landlords hold in offering new solutions?

Typical coworking solutions may present difficulties to tenants amid COVID-19 shut-downs.

Cambridge Innovation Center in Cambridge, Massachusetts

Before we look to the future, let’s back up. Pre-COVID, coworking operators offered myriad benefits to their tenants. Hospitality perks (from beer taps to concierge services) and social and cultural amenities provided users with both community and convenience. Predictable monthly costs alleviated the financial risk of a traditional build-to-suit, self-managed workspace. Most coworking spaces offered a variety of work settings—like focus rooms and collaboration spaces. Finally, they allowed tenants to quickly adapt to changes in employee headcount and work setting preference.

Fast-forward to our current circumstances, and some previously unforeseen challenges have come to light. Many tenants are still paying to rent coworking spaces, despite the facilities being shut down. Moreover, coworking operators bear the sole authority to shut down or open their locations, removing any autonomy for users to make their own decisions—even if a specific business is deemed “essential.” This can be particularly debilitating for a small business that lacks the infrastructure to fully support working from home. When coworking spaces do reopen—most likely in dense, urban areas—many users will lack affordable transportation options besides mass transit (a thorny health and safety issue in and of itself). Plus, the building may be owned or managed by others that have different protocols, further complicating access to shared workspaces.

Post-COVID, property owners have an opportunity to respond to these challenges and adopt a scalable, flexible, direct Landlord-to-User coworking model.

Micro: Individual Buildings

Building owners can offer their own flexible coworking spaces, providing a better sense of control and rapid response to crisis by removing the intermediary. In our ever-evolving world of social distancing, direct control can streamline the decision-making associated with access. And in other crises, like severe weather or a natural disaster, they can offer emergency power. Building owners also have access to building-wide resources, as well as complete knowledge of temporary vacant space—both of which enable the quick adaptation of space for tenants. As resilience best practices evolve, building owners are well-positioned to implement long-term improvements (like mechanical air filtration or touchless elevator controls) that enhance the health, safety, and comfort of their occupants.

Macro: A Diversified Portfolio

Some owners may choose to scale up the individual building approach outlined above by leveraging several of their properties for a flexible coworking network. At this scale, building owners can use a portfolio’s collective capacity to respond to any fluctuation in tenant demand. Plus, by geographically diversifying coworking offerings, building owners are inherently reducing their exposure to unforeseen, localized risks, like power outages or damage from severe weather. And, as dense urban cores are disproportionately impacted by large-scale events—from hurricanes to pandemics—leveraging the full range of a portfolio allows building owners to draw on urban fringe and first-ring suburbs to meet tenant needs.

At the portfolio scale, property owners can geographically diversify coworking offerings and reduce their exposure to unforeseen, localized risks.

799 Broadway in New York, New York

As companies map out their return-to-work strategies, many are considering the benefits of suburban locations that are closer to “bedroom communities” where many employees live, and which are accessible by means other than mass transit. What if they could have it all? An urban core headquarters for special occasions, complemented by an urban fringe or first-ring suburb workspace for day-to-day work?

Portfolio owners with urban core, urban fringe, and suburban assets are in a unique position to package these spaces into a new, connected network of resilient workspace solutions. The combination—when owned and operated by the same landlord—provides tremendous value to tenants:

Flexible and varied work settings, as in a typical coworking space
Embedded resilience to localized events
Multi-modal access, from public transit to personal vehicles
Equitable commute options depending on employees’ personal preference—enhancing health, safety, comfort, and overall quality of life
Cost efficiency by combining a less dense workspace in the urban fringe (based on lower cost/SF) with the brand presence and atmosphere of the urban core location.

Further Considerations

To best capitalize on this new network of workspaces, the urban fringe and suburban offerings must be a live/work/play destination—not the isolated office parks of our parents’ generation. Can we re-purpose the low-density suburban retail spaces, plagued by vacancy, and use them to our advantage?

The New York Times, Motley Fool, and our own experts at Perkins&Will report that retail space value is at an all-time low due to the onslaught of online retail. But the bones of many of these assets—which make them ideal for retail space—can be easily translated into workspaces:

Located near major access points ⇒ Easily accessible by multi-modal transportation
Surrounded by ample parking ⇒ Affordable parking and easy for ride-shares
Low-rise buildings with big, open floor plates ⇒ Continuous workspace, either open or enclosed
Multiple access points to vertical circulation ⇒ Built-in opportunities for casual collision
Big box anchor tenant with high volume of space ⇒ ideal for social/cultural offerings

Building owners are incentivized—now more than ever—to provide flexible yet reliable workplace solutions for tenants. They can improve the existing coworking model at an individual building scale by leveraging their control of space use and operations. And, if an owner’s assets span urban core, urban fringe, and suburban locations, there exists real opportunity to establish an interconnected network of workspaces—becoming a unique, resilient real estate solution for tenants and adding tremendous value to the portfolio.

How Office and Non-Office Property Owners Can Step into the Coworking Market (and Why They Should)

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