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Coworking’s Positive Impact on the Commercial Real Estate Market

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Coworking has disrupted conventional office leasing models, challenged long-standing assumptions about workspace design and amenities, and fundamentally altered the way many people think about work.

Over the last decade and especially in recent years, landlords have had to shift their business model away from simply leasing out office space to a tenant who will occupy it for multiple years. There’s still room for the traditional model, but property owners and landlords are seeing the new trend as a benefit that presents profitable opportunities.

The benefits are many for forward-thinking landlords. Property owners are transforming empty space – an estimated 330 million square feet of abandoned offices – to their advantage, realizing they can generate additional rental income and attract new tenants to their properties.

No longer do they have to see a property go vacant for months or years because businesses are reluctant to commit to long-term leases in an uncertain economy. Now, they can more easily activate unused square footage while also creating a feeder system for their other open spaces.

Meeting tenant expectations

With these rewards have come significant new responsibilities as tenant expectations rise. Few coworkers are satisfied with just a desk and a place to connect their devices. They’re looking for the comfort and convenience amenities that once were provided by the company leasing the space, and they want the human connections they can’t get as a solo worker at home. The need for human connection is one of the reasons they’ve left home for a coworking office.

Small and mid-size landlords can jump on the trend along with larger property owners; coworking is an option for spaces of every size, shape, and style. At CoWorks™, the largest privately owned affiliated franchise network of flexible, professional, and shared office space options, we’re seeing this with our two franchised flex-office concepts, Venture X® and Office Evolution®.

A view of a coworking space.

A view of a Venture X coworking space in Charlotte.

Venture X is capturing urban and suburban markets with facilities of 20,000 to 25,000 square feet, while Office Evolution is finding high demand in suburban markets with one-, two- and three-person offices between 10,000 and 15,000 square feet.

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Hotel-like amenities such as 24/7 access, high-speed internet, meeting rooms, and coffee and snack stations have been standard features of our Venture X spaces since we opened our first location in 2012. These amenities help create a comfortable and convenient work environment for tenants and they have also been an effective way for franchisees to differentiate themselves from competitors in their local market.

Coworking’s ultimate flexible model

We look at these features as investments, and as with any investment, the return on investment (ROI) will vary depending on things like the amount of money you committed, the rental rates you are charging, the building’s occupancy rate, and your operating expenses. Coworking spaces that are designed, located, and managed well can generate significant ROI over time.

Besides the services and amenities provided to tenants, coworking has had a significant impact on the length of commercial leases. In traditional office leasing, tenants typically sign for five to 10 years or more with little flexibility. However, in the coworking model, leases tend to be shorter and more variable, allowing tenants to rent space on a month-to-month or short-term basis. This can be good for the property owner, as the tenant has the freedom to quickly increase the size of their space as they grow and hire new staff members.

Coworking spaces offer a level of flexibility that traditional office spaces simply can’t match. Although it’s difficult to predict the future of the office market, it’s certainly easy to be optimistic based on where it is today as more and more companies shift towards flexible work arrangements.

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About Author

Michael White is the President of Venture X and Chief Development Officer of United Franchise Group.

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