Entrepreneurs, small businesses and startups have a million reasons to smile about Orange County’s rapidly growing base of coworking locations and their wide array of customer amenities.
Make that 1.2 million reasons, to be exact. That’s the total square footage of the 24 largest coworking operators in OC, which run 67 offices across the county.
The cumulative figure represents an a nearly 20% year-over-year increase in square footage, according to this week’s inaugural Business Journal listing of the top coworking providers and an associated special report, which starts on this page.
To put the total in perspective: The recently built, four-building Five Point Gateway campus in Irvine, the largest office development in OC in over a decade, totals just over 1 million square feet.
OC’s base of coworking firms ranks 10th in major U.S. office markets by square footage, behind Denver but ahead of Seattle, according to a report this past February by Santa Barbara-based research firm Yardi Matrix, which estimated the area’s coworking base at 1 million square feet.
New Normal
The year-over-year industry growth marks one of the biggest sector-specific additions to OC’s office market since the heyday of the area’s subprime mortgage industry.
No one’s projecting—publicly, at least—an implosion of the local coworking sector, a la the subprime crash of a decade ago, though there are plenty of red flags.
Observers are keeping an eye on what happens when the inevitable real estate downturn hits, and rapidly expanding coworking companies operating on razor-thin margins, or at a loss, must adapt.
For now, most anticipate more sector growth.
Coworking has “become a preferred real estate option,” said Bob Thagard, executive managing director of brokerage Cushman & Wakefield Inc.’s Irvine office.
That’s because it gives firms of varying sizes “a short-term real estate commitment” while also giving workers a “more social environment,” said Thagard, whose firm’s data was used to compile this week’s listings, along with submissions by individual operators, CoStar Group Inc. records and Business Journal research.
Ranked operators include individual locations ranging from a few thousand square feet to multiple floors in some of the area’s swankiest buildings, offering a variety of configurations, including office suites, executive offices and nondedicated “hot desks” on demand, and managed by single operators.
Operators also offer a wide range of amenities, from stocked kitchens and beer on tap; to private rooms for phone calls or conferences; use of copiers, printers and broadband; and large and open common spaces.
And then there’s the networking factor. It’s estimated that WeWork has about 800 renters or members at its Spectrum location, conservatively four times the number of traditional renters that would have taken its two floors at 200 Spectrum Center. Membership also has its synergies and privileges, especially for new entrepreneurs often working in related businesses.
The space and perks, while offering flexibility, don’t necessarily come cheap.
Coworking facilities “come with a cost and are often a more expensive office alternative compared to traditional office space,” Thagard said.
Premium Tenants
The growth is good news for major area office landlords, most of which have added prominent coworking firms to their stables of tenants.
Coworking firms are “seeking relationships with prominent landlords that have large office portfolios throughout the country,” said Thagard, who recently authored a study on the area’s growing number of shared space providers.
In addition to taking large chunks of space, coworking firms often pay premium rents and provide ancillary services and amenities that can be used by other tenants.
Thagard recently helped Irvine-based property owner LBA Realty land one of the country’s fastest-growing coworking firms, Industrious Offices, for its Park Place campus near John Wayne Airport.
New York-based Industrious took over 24,000 square feet previously used by State Farm Insurance at 3333 Michelson and undertook a massive modernization of the site. It now holds 77 coworking and small office spaces and customer perks that wouldn’t be out of place at a boutique hotel.
Coworking space at the Industrious’ Irvine location is $460 per month, while a dedicated desk starts at $645, and larger offices can exceed $5,000, according to marketing materials for the site.
That’s on the high-end side for the sector. Chief Executive Jamie Hodari recently said his firm aims to provide a “slightly more premium product” that can appeal to lawyers, Fortune 500 companies and older employees, as well as the millennial workers who gravitate to the sector.
The Industrious location, opened a month ago, is already about a third full, according to executives, who said the company’s considering other locations in OC.
Locals Rule
Industrious isn’t the only game in town. In OC, there are 26 coworking locations of 20,000 square feet or larger, according to our ranking of individual locations (see page 16).
The largest is also one of the oldest in the region: the 55,000-square-foot Aliso Viejo location of TechSpace that opened around 2000.
The company’s one of two prominent locally based firms on our list.
Premier Business Centers of Irvine ranks first in square footage in OC at 465,000 square feet and by individual locations at 22.
Premier was founded in 2002 when local real estate investor Bascom Group LLC—best-known for its large apartment portfolio—bought the bankrupt American Office Centers in Irvine.
It’s expanded organically and through other opportune deals. Last year, it took over a few area locations of Newport Beach-based Real Office Centers, which gave up space at all but one of its area locations due to financial issues.
Premier, led by Chief Executive Jeff Reinstein, now has nearly 90 shared-space locations blanketing the U.S., from Washington to Hawaii to Florida to New Jersey, totaling about 1.5 million square feet, and serves more than 15,000 customers.
It’s nearly doubled its portfolio this decade, and was one of the first big U.S. coworking firms to go on an expansion tear in the current market cycle.
3 for WeWork?
Premier’s expansion, or that of any other coworking firm, pales in comparison to the appetite WeWork has shown to grow internationally over the past few years.
The venture-backed New York-based firm had committed to renting 14 million square feet around the world as of a few months ago, and is on the hook for billions of dollars in rents over the coming years.
It has two OC locations, near South Coast Plaza in Costa Mesa and in the Irvine Spectrum, totaling about 84,000 square feet, good for the fourth spot on the list.
Both locations are owned by Newport Beach-based Irvine Co., the region’s dominant landlord.
The Costa Mesa space can accommodate 700 members, according to WeWork. Its Spectrum office charges about $390 a month for a hot desk, $500 a month for a dedicated desk, and $660-plus per person, per office.
WeWork said in May that about 75% of its members are small businesses, including first-time entrepreneurs, local companies, nonprofits and growing startups.
“They report that proximity to other entrepreneurs rather than setting up at home, or at the local coffee shop or traditional office, gives them a competitive edge,” the company said.
A third WeWork location could be in the cards, according to multiple real estate sources, who say the company’s in talks to take a second Irvine location, this one closer to John Wayne Airport.
The airport area is the main hub of OC’s coworking scene; about two-thirds of the square footage represented on the list is there, according to Cushman & Wakefield’s data.
The Spectrum area is second with about 25% of coworking space, Cushman’s data show.
