The market for shared office space and flexible workspace keeps growing in demand.
So do the number of operators looking to get skin in the game.
Prominent landlords, commercial real estate brokerages and other entrepreneurs are jumping on the bandwagon with their own takes on coworking, with offerings ranging from a monthly membership for a desk on a shared floor, to entire buildings reconfigured for companies looking for creative office space with flexible lease terms.
Nearly a dozen new shared space operators have opened, or announced plans to open, a location in OC in the past year—taking up more than a quarter million square feet of space.
Another quarter million square feet or so of space could soon open via new internal offerings from some of the area’s top office owners, including Newport Beach’s Irvine Co. and Chicago’s EQ Office.
From one-person operations to corporate teams and everything in between, it seems there’s an option for everyone.
The Coworking Model
A certain New York-based operator has come to represent—for better or worse—the coworking industry, as its explosive growth in recent years captured leases, members, and the attention of Wall Street.
WeWork’s business model includes partnering with landlords to lease up offices, sometimes entire buildings, and retrofitting them to accommodate members.
This membership base of nearly half a million customers, it reports, is spread across roughly 530 locations, and counts various types of businesses, ranging from remote workers looking for a place to plug in, to enterprise business, or larger corporations seeking shorter-term leases.
PepsiCo Inc.’s deal with WeWork to take part of the company’s 64,000-square-foot location at The Boardwalk office development in Irvine is an example of how larger firms are partnering with WeWork.
WeWork currently counts about 350,000 square feet in Orange County, space it has racked up in a mere three years. It inked the top two office leases in OC in the third quarter, for spots in the Spectrum and near John Wayne Airport (see listings, page 38).
Skeptics have questioned the company’s sustainability, questions that came to a peak in August after the company’s long-planned IPO didn’t go as planned. The highly publicized fiasco resulted in the ousting of its chief executive and bankruptcy speculation of the 9-year-old firm, which this summer had an internal valuation of $47 billion as it prepped to go public; it’s now valued nearer to $8 billion.
However, coworking proponents say WeWork’s struggles had less to do about the industry, and were more about the company’s internal handlings and business plan.
Landlords aren’t souring on coworking despite WeWork’s missteps. Project developer and landlord Lincoln Property Co. said finding a coworking operator as a tenant “is as important as any other tenant,” said Parke Miller, executive vice president.
“That is the way the workforce is choosing to go. As a landlord, you cannot ignore it,” Miller said. “It’s not a trend you can turn a blind eye on.”
The chief executive of Premier Workspaces, launched in Irvine in 2001, maintains that savvy operators will be able to continue growing, in square footage and revenue.
WeWork went wrong, Jeff Reinstein said, by taking up too much space per location, signing leases at top of the market rents, then spending too much money improving the space and renting them at too low of a price.
Still, demand for coworking is at an all-time high, Reinstein argues, and companies should “capitalize on that increase in demand.”
More Players
Other operators in Orange County that share a similar membership model include Spaces, the fast-growing sister company to Regus, and Orange County’s second-largest coworking landlord by square footage.
Parent company IWG closed a few of its local Regus offices in the past year, dropping its square footage by 15% to 219,227, while the more modern and amenity-heavy Spaces offshoot grew 64% to 168,264 square feet locally.
Aliso Viejo-based TechSpace was acquired earlier this year by New York City-based competitor Industrious, though the two are still operating separately for the time being.
The companies have three locations in Orange County, including a third slated to open at Canvas, EQ Office’s newly renovated office project along the San Diego (405) Freeway in Costa Mesa.
New coworking operators in Orange County include Greenwich, Conn.-based Work Well Win; female-focused Hera Hub; BizHaus and HanaHaus, neither to be confused with CBRE Group Inc.’s recently announced Hana.
The Los Angeles-based brokerage’s coworking offshoot aims to become a go-to partner for area office landlords looking to add coworking space to their buildings, with one of its first locations slated to open in Irvine.
The 60,000-square-foot deal at the Park Place mixed-use complex near John Wayne Airport is expected to be the first of many in Orange County.
The model is different than previously mentioned coworking players, with CBRE and the landlords it partners with expected to share in the expense of building out and running the space. The two groups will also share the profit from operating those spaces.
Hana Chief Executive Andrew Kupiec previously told the Business Journal the Hana model is a welcome addition to traditional landlords concerned that firms like WeWork are diminishing their longstanding relationships with tenants.
For large national tenants that are increasingly using coworking sites to house employees at remote locations, Hana also thinks its business model will be more appealing than the less informal spaces of its competitors.
Among the offerings will be its “Hana Team” space, which will provide “private office suites that meet the needs of high-growth organizations and large corporate users of office space,” according to a company statement.
Higher End
Landlords are also getting in on the trend, launching their own flexible products that blend coworking with more traditional office deals.
Irvine Co., already the largest landlord partner to coworking firms in Orange County, is rolling out its own flexible office product that expands and replaces its existing ReadyNow suites program.
Irvine Co.’s new product, called Flex Workspace+, will deliver turnkey workspaces with shorter-than-normal lease terms at its large pool of office holdings across California and Chicago.
It’s a variation of the growing national trend for more shared space office offerings, but, company officials note, not an outright coworking spot—tenants using Flex Workspace will have their own dedicated spaces, and not share their office space with others.
The program is initially dedicating roughly half a million square feet for the suites program.
“We are very uniquely positioned to offer long term traditional leases alongside a company’s needs for more flexible terms,” Steve Case, executive vice president of Irvine Company Office Properties, told the Business Journal last month.
Flex Workspace differs from traditional coworking operators, as it nixes the idea of hot desks and open offices for private suites, which are more suited for enterprise business.
Irvine Co.’s announcement came around the same time as EQ Office shared news of its own, similar flexible office product.
Debuting at Canvas, the landlord will offer speculative office suites, ranging from 1,000 to 4,000 square feet, on a short-term basis, with leases ranging from six months to three years.
If all goes well, EQ Office hopes to expand the offering, called Canvas Flex, to its other office holdings in the country.
“It’s a next step up from coworking, for companies that want a flexible lease to allow them to grow their business in their own space,” Brendan McCracken, senior vice president of leasing at EQ Office, said.
The two new services point to a growing demand for this type of product; not quite coworking, not quite traditional lease.
Room to Grow
Coworking currently makes up roughly 2% of the office market in Orange County, which runs around 110 million square feet.
The sector and its fast-growing list of services haven’t yet been tested by a downturn, which is likely to result in consolidation.
“The largest operators will continue to expand their service offerings to become landlords, reducing cycle risk across their portfolios and attempting to create additional value for the property,” said a Cushman & Wakefield report.
