By Howard Ecker
According to a recent study I read about, leasing out flexible or co-working office space can be as much as 50 percent more profitable than leasing it out the more traditional way to a single tenant on a longer lease. But the same analysts that arrived at this statistic were quick to suggest that real estate companies shouldn’t necessarily get into that business.
In my opinion, it is a cautionary tale for sure. Oftentimes, companies that are trying to create a co-working environment usually do it because they just happen to have some extra space. That’s what it really boils down to. They did not get into their original space with co-working in mind. In light of this, and because it is not really their business, they’re not as knowledgeable about the pitfalls or what is required to have a successful co-working space.
Another point to be made here is that the idea of “flexible space” is not anything new. Utilizing co-working opportunities has actually been around since the 1970s. Today, the real issue is, what’s new about co-working? I’ll tell you what’s new: Larger companies are starting to go that route. IBM has taken 70,000 square feet of co-working space in New York and a three-year lease instead of building out their own space on what could be up to a 20-year lease.
So now the question is, will this become a trend? If it does, it does not bode well for real estate development as we currently know it.
It is my opinion that many bigger companies have determined that having flexibility is more important to them, based on the volatility of the economy, than the image of them residing in some impressive corporate headquarters that offers limited to no flexibility.
Does flexibility trump identity? Does it trump risk? Currently we are seeing companies struggling to find the solution to these questions. We have seen short-term car leases for years. Now maybe it’s time we are going to start seeing more short-term office leases.
Looking ahead, it’s been estimated that the shift from traditional leases to flexible workspace could reduce global office space demand by 3% a year over the next few years. Think about it: If IBM can move to a WeWork to achieve the desired flexibility, anyone can. And that’s why we find ourselves at a bit of a crossroads. And an interesting one at that.
Thoughts? Questions? Shoot me a line anytime and let’s discuss. (312) 870-9000. Howard@HowardEcker.com