There is no doubt that the advancement of technology has driven a lot of changes in the world of commercial real estate. For office buildings, it has caused a drop in tenancy across the board. With the ability to fill staff positions without filling square footage, many office tenants have seen the remote workplace as an answered prayer for lowering operating expenses.
But, this does not mean that there is not a need for office space. Tech Startups and fist generation entrepreneurs have re-ignited the need for office space, although not in the traditional sense. Devoted co-working spaces have given investors with office properties in their portfolio the chance to fill their tenant rosters and replace their previous cash flows.
Co-working spaces are defined as membership workspaces where freelancers, remote workers, and other independent professionals can work for a range of different companies, ventures, and projects in a communal area.
The idea of a co-working space has taken off in recent years as young companies generally do not have the necessary capital or credit to lease an entire office. However, as they still have the need for office amenities, these co-working space platforms have allowed many property owners to re-establish their assets. Companies like WORKBAR, Common Desk, WeWork, and Ensemble have taken off in markets across the U.S.
Co-working spaces generally keep open hours with accessibility 24/7, based on the terms of their membership tier, which is what makes them so attractive to their desired clientele. By having an open hours concept tenants can decide how their work day will be laid with the benefit of time for when professional and personal situations collide.
There are many investment firms that have created strong cash flows by changing their focus from large office tenants to this new generation of entrepreneurs. By offering shared spaces featuring everything from rentable desk space, private office areas, or sharable meeting facilities, owners are able to appeal to these startup clients by marketing the natural collaboration which occurs in these spaces.
Rental structures for these facilities can vary based on services provided. Where a desk rental may be structured at anywhere from $15.00 - $40.00 per day. Monthly collections for single offices can range from $300.00 to $1,200.00. Combined with fees gathered through additional amenities and services cash flows can be brought in line or exceed the revenues generated by traditional office tenants.
One company which has drawn in large cash flows using this structure is WeWork. As of 2017 WeWork Companies Inc. shed its startup status and achieved a valuation at $17 billion dollars. What was more impressive was that this was done in a period of less than five years. The Company now has 162 locations in 41 cities across the globe.
Another company which has seen great payout from their co-working space prototype is Barclays. As a financial institution, the marketing potential of these spaces was just too attractive to pass up. This prototype evolved into Rise powered by Barclays, a joint venture with Techstars. The brand has quickly taken off as a premiere location in New York, London, Cape Town, and Mumbai for innovators in FinTech (Finance Technology).
In addition to profiting from the revenue of shared office space rentals, Barclays uses their tenant roster of startups as an opportunity to stay on top of what’s happening in their industry and stay ahead of their competition through disruptive technology.
While the advancement of technology has recently triggered a large change in how office buildings operate, it has also given commercial real estate investors an opportunity. By creating an environment where different skill sets and ideas can collide there is a natural draw which can easily fill vacant square footage in a way that counterbalances costs and encourages growth for the next generation of businesses.
If you have had success in this new form of commercial office investment, we would love to hear about any benefits or impediments you have come across while re-purposing your investment property. You can respond via Facebook, Twitter, or send us a message directly.