Co-Working Spaces: Not Just For Start-Up Bros Anymore

"Office landlords will be increasingly forced to react" to competition from co-working companies, Green Street said, by launching their own flexible office offerings, financially partnering with co-working operators or outright competing for tenants.

Tishman Speyer, one of the world's largest office landlords, is doing just that.

The New York company announced last week that it has opened co-working offices at a building it owns in Beverly Hills and is expanding the concept, called Studio, at other properties in major U.S. markets as well as Europe and South America.

The company said it was moved to open more co-working offices after all 35,000 square feet in its first Studio in Rockefeller Center in New York were leased within five months in what Studio's managing director Thais Galli called an "immediate and overwhelming success."

Real estate brokerages, which profit from arranging leases for co-working businesses and their landlords, are also looking to get involved by joining their landlord clients in the flexible office field.

Los Angeles-base CBRE, the world's largest brokerage, recently launched a co-working subsidiary called Hana that will open its first California branch later this year at the Park Place office complex in Irvine, in partnership with the property's owners.

Hana will provide some traditional co-working space along with private, customized office suites pitched toward rapidly growing companies that may have offices elsewhere in the complex and need extra space. Hana will also offer meeting rooms and catering to other tenants or visitors.

Park Place will have only the second Hana in the country, but CBRE plans to roll the concept out in other major markets overseas and in the U.S., Hana Chief Executive Andrew Kupiec said.

"Wherever an NFL city might be," he said. "That's where both owners and Hana see the biggest opportunities."

Co-working companies make money on the difference between what they pay landlords for the large chunks of space they need -- typically on leases of 10 years or longer -- and what they are able to recoup by charging a premium for deluxe space or filling multiple tenants into close quarters.

Either way, the trend has caught on because tenants love the flexibility of renting space typically on a monthly, weekly or even daily basis.

But although that business model has proved successful amid a favorable office market that has been on the upswing since 2013 as businesses staff up, it has not been tested in a downturn.

No downturn is on the immediate horizon, but a sharp pullback could sting WeWork and other co-working providers and their landlords if rents were to drop and tenants -- with no long-term leases to tie them down -- decamped for cheaper space.

Bankers nervous about just such a scenario scuttled a deal between WeWork and the owners of a London office building because the co-working giant wanted to lease all eight floors, Bloomberg reported.

When the economy tightens, "not all of these guys are going to survive," Caverly said.

For now, though, WeWork is continuing its expansion, though it recently has created a parent company called the We Co. as it diversifies into other businesses such as community-oriented apartment living.

Kurtz, of BDO, says that as he sees it, co-working has successfully disrupted the office market and is not going away.

"The modern co-working companies," he said, "are addressing the pain points of traditional office leasing and changing the way people are leasing space."

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