A new risk-free shared office space model offers property owners the ability to achieve desired gross square foot rents in four to five months — with no tenant improvements necessary.
It’s a management model that is different from co-working.
Prior to COVID, commercial property owners were riding a high-occupancy trend that had been growing since the 2008 recession. Amid this trend was a tenant movement toward more shared leasing options and terms, begun in the 1980s by Regus. The past decade brought WeWork, Industrious and hundreds of smaller local companies signing master leases requiring significant tenant improvement costs in an effort to grow the “co-working” segment of shared space.
All focused on the top of the pyramid, spending large sums of money trying to reign in high-profile enterprise customers to fill five-star office accommodations.
Very few companies have prospered, and many — including WeWork, Knotel and Serendipity Labs — filed bankruptcy. Funded by venture capital, these companies spent considerable sums on high-cost leases and amenities. Unfortunately, property owners took most of the risk when engaging with the co-working model, paying for TI assuming the full leases would be paid out.
While there have been issues with the concept of arbitraging office space using the multiple-tenant-in-one-space model, the demand for shared/executive office space remains strong and is showing significant signs of growth.
However, as CRE enters year two of dealing with COVID, property owners are seeing unprecedented numbers of vacancies and sublets coming to market. Add new construction currently under development and the total square footage available is creating downward pricing pressure on rents. While opinions of how hybrid and remote work will impact the full return of fall office workers vary widely, there is certainty around the continued growth of shared office space.
Multiple underlying trends are contributing to the significant growth in demand for shared office space. In addition to the rise of the gig economy and advances in technology are these important changes in the business landscape:
- Open-concept spaces are facing headwinds. For co-working businesses, this presents a real challenge as profits tend to be driven by selling multiple-seat memberships in open areas.
- With Google Business and other online platforms a critical means of marketing and advertising a physical presence for small businesses, the majority of companies see the benefits of having an actual office at the address in order to hold meetings when necessary.
- Remote employees brought increased productivity and significant cost savings during COVID.
With a management model like ours, office property owners can easily add shared office space/executive suites to a CRE portfolio. The property owner provides the space and LocalWorks.us handles all other aspects of the operation, including marketing, amenities, management of membership, payment collection and reporting.
Typically, the company can fill vacant “officed” space within four to five months and through the revenue share program generate 90–100% of the desired gross rate. LocalWorks.us currently operates locations ranging in size from 5,000 to 12,000 square feet.
Renting individual offices and managing the users in the space is a time-consuming and expensive process. Finding the renters requires an expertise completely different from finding a master lease tenant. Our model uses more than 40 different online methods to develop leads and attract new renters, including data mining. There is not a lot of churn; the small businesses and people who rent offices tend to stay in their spaces an average of 18–24 months.
Barry Greenfield is founder of LocalWorks, a fast-growing shared office space provider that partners with property owners and sublessors to act as the in-house agency for filling vacant office space with individuals and small businesses