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Co-Working Spaces and Commercial Real Estate

January 31, 2013

By Bill Risser VP/Director Of New Media And Education, Chicago Title Agency, Inc. and Cheré Larose-Senne, Managing Director, NAR Commercial

You may have noticed over the last several years that your local coffee shop has become more and more crowded. You’re right if you thought that a $3.50 cup of coffee can’t be the only reason why so many people camp out with their laptops on every available horizontal surface.

According to the International Data Corporation (IDC) report “Worldwide Mobile Worker Population 2009 – 2013 Forecast,” worldwide mobile workers could increase from 919.4 million in 2008 to 1.19 billion in 2013. That’s almost 30 percent. And the most highly concentrated market for mobile workers? The United States, with 75.5 percent of all workers projected to be mobile by 2013. But what exactly is a mobile worker and how does that impact co-working?

The IDC splits mobile workers into three categories: office-based mobile workers (workers who are away from their office 20 percent of the time), non-office-based mobile workers and home-based mobile workers. (Both working remotely, these last two categories are also known as telecommuters.)

Any one of these mobile workers may find themselves essentially co-working in a coffee shop or alternative workspace for a variety of reasons (access to Wi-Fi, a place to meet with clients or looking for interaction and collaboration with others.)

According to a survey of co-workers by Deskmag.com, the average co-worker is a young, college-educated male, who works in the technology industry and lives close to his co-working space. Interestingly, 55 percent of coworkers from the Deskmag.com study own or work for a company with employees while the minority (44 percent) are freelancers.

These mobile workers may find their way to your local coffee shop, but increasingly they’re demanding more services than the average coffee shop can provide. Co-working spaces are starting to meet this need.

So what is a co-working space? Loosely defined, a co-working space is a site where independent professionals and freelancers—anyone with workplace flexibility and mobility—can come to work. The space generally includes certain office amenities like Wi-Fi, printers, scanners, conference rooms and yes, coffee.

Co-working spaces also provide a unique sense of community that can foster collaboration in those who utilize the space. This sense of community creates a more effective idea incubator, engendering knowledge-sharing that’s more difficult for isolated workers. Co-workers indicate that collaboration and knowledge-sharing is a primary benefit of co-working environments.

As of May 2011, North America had 380 co-working spaces, according to Deskmag.com. That’s a huge gap between the number of mobile workers who may be demanding co-working arrangements in the near future and the supply of co-working facilities.

What’s more, the Deskmag.com study cited above also reveals that 8 percent of those surveyed are employed by companies with over 100 employees. That reflects a trend of larger firms utilizing co-working spaces. Employees of large corporations telecommute for various reasons, but a co-working space close to where they live can offer more benefit than working from home, which can be a very distracting environment.

But what about the economics? How are co-working spaces funded? The most common business model is user-pay, with users typically charged for the amount of time and space used.

For example, a co-working operation in Minneapolis, CoCo (Co-working and Collaborative), has multiple levels of membership. A $50 day pass provides access to a workspace, Wi-Fi, coffee and printer and copier services. Other individual worker options range from a part-time membership (one day per week from 8am to 5pm) for $50 a month to a $350 fulltime membership that includes a dedicated desk.

CoCo also offers group and corporate levels of membership. In another business model, anchor tenants pay for most or all of the space costs. They have private office space for their own use, but also provide open, collaborative work-spaces for others to use. Usage fees may be charged, as in the model above, or the anchor tenants may forego charging a fee for using the collaborative work-space.

Why wouldn’t they charge anything? One reason is to help foster the sense of community they want in the space, one that will create an incubator for ideas and potential new business models and partners. Gangplank in Chandler, Arizona is an example of this model.

As described on its website: “Gangplank was built on the idea that many small businesses can exist in a space, working alongside each other, sharing resources and ideas. Our anchor companies base their operations out of Gangplank, with permanent desk space for multiple employees. Each anchor is involved in Gangplank planning meetings, as well as contributes to the community through donations, services, etc.”

