WeWork’s recently filed plans for an initial public offering—one that values the company at nearly $47 billion—has all eyes on coworking; but the spotlight on the shared space office sector has been on—and getting brighter—for years.
“There’s so much interest around the industry overall, and how flexible working can integrate in traditional real estate,” said Michael Berretta, vice president of network development at IWG, the parent company of shared space operator Regus, Orange County’s second-largest coworking landlord by square footage.
The company has been in the Orange County market long before WeWork existed, introducing executive suites in the ’90s.
It’s seen its fair share of changes over the years; the most recent of which prompted IWG to boost the presence of its Spaces offshoot over its original product.
The company closed a few of its local Regus offices in the past year, dropping its square footage by 15% to 219,227. This was offset by a surge in Spaces locations, Regus’ more stylish, amenitized sister company.
Spaces now has 168,264 square feet in operation locally, up 64% year-over-year. It’s No. 4 among OC coworking landlords, by square footage.
“Because of the length of time we’ve been in the market, we have recently been reevaluating our leases that are up,” choosing to either renovate or leave, Berretta said.
The company expects to close additional Regus locations to focus on the new Spaces product, which has nearly 200 locations companywide.
“We will continue to grow the brand throughout Orange County,” said Berretta, noting that the company’s expansion will follow residential and economic growth, focusing on the cities seeing new development and investment.
Demand Up
Only one other coworking company on this week’s Business Journal list—Washington, D.C.-based Carr Workplaces—decreased its local office count year-over-year, while there were five new market additions leading to a 16% jump in coworking space to 1.5 million square feet.
Irvine-based Premier Workspaces, previously known as Premier Business Centers, has long been the area’s top coworking provider, with about 471,000 square feet in operation locally (see item page 42).
There’s been no drop in demand, according to Vice President Michael Pollack.
“More and more landlords want to offer a flexible solution,” and are tapping coworking firms not just for managing a shared space location, but also as consultants on how landlords can “program and manage on its own.”
Premier’s top spot is reflected on this year’s ranking of the county’s largest shared space operators, but a certain New York-based competitor overtakes Premier when factoring in recently inked deals that have yet to begin.
WeWork, up one spot to No. 3 with 212,785 square feet in operation—up 152% from last year—has inked deals for an additional 289,000 square feet this year. It will bring its total to about 500,000 square feet once all announced locations open for business.
The company’s deal to occupy an entire 116,000-square-foot building at the Irvine Co.’s just completed Spectrum Terrace office campus is the largest shared space lease made in Orange County to date, and one of the largest on record in the U.S. outside of New York City.
More deals are sure to be made. WeWork recently reported through its IPO filing that the airport area, namely Irvine and Costa Mesa, is a priority for expansion going forward.
Track Record
Mark Dixon, chief executive of Switzerland-based IWG, has previously said that Spaces will be about the same size as WeWork by the end of the year.
What’s more: he said the company is profitable.
Berretta, who’s been with the company since 2000, noted that IWG has proved its sustainability, having “lived through several different market cycles.”
“The business has a natural resiliency during economic downturns as we are suited to provide flexible leases for businesses looking to be cost efficient,” said Berretta. “Coworking is an asset in a shifting economy.”
Scott Wetzel, a senior vice president in the Irvine office of JLL, echoed this, saying potential risks to the market will be mitigated “by the counter cyclical nature of coworking, as I believe many businesses will turn to short-term, flexible office space solutions as they attempt to navigate rough waters during an economic correction.”
Still, he thinks landlords will be left holding the bag “if/when certain coworking operators attempt to restructure or reject their lease obligation in a downturn.”
“In fact, I think boutique coworking operators will prove better long-term partners for landlords because they don’t have the market saturation to throw the keys back to the landlord,” Wetzel said.
