Boston's Coworking Demand Shifts From Downtown To Suburbs

Boston’s suburban coworking operators are enjoying a healthy appetite for their space as the coronavirus pandemic has brought forth a reckoning on downtown office needs.

Coworking titan WeWork has given back three of its Boston locations, and a slew of smaller operators have shuttered in the past year amid historic struggles for the Boston office market. But competitors in the suburbs are rebounding and in some cases expanding, benefiting from employers seeking a compromise between working from home and commuting, coworking leaders said.

Renters have left the pricey Boston metro for cheaper suburbs and are opting for shorter desk and private office commitments.

“Our Needham location, which we opened during the pandemic in May, we have a waiting list for offices at that location right now,” Workbar CEO Sarah Travers said. “All of our locations in the suburbs have rebounded quicker than the ones downtown.”

Workbar opened an office at a life sciences campus in Burlington earlier this year and now touts a combined 140K SF across nine locations, most in Greater Boston, Travers said, adding that its portfolio has reached 75% of its pre-pandemic occupancy. The company is actively seeking to expand, the coworking veteran said, and has no intention of downsizing its two Boston locations — they are already on the small side, and they are starting to fill back up.

The urban coworking scene, totaling 2.9M SF pre-pandemic, has decreased 5% in the past year, Lincoln Property Co. Director of Research Peter Conway said.

“There’s a relationship between the amount of coworking space in a submarket and their rents, but also the vacancies,” Conway said. “Typically, you see more coworking space in areas where there’s a lot of higher rent. You also alternatively see less in areas where there’s less rent.”

WeWork, Boston’s second-largest office occupier with 1.5M SF, now counts 15 Boston-area locations after closing three, a spokesperson confirmed. The metro was once WeWork’s second-most-profitable city worldwide, the Boston Globe reported.

The company no longer operates its full-building, 29K SF lease at One Milk Street, which it opened in 2019. It has also stopped operating its 49K SF space at 51 Melcher St. and its 131K SF location at 745 Atlantic Ave. The company failed to pay March rent at 745 Atlantic Ave. in South Station, and its landlord intends to pursue legal recourse, Trepp reported this week. As of June 2020, WeWork was paying $53.72 per SF at the building, Fitch Ratings reported, below the Q1 average asking rent of $62.54 per SF.

The WeWork spokesperson said the three closed offices were part of the company's ongoing efforts to "rightsize" its footprint, but the company hasn't ruled out opening new buildings in the future. Of its 15 locations, 14 are in Boston and one is in Cambridge.

The firm remains in the midst of an effort to go public through BowX Acquisition Corp., a special-purpose acquisition company. It was unclear if WeWork has hired brokerages to market its space in Boston as it has done in other metropolitan areas. 

Other coworking victims of the pandemic include regional brands The Yard, Breather, The Wing, ServCorp and Convene, researchers said. Kendall Square-based CIC is marketing for sublease approximately 16K SF of the 118K SF it leases at 50 Milk St., a spokesperson confirmed. 

Industrious, the recent recipient of a $200M investment from CBRE, has four downtown locations. Major coworking operator IWG touts 17 office spaces among its Regus and Spaces brands in Boston and Cambridge in its 29-office Massachusetts portfolio. A representative for IWG didn't respond to a request for comment.

A shift toward remote work and away from downtown has opened the door for new players such as Localworks, a Massachusetts firm with 11 New England locations and a smaller presence in both Washington, D.C., and Chicago. Localworks opened nine locations last year, touts an 85% occupancy rate portfolio-wide and just opened a second Wellesley location, CEO Barry Greenfield said. The firm’s first Wellesley space has been sold out since August.

“The market where we work, 30-60-year-old professionals in the suburbs, we don’t see them going back downtown as frequently as they used to,” Greenfield said. “The opportunity to be close to home but out of the house seems to be something people are very interested in.”

Bolstered by the increasing popularity of the management model, combined with an influx of vacant space, Localworks has taken advantage of second-generation space and offers private offices starting at $300 per month. The Localworks portfolio is composed of 95% of private offices and has attracted a wide range of lease lengths. 

“We tend to cater to the middle market where there’s a lot of people who don’t live in 5K SF homes, and they need space to run their business,” Greenfield said. “They need a place to be productive in. We tend to have office prices for just about every budget. We’re not just focused on the enterprise market at the top of the pyramid.”

The hub-and-spoke model has driven flexible subscription offerings, Travers said. Workbar’s most popular lease has been its 10-days-a-month offering, at $199 per month per employee, part of the program’s Workplace Mobility Program. Workbar had no debt when the pandemic began and has a mix of leases and management agreements across its portfolio, Travers said. 

Workbar is aiming to increase its supply in locations within 20 minutes of Greater Boston's office and residential clusters, Travers said. The company may be primed for a continued wave of demand — 80% of Massachusetts corporate representatives said they’d embrace a hybrid model and 40% expect to shrink their local office footprints, according to a survey this week by the Boston Globe.  

“People are back in growth mode,” she said. “They see the light at the end of the tunnel. It’s no longer doom and gloom.”