Real estate professionals with a stake in the flexible office space market who are gathering in greater Washington, D.C., are discussing problems with standard lease agreements, the hunt for new locations and filling the need for in-person meeting space.
Here are some highlights from the second day of the three-day conference hosted by the Global Workspace Association trade group. The event comes as some industry professionals question the future of leasing flexible space as high-profile coworking space provider WeWork looms large in grappling with how to become profitable.
Typical Leases 'Don't Work'
WeWork may have popularized the flexible workplace model, but if there is one lesson other coworking operators have learned from the industry giant, it is that signing traditional office leases for new locations isn't always feasible.
Rather than locking themselves in to long-term lease obligations, competitors such as Mindspace, Convene and Industrious are instead pursuing alternative profit-share or revenue-share agreements that are penciling out to be more economically viable than the model upon which WeWork was built.
For Common Desk, the Dallas-based operator acquired by WeWork in early 2022, the company decided about half a decade ago to pursue a so-called asset-light management model to avoid the standard lease structure that had previously dominated the industry, CEO Nick Clark said Thursday during a panel discussion.
"What was tough about growth for us was evolving the landlord side of the industry to help show that, as the industry continues to grow and flex office becomes a key part of a portfolio strategy, having a third-party operator come in but still owning the product is the best play," Clark said. "We knew that if we continued to sign leases, landlords would want those long-term deals. They were almost like a drug for them."
Anywhere But Downtown
The days of coworking operators narrowing their focus on central business districts appears to be over as some of the fast-growing brands in the industry shift their focus to locations on the outskirts of what had previously been cities' most concentrated hubs.
For Peri Demestihas, Industrious' senior director of real estate, that has meant shifting the operator's pipeline of future locations to affluent, mixed-use environments in areas such as Boston's Back Bay or the Cherry Creek neighborhood in Denver. The New York-based company has signed on for roughly 25 new locations before the end of the year, all of which eschew the downtown high-rises that coworking brands used to prefer and instead launch in areas to where people's post-pandemic schedules have migrated.
"We changed our network strategy 18 months, two years ago after seeing exactly that," Demestihas said of clients' migration away from downtown hubs. "It's not suburban as much as places where people want to be. They have to be 10 or 15 minutes from them and have to be appealing for them to get there, and a lot of those CBD towers aren't going to do that for them."
Mixed-use neighborhoods, in particular, have become a sort of sweet spot for Industrious, which scouts for future locations with luxury gym operators on the ground floor or in buildings surrounded by high-end apartment towers or popular restaurants.
"We can't go into CBDs like we could before," the Industrious executive said. "Our entire focus now is on those live, work and play areas, and there's a ton of opportunities for us to get into those places."
Room to Meet
Whether they downsized their office space sometime in the early pandemic years or have since gotten rid of it altogether, office tenants are now driving the demand for a new type of flexible space: room for meetings.
Decreasing real estate footprints over the past several years has meant companies are now searching for options that can accommodate training sessions, holiday parties, all-hands meetings or any other gathering that requires more space than they are willing to lease long term. And with more companies getting together for fewer in-person events, those face-to-face interactions are more valuable than they've ever been, Convene President Amy Pooser told CoStar News.
"People are willing to invest in really high-end, premium meetings because they want to invest in collaboration and everyone appreciates the experience now more than ever," she said. "Many clients use us to both have an actual office presence and to support remote workers as they move around the country and the world. But we've also seen that people are investing more in meetings and are willing to pay for a premium experience because that together time is so much more important."
The demand for various types of flexible space has helped Convene set itself apart from a growing pool of competitors, although others are realizing the potential benefits of setting aside portions of their locations for larger gatherings.
Along with operating coworking space, "we're also a host and rent out space in locations that are self contained and can help bring in another stream of revenue for us and the landlord," Mindspace U.S. General Manager Shai Fogel told CoStar News. "Lots of companies that went fully remote during the pandemic don't have that kind of space available anymore, or they're companies that only come in one day a week and will rent it out on a regular basis. It's one way we differentiate ourselves."