Located in Chandler’s historic downtown, Gangplank partnered with the city, which saw the advantages of a co-working space in the district. Gangplank, with its steady flow of anchors, guest tenants and visitors, increases traffic for surrounding retailers and businesses, making it attractive to the community in much the same way that a corporate office does.

Nick Miner, CCIM, with Commercial Properties Inc., Scottsdale, AZ, has looked into the economic development opportunities of local co-working spaces. Asked if he sees potential investment opportunities for his clients, he replied, “Yes and no. It depends on the location of the co-working space. It also depends on the adjoining property types, and what’s going in them. If it’s in a retail center,” he explained, “then obviously providing foot traffic to the neighboring retailers, especially lunch and dinner establishments and even coffee shops, could be a home run.”

By itself, a space like CoCo, with a business where all users pay, would be looked at more from a hard number point of view by the owners/investors. What about for commercial real estate investors? Does the return on investment in co-working spaces make sense? Where vacant and underused commercial office and retail exists, a co-working business model may be better than the space collecting dust.

As companies grow, the potential for converting a co-working client from user pay to a traditional lease grows as well. In order to proceed, do your homework and collaborate with co-working centers in similar market areas in order to determine if your vacant space would be an ideal place to start a collaborative co-working environment.

In the case of Real Estate Tech Tank (RETT) East, Chicago Title Agency, Inc. converted vacant Phoenix office space for the collaborative use of local real estate agents, lenders, and title representatives. Part of the vision of this space is the technology services utilized by real estate professionals.

Featuring events such as “SEO Tuesdays” and “Video Thursdays”, RETT attracts real estate professionals to the space to collaborate with people who can help to optimize their websites and listings. RETT offers users desks and all the office amenities (there’s that coffee again.) All real estate professionals, including affiliates and vendors, are welcome to use RETT, when available.

Two local Toastmaster groups utilize the space for events as well as a BNI International (business networking) group. On any day, there are as many as eight to ten real estate industry professionals working and collaborating at RETT. While Chicago Title Agency does not charge users for the utilization of the space they do benefit from the business incubator created by the collaboration amongst real estate professionals in their market area.

In 2010, NAR Commercial published a study, “A Tale of Two Economies: The Outlook for the Commercial Real Estate Market.” (See Commercial Connections, Fall 2010 on www.Realtor.org/Commercial for a recap of this study.) In that study, alternative work-spaces, co-working facilities, were pinpointed as a future driver of commercial real estate investment decisions.

In addition to the intense growth of mobile workers and telecommuting cited earlier, the increased investment in technology infrastructure, longer commutes and the cost savings realized by corporations on their space needs for workers contribute to co-working space becoming a potential niche in the commercial real estate industry.

What does this mean for the commercial real estate broker? Possibilities include expanding commercial real estate consulting services on space requirements to determine companies co-working and telecommuter usage and identifying property managers developing expertise in facilitating the needs of co-working and alternative workspaces. Telecommuting does reduce commercial real estate costs.

According to the “Tale of Two Economies” study, Sun MicroSystems implemented teleworking and saved more than $400 million in commercial real estate expenses. Understanding the needs of telecommuters and their increasing need for co-working spaces creates a new opportunity for your corporate clients to reassess and adjust their needs for commercial real estate space.

In order to take advantage of the co-working property niche, commercial real estate professionals should become part of their clients’ business process on the way to being the executor of their property transactions.

To learn more and obtain copies of studies mentioned here, send an email to Chere at clarose@realtors.org. Links to online resources to learn more: deskmag.com; cocomsp.com; hudson-business-lounge.com; gangplankhq.com; retechtank.com _

REALTORS Conference & EXPO on PlaybackNAR.com. Conference attendees can download sessions for free. Look for the following session: “How Co-Working Spaces Can Work For You” presented by Jay Thompson, Nobu Hata, Bill Risser and Jeffrey Turner.