A Lively Coworking Space Is Now 'Table Stakes' For Office Owners Hoping To Stay Relevant

New and renovated buildings have a checklist of offerings they need to include in order to attract tenants, with a spiffy fitness center, scenic outdoor space and welcoming lobby among them. 

Since the pandemic, as owners' office buildings have been forced to reckon with an upheaval in the way people work, another type of space has rocketed close to the top of the ubiquitous amenities list: a coworking space. 

While business centers and flexible offices have been around since the 20th century, the spaces that are popping up in seemingly every building look and feel different, focused on hospitality, comfort and making connections. 

“What everyone is trying to predict is how to evolve buildings that we work in,” said Gensler Strategy Director and principal Sonya Dufner.

Flexible, appealing space, like an area that can serve as a coffee house in the day and a bar in the evening, is now seen as “basic table stakes,” she said.

The pandemic gave workers more flexibility with access to hybrid work, meaning employees never had to leave their home comforts behind. Even now, as workplaces adopt hybrid policies, companies are signing fewer, smaller and shorter leases than they did before the pandemic.

The result is a national office vacancy rate of 20.1%, Moody’s data reported by Axios shows. That’s the highest it’s been since 1979, when Moody’s first began tracking the data. 

In response, coworking and flexible office space have started appearing almost everywhere over the last five years, typically offered with a higher level of hospitality than a traditional serviced office like Regus.

The spaces might be run by an operator like Convene or Industrious, or by their own in-house operation, like Tishman Speyer’s Studio concept or Hines' The Square, but it’s almost universally being viewed as essential, experts told Bisnow.

“Virtually every landlord that Turner Construction is working with is incorporating coworking space and flex space as amenities to tenants,” Sara Kendall, a vice president and general manager for interiors at Turner Construction, told Bisnow. 

Coworking spaces are showing up across asset classes today, from hotels to luxury residential, CBRE Global Head of Occupier Thought Leadership Julie Whelan said. 

“This notion of flexibility and space-as-a-service is almost seen as an amenity in every type of space,” she said. 

Coworking has been around for a long time, even before WeWork’s rise turned the concept into a buzzword. Regus has operated coworking spaces since the early 1990s, and before that, office buildings frequently featured business centers for tenants to take advantage of conference space without having to lease it exclusively.

Still, the concept of what makes a coworking space in the postpandemic era, and what makes a successful coworking space, is one that has evolved over time, Vocon said.

“It's much more hospitality-driven,” said Sarah McCaan, a real estate strategy associate at Vocon. “It's less about packing people in, sitting really close to each other and hotdesking, and more about coming in for an experience. It feels like you're almost checking into a hotel.”

The hospitality focus of companies like WeWork, Industrious and Convene has forced commercial landlords to up their game when it comes to coworking offerings, McCaan said. 

“The level of detail and the level of thoughtfulness that's going into our prebuilt spaces these days is much greater than it's ever been,” she said. “And landlords and developers are willing to invest a bit more in those spaces to make them even more move-in ready.”

Another factor behind the demand is that both landlords and tenants are uncertain about how much space an occupier is likely to need.

Some tenants are downsizing on office leases to save money. In those instances, companies are looking for spaces within their building for conference calls and breakout functions that they don't need to pay for directly or maintain, said Peter Menke, the Boston-based leader of Gilbane’s special projects group.

It doesn’t actually always work out cheaper for those tenants than signing a larger lease would, he said, but having the option, rather than being on the hook for more square footage, has been more persuasive when it comes to getting tenants to stay.

One of the benefits of access to swing space is that tenants can expand into it, Industrious Chief Operating Officer Liz Simon said. 

“The coworking part of it is just one of those many amenities that a tenant might look forward and say, ‘Does this help me if I need to grow or shrink my team?’” she said. 

The flexibility that coworking spaces afford office landlords is also helpful for keeping vacancy rates down, CBRE’s Whelan said.

“By having different levels of flexible space in your building, you're actually going to be able, as a landlord, to better monetize your building and to hedge it against higher vacancies down the line,” she said, “That theory is starting to get tested out now, I would say.”

Still, not every office landlord is thinking about coworking space. At 10 Grand Central in Midtown Manhattan, Marx Realty CEO Craig Deitelzweig said he only wants tenants that are keen to make long-term commitments.

“We want our buildings to be exclusive, club-like atmospheres,” he said. “We find that coworking brings a type of tenant that we don’t want in our buildings.”