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PROPERTY MANAGEMENT NEWS
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Co-Working Spaces Can Be More Cost-Effective than Traditional Leases in Pricier Gateway Markets

3/18/16

Shared workplaces can be feasible and cost-effective alternatives to traditional office leases—even for larger occupiers, and especially in costly metro areas such as New York, San Francisco, Los Angeles and Boston, according to a new report from CBRE Group, Inc.

A number of misconceptions that have perhaps kept larger occupiers away from extensive use of co-working facilities remain, including that this type of space is priced at a premium compared with traditional leases; that it is only utilized by entrepreneurs and small businesses; and that the users are exclusively post-college millennials. Yet CBRE’s report found that these assumptions are not accurate.

“There are a number of ways large occupiers can use shared workplaces to meet their needs, including to access new markets, attract and retain talent and introduce innovation,” said Julie Whelan, Americas head of occupier research, CBRE. “Contemporary shared workplaces can be powerful tools to enhance the culture and values of an organization. Whether it be to promote innovative thinking or access a better work experience for employee retention, contemporary shared workplaces offer diverse ways to support the needs of occupiers of all sizes.”

Despite the perception that co-working spaces come at a premium, CBRE found that they can actually be cost-effective alternatives to traditional office leases in major gateway markets. An example of this national trend is illustrated by a comparison of options for a 10-person office in Washington, D.C., which shows that shared workplace users can save more than 15 percent over traditional leases. The average annual cost for a 10-seat requirement in a co-working space is between $52,000 and $84,000, compared with $72,000 and $92,000 for the same requirement at a traditional leased space.

“There are also a number of intangible benefits to consider besides the headline lease expense when comparing the costs of shared workplaces with those of traditional leased offices, including the removal of the negotiating process, which improves speed to market, flexibility to scale the requirement as the occupier’s needs grow and built-in amenities,” said Ms. Whelan.

Rising demand for co-working companies such as Premier Business Centers, SPACES and Regus has certainly been on the radar of Los Angeles landlords. Last month, CBRE completed two new leases in the city totaling 59k sf for SPACES, a Netherlands-based workplace provider. One of the locations sits in the Mid-City neighborhood across the infamous Farmers Market and is owned by local investors A.F. Gilmore.

“We received offers for this space from just about every major co-working operator in Los Angeles,” said Patrick Amos, a Vice President at CBRE.

Another misconception of shared workplaces is that these facilities cater only to small business and start-ups. However, a recent CBRE survey of large global occupiers found that more than 40 percent of respondents are using or considering shared workplaces, with a small, but growing, segment focused on co-working specifically.

Larger organizations are starting to initiate use of this space model to satisfy the requirements for specific departments or project teams that may not fit the cultural mold of the legacy office space. CBRE’s recent occupier survey revealed that today’s labor force puts a high degree of importance on the desire for a great “work experience” —specifically, the functionality of the workplace, the freedom of work style and the sense of community between related organizations.

“Co-working spaces give optionality in location and flexibility in lease term, while also embracing a more progressive approach to design. Their focus is on integrating what’s new and cool—inspiring common areas and sought-after amenities—with highly functional space to get work done,” said Lenny Beaudoin, senior managing director, Workplace Strategy, CBRE. “Furthermore, today’s business strategy calls for rapid testing of ideas—the idea of ‘failing fast to succeed sooner’; co-working models draw on concepts first developed for business incubators by universities to promote shared learning and co-innovation.”

In Los Angeles, co-working spaces were first primarily located on the Westside with its large concentration of media, entertainment and technology companies. Yet in recent months, co-working companies have also pushed into new neighborhoods, such as downtown Los Angeles.

"For the longest time in downtown LA, so-called executive suites where the primary type of co-working inventory," said David Freitag in CBRE’s Occupier Services group. "More recently, co-working groups like WeWork and CrossCampus have opened very large new spaces in downtown. In that sense, these co-working spaces are creating new market dynamics as they are attracting a variety of tenants."

Finally, while contemporary shared workplaces often have a youthful vibe, they are not all dominated by post-college millennials. About 63 percent of users were 31-50, with a median age of 40, according to CBRE Research’s survey of co-working. Fewer than 25 percent of surveyed users were millennials.





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