Almost without exception, there are no “just coworking” or “just traditional sublease / direct” tenants; evaluating coworking / flexible space requires the same diligence and thoroughness as traditional leases / subleases. While there is less paperwork involved with coworking agreements than traditional leases, to achieve the best outcome for a coworking space a tenant still needs to understand offerings from sublets and direct spaces and consider/negotiate them next to coworking. More so, they need to evaluate the coworking companies against each other. This type of process is exactly what we did while representing a consumer goods company for their office space last month. Our experience working with them provides a good example for how companies should evaluate coworking within the larger office space process.
We met the consumer goods company in November 2018 when they were increasing their headcount by 2x and their current office could not accommodate their growth. Like many growing companies, our client felt that a 3-year lease was an appropriate amount of term and preferred built / furnished space over a core & shell office to avoid a major capital spend and project (all common considerations for growing companies.) Importantly, when we first presented them with alternatives, we identified built sublets, WeWork coworking / enterprise, Knotel enterprise and Regus (SPACES) coworking options. This required reaching out to the coworking / flexible space companies, identifying specific spaces that could work and clearly listing out the differences between the offerings to our client. For example, WeWork has traditional coworking offerings as well as a new HQ offering for enterprise clients that allows for more branding and privacy; Knotel is only an enterprise company (as opposed to coworking) and is now launching Knotel OnDemand which would have the space already furnished; SPACES is Regus’ new creative model and is only coworking, etc. The specific offerings of the various providers change quickly and it’s the broker’s responsibility to help his/her customer understand the landscape of each.
On our first tour with our consumer goods client, we showed them four sublets downtown, one sublet in Midtown and WeWork at 85 Broad Street. When we made a short list after the initial tour, it included two downtown sublets and WeWork. This is common and emphasizes the point that no company should consider themselves an “either / or” as it relates to coworking vs. traditional office space. Just like a tenant needing 20,000 sq. ft. would likely have 3-5 buildings they negotiate off each other to get the best deal, a company considering WeWork, Knotel or any other flexible space provider should have sublet options as well as other flexible space companies they are negotiating against. Ultimately, our client ended up choosing WeWork at 85 Broad Street, however the sublet alternatives were viable choices and negotiating on them helped the company make the best-informed decision for its office space. Since landlords pay the brokerage commissions, WeWork paid CBRE when the deal closed; there was no fee to our client. Coworking / flexible space is a legitimate option for companies of all sizes (for either all or part of their business), and a well-run process that includes the consideration of all space types is how a company should properly evaluate coworking / flexible space within the overall real estate process.
Side Note: CBRE is investing in software to help companies better understand coworking versus traditional leases. Furthermore, with the launch of Hana, it’s clear CBRE believes that the flexible space alternative is here to stay.