As long-standing participants in the coworking industry, the partners at OpenWork Agency have seen the industry evolve since the beginning. What was once a social movement is now a sure enough industry. Depending on what your vantage point is, though, coworking is different things to different people. In this article I reflect on some of these different perspectives, and suggest that an exogenous and holistic perspective can help make better sense of what is happening than any of the endogenous perspectives that are out there.
The CRE Perspective
Currently the loudest voice in the industry is coming from corporate real estate professionals. CRE professionals around the world are tuning in to see how coworking (and the shared workspace industry generally) will impact their strategy and bottom line. Much of our business is working with real estate firms that are trying to figure out how and if they want incorporate coworking offerings in their portfolios. The starting questions are understandable, but often the questions indicate the limitations of an endogenous view of the scene.
The starting questions are understandable, but often the questions indicate the limitations of an endogenous view of the scene.
From the CRE perspective, the challenge is often framed this way: How can we leverage the “cool and young” vibrancy of coworking as an amenity in our buildings to drive up higher rent rates in the rest of the building or development?Implicit in this and related questions is the notion that coworking is an approach to working that is separate and discrete from the mainstream world of work inside large companies. A kind of Cartesian dualism prevails here, where “real work” (fixed work stations in large offices within long-term leases) takes place inside large firms, while fun and whimsical start ups and freelancers are busy working in the ‘funky’ environments that are associated with coworking. And never the two shall meet.
A kind of Cartesian dualism prevails here, where “real work” (fixed work stations in large offices within long-term leases) takes place inside large firms, while fun and whimsical start ups and freelancers are busy working in the ‘funky’ environments that are associated with coworking.
The CRE industry has been slow to come around to the reality (and it is a reality) that many large firms are now embracing coworking in various ways (on campus and off-campus). This is puzzling, since the large firms that are their tenants are in fact the drivers of this type of coworking adoption. We assume that this blind spot is due to the profound challenge that this represents to their business model. Large, highly credited tenants signing long term leases makes their work much easier. The idea that leasing will dissolve into tons of little micro leases is an absolute nightmare. We get that.
We assume that this blind spot is due to the profound challenge that this represents to their business model. Large, highly credited tenants signing long term leases makes their work much easier. The idea that leasing will dissolve into tons of little micro leases is an absolute nightmare.
The Enterprise Perspective
Meanwhile, facilities managers and HR managers in large firms are witnessing deals such as the IBM/WeWork deal, where WeWork will manage IBM’s entire new Manhattan campus. What to make of this? We know that dozens of large companies are already sponsoring employees to be members at places like WeWork and Industrious, but that is largely an outsourcing process. What will the long-term effect of this be when more and more company employees don’t actually work at the company? This is the kind of question that we ask at OpenWork.
Oddly, it seems that this enterprise embrace of outsourced coworking is being somewhat lost on their CRE partners. As large firms rethink their real estate strategies, they are seeing massive advantages in coworking. It would seem that as some of these companies approach the end of their leases, they will begin to rethink how much real estate they need under their own management. When firms make the decision to shrink their footprint, the real losers will be their CRE clients who are witnessing the shrinking demand for their traditional products. We see this as the elephant standing in the middle of the room!
When firms make the decision to shrink their footprint, the real losers will be their CRE clients who are witnessing the shrinking demand for their traditional products. We see this as the elephant standing in the middle of the room!
We have recently launched a new service that helps firms rethink their long-term relationship with coworking, both on and off campus. But this article is not so much about that. Here I am interested in the intersection between CRE and Enterprise.
A Single Perspective
Of course, all of these changes in workplace are interrelated. Coworking is not just for kids anymore, as the recent corporate adoption of coworking demonstrates. Large firms, as we see it, will continue to open up their work environments, sending some people off campus to cowork while designing their own campuses to be more open and fluid to keep up with the changing generational demands for choice, flexibility, and mobility. In our estimation, this is the single largest driver of change in the whole world of work. Many of us like to cite the figure stating that 40% of the workforce will be freelancers by 2020, and this is indeed a staggering statistic. However, this is a drop in the bucket compared with the massive shift towards new ways of working that will be driven by large firms. This IS the world of work, not some adjunct to it.
For CRE, this is the lesson that needs to be learned. That is, coworking is no longer just an adjunct, or an amenity; rather, it is an early warning signal of what WORK will be in the near future. Yes, this challenges existing leasing practices, as well as the level of TI allowances that they will need to contribute at the beginning of a lease cycle. However, the idea that they will be able to hold on to their conventional leasing process with large firms forever, while playing around the edges of their business model with coworking, is a bit risky.
An Example
We recently toured a forward-thinking Brookfield design experiment in Houston, called DesignHive. Design hive invites local architects to design ‘spaces of the future’ with the idea being that the buildings will come pre-designed and furnished, and that corporate tenants can then say, “I’d like option B.” These spaces were all very much like coworking spaces designed for companies. Now, of course, the question is: Who pays for these up-front build outs? This is no small question, but the small scale and modularity of these spaces feel like the future of corporate offices to us. That is, they feel like coworking spaces. One company might lease one of the spaces, while another will lease a space down the hall, both sharing the same floor. Quite interesting.
Operators
Of course the other node in this process are the operators. As has been the case since the beginning of the industry, these folks have proven to be nimble and adaptive. Many operators have already seen this intersection of CRE and Enterprise and are offering their services directly to enterprise. This is additional pressure on CRE. In this respect, we feel quite confident that the innovative operators will jump on the moment and continue to grow their businesses and thus the industry as a whole.
As relative upstarts and champions of disruption, coworking operators have had a holistic perspective from the beginning. Unlike their CRE and Enterprise counterparts, who are often limited by endogenous worldviews, coworking operators are doing important work in pushing the world of work into the future. As Will Ferrell might put it, “coworking is kind of a big deal.”
OpenWork Agency is a workplace and culture consultancy that helps companies and real estate developers leverage coworking solutions within their offerings.